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An extract from the latest Asia Digital Holdings plc Preliminary Results:
"The Board is of the opinion that China represents the largest opportunity for our Group to deliver material shareholder value. Though we expect our operations in South East Asia and India to deliver growth, and increasing profits, it is our expectation of a successful operation in China that will increasingly dominate our trading results as we progress through the current period and beyond.
The current and potential future growth in the number of internet users and digital advertising spend in China is exciting; however for the Group to deliver growth and profitability we must operate in a space that is relevant to our core skills, provide a service that is in demand and where the state of the supply chain presents us with an opportunity.
We believe that in China we have all three.
In their July 2010 report “China’s Digital Generation 2.0” the Boston Consulting Group suggested that “To many multinationals, digital China is the mother of all untapped markets” citing the rise of e-commerce as the biggest trend shift in China. 3% of Chinese population shopped online in 2006, up to 8% in 2010 and expected to rise to 19% by 2012. The conclusion of the BCG research was that China is destined to be the world’s most strategic e-commerce market.
This market is already material with reported levels of e-commerce of $39.3 billion in 2009 that rose 97% to $78 billion in 2010 (China E-Commerce Market Statistical Report January 2011).
Our core offering since launch in 1999 has been the DGM business, focused on delivering online sales for global brands. Whether it has been via affiliate marketing, search engine marketing or soaking up remnant inventory, our clients’ objectives have been dominated by the generation of e-commerce.
The Chinese market is at a similar early stage in terms of supplier chain evolution to when we launched in the UK, Australia and in India yet the digital advertising spend and e-commerce levels are already much higher. The complexities of operating in China are undeniable; however if one can overcome these barriers of entry they provide a degree of protection against further competition.
Our cautious approach in China through 2010 has allowed us to better study the market and prepare for a superior launch. In 2011 we have increased our headcount, launched a second client and are ready to more fully engage with the market moving forward. We have a pipeline of global brands from which we hope to launch more clients over the coming months.
We believe that we have a major opportunity to apply our skills and experience to the Chinese market to deliver a positive contribution which, along with growing contributions from our existing operations and a materially reduced central cost base, we expect to take the Group back into profit.
Furthermore we believe that China can spearhead a successful regional customer acquisition offering and that this could drive more revenues through our more established operations in South East Asia and India.
Generally the Board believes that our delivery in the current financial year will be a better indication of the Group’s potential than 2010 results."