With the entire world increasingly relying on IT, the data center market is a premier area. And although the U.S. and Europe (i.e., western nations) have been technology leaders, momentum in Asia could be signaling a shift from the west to the east as the heart of telecommunications growth and innovation.
Asian Data Center Markets Have Momentum
Zacks Investment Research, in reporting on data center acquisitions by Equinix in Asia (“Equinix Adds Capacity in Asia”), notes that “Hong Kong, Shanghai and Singapore... [create] an opportunity for Equinix to expand its footprint across the Asia-Pacific. Those three regions happen to be the fastest-growing data center markets.” These Asian markets are driven by a number of political and economic factors, as well as by deteriorating conditions in the west.
As Asian (particularly Chinese) economies grow, a vast, relatively untapped population is increasingly being exposed to technologies like cell phones and computers. These segments are discovering the potential—both personal and business—of IT as a means of communication and progress. But to support this emerging demand, infrastructure must be built to provide the necessary services. Companies beyond the borders of China, Singapore and other Asian nations also see the potential of this emerging market: Equinix is just one example. Search-engine giant Google is also targeting Asia, as the Data Center Journal noted (“Notable Data Center Builds and Expansions”): “The company is spending $300 million to build its third Asian data center—this time in Taiwan—summing to a total of more than $700 million when including Google’s data centers under construction in Hong Kong and Singapore, according to ZDNet.”
Not on Top of the World, Yet
These Asian markets are seeing strong data center growth owing to an emerging economy with rising standards of living and increasing reliance on IT. But China, for instance, still has a ways to go to catch up with the west. Despite having almost four times the population of the U.S. (upwards of 1.3 billion), China still lags the U.S. in gross domestic product (GDP) by half according to the International Monetary Fund (via Wikipedia). On a per capita basis, this translates to an average Chinese GDP almost one-tenth that of the U.S. To some extent, however, this difference is mitigated by a much lower cost of living in China. Furthermore, China’s national debt is much lower than that of the U.S., however you slice it (absolute terms, as a percent of GDP or per capita).
To translate this growth momentum into economic leadership (in the data center sector or elsewhere), the momentum must be sustained for some time. Emerging Asian economies like China seem to have tremendous potential, but they are still burdened by a number of factors, including communist political systems (although some of these governments are apparently moving toward nominal communism rather than practical communism). Thus, whether this strong growth is sustainable is open to some doubt.
Lousy Conditions in the West
No doubt part of Asia’s growth leadership is due to economic conditions in western nations. Some of these nations, such as the U.S., are facing government debts in excess of 100% of GDP. Realistically, such high debts can never be repaid—particularly when deficit spending continues unabated—meaning these nations face the prospect of high inflation (which effectively destroys savings to reduce debt values) or a default, either of which will have adverse effects on the respective economies. Combined with regularly expanding regulations, taxes and anything else governments can do to make doing business impossible, these economic conditions make growth a dim prospect.
Nevertheless, although the data center industry suffered (like all other industries) during the recent recession and subsequent stagnation, it remains a fairly strong industry, even in the west. But companies looking for greater growth opportunities are looking to markets like China—with its emerging economy and huge population—as a new source of profits. For these companies, the potential rewards of gaining a foothold in these markets are worth the risks associated with investing in a region with vastly different culture and different rules and regulations.
Still Some Risk
Again, strong growth doesn’t necessarily mean a leadership position. In fact, although markets like China and Singapore offer some tremendous potential benefits, they also carry a variety of risks. According to the Cushman & Wakefield and hurleypalmerflatt Data Centre Risk Index 2012, the U.S.—in spite of all its economic problems—remains the top choice for a stable location for a data center. China, on the other hand, ranks at position 26 in the results. Singapore is slightly higher at the 17th position, and Hong Kong leads all Asian regions at a strong 8th position.
Nevertheless, despite the risks, companies see the potential rewards. According to Zacks, “As per recent studies conducted by research firms Frost and Sullivan and Gartner, data center growth in the Asia-Pacific will be the most sought after. Gartner also expects China to grow into the second largest global data center market by 2015.”
Overall, Asian markets are presenting a number of opportunities, owing to their emerging markets, large populations and even—to some extent—political conditions. Unlike western nations, which tend to think that the answer to the economic problems (which were largely caused by government meddling) is more government meddling via greater regulations and taxes, nations like China appear to be moving in the opposite direction. The result of these and other influences is a strongly growing data center market in Asian regions—particularly Hong Kong, Singapore and Shanghai. As mentioned above, Gartner sees China reaching second place in the data center rankings by 2015—a mere few years away. Backed by growth in other sectors of the economy combined with a lower debt burden, China could reach the top spot quickly.
The west, despite being the historical leader in technology in general and data centers in particular, faces a difficult future trying to keep pace with eastern nations. Instead of focusing on trade and economic stability, it is focusing on military endeavors around the world and on dubious political projects at home. The U.S. in particular looks increasingly like ancient Rome—eventually, barring a change in fortune, the centers of knowledge and progress will simply move elsewhere. That may be occurring now, and the growth of the data center markets in Asia are one indicator. Needless to say, only time will tell how the markets will ultimately play out.
Photo courtesy of mrkathika