Singtel picks up pace in journey to the East

SINGAPORE and Australia have long been core markets for telco group Singtel. But both those markets are also relatively mature. For investors, it might now be worth keeping an eye on a push into mainland China and Hong Kong by Singtel's enterprise services subsidiary NCS.

NCS has identified Singapore, Australia and Greater China as key markets for a strategic transformation announced at the end of last year.

The unit's most recent full-year operating revenue stood at S$2.28 billion for the 12 months to March 31, including revenue earned as a vendor to other entities in the Singtel group.

But most of that turnover came from operations in Singapore.

Meanwhile, Chinese spending on digital transformation could grow by 17 per cent annually and hit US$1.5 trillion by 2024 - according to forecasts from market research company International Data Corp.

Given the size of the Chinese market, the payoff from NCS's regional expansion could be huge.

New directions

Singtel's management seems to have realised that the Chinese market will be critical to supporting its ambitions of a strategic pivot for NCS.

The infocomm technology (ICT) unit is building capabilities for "digital revenue" - such as data analytics, artificial intelligence, Internet of Things solutions and cybersecurity - through two new business groups at NCS, dubbed "Gov+" and "Telco+".

NCS ought to find the Gov+ business a cinch, since the erstwhile National Computer Systems - which Singtel acquired from the Singapore government for S$65 million in 1997 - could probably scale up its experience serving the public sector quite easily in order to meet rising demand for smart cities in the Asia-Pacific.

But, if NCS doesn't want to be a bit player, then the Telco+ wing has no choice but to forge its way in China.

Part of the remit for the business unit is to help the Singtel group - that is, Singtel in Singapore, Australian subsidiary Optus, and regional telco associates - carry out the digital transformation of business processes.

NCS chief executive Ng Kuo Pin acknowledged to The Business Times that "it would be naive to believe that Singtel's competitors would actually work with NCS" on such digitalisation projects in Singapore and Australia.

As such, NCS must work for a slice of the pie in markets where parent Singtel is not active as a telecom mobile network operator. Greater China is the obvious candidate for now, although Mr Ng did not rule out future forays in other parts of North Asia, as well as the Middle East and Europe.

Playing catch-up?

Stressing NCS's longtime participation in projects like the China-Singapore Suzhou Industrial Park, Mr Ng noted the firm is no stranger to China.

While NCS "may not have grown as fast as we'd like to" in its two-decade history in that market, "over the last 18 months, the China business for NCS has really taken off", he added.

Despite a decades-long runway, China is not yet a major market for NCS.

Singapore Management University assistant professor of finance Aurobindo Ghosh also remarked that - though numerous Chinese tech giants have set up shop in Singapore - "it's a little more challenging to find a space in the crowded marketplace in China to establish operations" for Singapore businesses abroad.

So, expansion notwithstanding, is NCS a Johnny-come-lately in China?

Chua Sock Koong, Singtel's former group CEO, previously disclosed that the closure of an NCS software development unit in mainland China had led to a drop in group headcount.

"We consolidated some of our centres... Some of the headcount is now being outsourced, instead of being our own employees," she told an annual general meeting in July 2019.

When asked, Mr Ng, who became the NCS CEO in August 2019, said the market outlook has changed: "A few years ago, there was a decision made on a certain strategy. As you can understand, business plans change and the situation has evolved."

Now, he said, "we decided we will bring in local Chinese talent into NCS instead of just relying on our own Singaporean talent". He also cited this shift, towards bringing in more local leaders, as a recent growth driver.

Besides the strategic reshuffles, NCS also has to contend with making its mark in China - a digitally advanced market that Manpower Minister Tan See Leng recently pointed out "has sprouted so many unicorns".

Both Prof Ghosh and Kenneth Huang, an associate professor in the National University of Singapore's departments of strategy and policy, and industrial systems engineering and management, noted that Singaporean companies in China's digital sector already have to compete with both major Chinese tech companies as well as foreign multinationals.

Alibaba, Tencent, Google, Microsoft and IBM were named by these observers as some potential rivals for Singaporean players in China.

Given the market situation, Mr Ng said that NCS intends to focus on developing no more than 10 major clients that "really matter for us". He told BT: "Our approach in the Greater China market, because it's a big, complex market, is to be very focused."

The strategy will be to find opportunities "not across every industry, but certain industries", Mr Ng said. He cited some of these as telecoms, advanced manufacturing, and financial services in mainland China, as well as healthcare, transport, and government services in Hong Kong.

Prof Ghosh pointed to financial, healthcare and government technology as industries through which Singapore, as a gateway country, can "provide global access to China".

Prof Huang agreed that China's industries of strategic national importance "could represent opportunities for Singapore firms with deep technologies in some of these sectors".

Nevertheless, he added: "The competition will be keen and enormous investments have been made already in China, so any entry by Singaporean firms should be made carefully and strategically. The less developed regions or cities in China might also present opportunities (and less competition) for certain sectors."

By the looks of it, NCS has picked a market with plenty of competition - but a great deal of potential, too.