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Zeng lights the Internet spark in China
01 November 1999
Sparkice.com aims to be the leading E-commerce portal to, from and within the global Chinese community. It is building a network of Internet cafes throughout China. The company, founded in 1996, has already established itself as one of the fastest growing companies in the sector. Chairman and CEO Edward Zeng talks to Global Telecoms Business about the company's plans.
Internet use in China is growing rapidly from 900,000 in 1997
to a projected 6.7 million at the end of 1999. It has been
estimated that there will be over 30 million Internet users in
China by 2003. China is likely to become the biggest Internet
market in the Asia Pacific and one of the top three globally.
Zeng expects revenue from E-commerce services to increase
dramatically: it may well account for 10% of the $250 billion
in exports from China that have been projected over the next
Sparkice.com is already recognized as one of the leading ISPs
in China. It is at the forefront of Internet growth in China.
As well as being an ISP, the company aims to be a leading
Internet content provider. Its CEO and founder Edward Zeng is
considered a leading Internet network pioneer in China.
Recently Zeng has played a key role in building business
relations between the US and China. In June 1998 Zeng met the
chairman of the People's Republic of China, Jiang Zemin and the
US president, Bill Clinton to discuss Internet development in
Established in 1996 as JV with China Unicom, it was called at
the time Unicom-Sparkice Information System Engineering
Company. It was recently renamed Sparkice.com. It is building a
number of Internet Cafes in the metropolitan areas of China,
such as Beijing and Shanghai. Sparkice.com aims to have a
network of 100 Internet cafes by the end of 2000.
Sparkice.com is establishing an international
business-to-business platform. Buyers for retailers in
different regions of the world will have immediate access to
Chinese manufacturers and their on-line product catalogues.
Sparkice.com is not only targeting the international
E-commerce market. It also aims to be the leading E-commerce
business to consumer portal and is establishing itself as an
E-commerce on-line payment provider. In an interview with
Global Telecoms Business, the chairman and CEO Edward Zeng
talks about Internet developments in China, Internet cafes and
his hopes and ambitions for Sparkice.com.
What role is Sparkice.com playing in Internet
development in China? How many Internet users are there in
China? What levels of growth do you expect to see over the next
Zeng: I think that we aim to become the leading
company for global E-commerce traffic into China, out of China
and within China. So in one word we are the leading E-commerce
and Internet service provider in China. The number of Internet
users in China has risen from 2.1 million at the end of 1998 to
over five million today. In three years, we are talking about a
figure of 30 million. In 2000 China could be the leader in the
Can you describe the benefits that you derived from
your time in Canada?
Zeng: Well my Canadian background provided me with an
idea of the western framework and market experience. It also
showed me how to think from both angles, from both a Western
and Chinese viewpoint. To be honest, it helped me a lot.
If I had simply stayed in China, I would know the market to be
as hot as a spark. If I hadn't stayed in Canada, I wouldn't
know where the ice was coming from. So I was able to combine
the hub market in China with Canadian ice-cool reflection. So
the combination in Sparkice constitutes a linkage between east
It also involves having the entrepreneurial skills and growing
the small business into a big one. This is something I learned
from Canada. A lot of companies have been set up from there. I
came over as the government's official economist. Now after the
Canadian privatization, we become entrepreneurs and part of
regulation. So it is a perfect match in the Chinese market.
How will the explosive growth of the Internet affect
the way in which business is conducted in China? Is there
significant pent-up demand for E-commerce services among the
Chinese business community?
Zeng: Of course. Within three years the global
business to business market will be worth over one trillion
dollars. It will certainly witness explosive growth in China
for the following reason: irrespective of whether it is
E-commerce or commerce, there are three factors - the buyer,
the actual transaction and the supplier. Right now, most
western companies control the buyer and transaction platform,
but China has an advantage on the supplier side.
How many Internet Cafes does Sparkice.com operate in
China? How many will be operational by the end of 2000? Which
areas are being targeted in China for new Internet cafes?
Zeng: I cannot provide you with an exact figure, as
we have a number under construction, but we have more than ten.
We aim to have 100 Internet cafes by the end of the year 2000.
It is a pretty good business model. We are looking at the top
ten cities. We have cafes in Beijing, Shanghai and Tejeing
Which specific services is Sparkice.com looking to
develop for users in China? Which new services are you planning
to launch over the next six months? Could you tell us about
Sparkice 1.0 and Dragon Pulse?
Zeng: DragonPulse is a database, while Sparkice 1.0
is our one-stop E-commerce solution provider for our Chinese
business providers. DragonPulse is just like a database for
China's merchandise, while 1.0 has been set up to help those
merchandisers on-line, including a web site, broadcasting and
transactions. In terms of new services, we are trying to set up
an international business-to-business platform, especially from
China to other areas world-wide.
How many employees do you have? Do you think that you
will increase this number significantly over the next two-three
years? What kinds of training programmes are you putting in
place to improve core skills?
Zeng: At the moment 88 people are involved in the
E-commerce side of the business. We have 100 people involved in
the cafe sector, and have over 200 employees, if you include
sub-contracting agreements. In terms of training, nobody can
teach us. We can only teach ourselves. I think that practice
provides the best training programme. We put people in the
front end, so that they can gain this practice.
How do you view the regulatory environment in China?
In your opinion, how will the regulatory framework develop for
Zeng: China is so big. We have a traditional, planned
economy. We have a market economy. We have developed and
developing areas. We have high-tech and low-tech areas. So I
strongly believe that the door from China to the West will
open, but the question is when. I think you have to establish
the regulations first and open the door later. This is a very
smart decision by the government.
Who do view as your main competitors in this market?
In your opinion, what are your competitive advantages over
other ISPs? Do you expect the market to become crowded with
many new entrant ISPs?
Zeng: We see ourselves as our main competitors. Team
management is essential. We need to be as aggressive as
business demands. We have to determine whether or not we should
combine the western buyer and supplier side. These are the very
Do you believe that Internet subscriber charges are
too high? When do you expect these costs to fall? Do you
believe that the Internet is currently too expensive and too
Zeng: The infrastructure side will lead to a
reduction in costs. At the same time, the more services you
provide to those people, the more prices may go up. I don't
agree that that the Internet is too costly. After all, the use
of a mobile phone is more expensive. But price is definitely a
But I think that E-commerce is driving change. So if people
are making money, they don't care if they are spending money. I
think the application is not big enough.
Sparkice.com is playing a key role in the development
of E-commerce in China. What impact do you think this will have
on the Chinese export industry? Have Chinese companies
displayed a willingness to develop E-commerce and Internet
Zeng: Well I think that Unicom will play a role on
the infrastructure side. We want to provide a competitive
backbone and an international gateway. But, in terms of
value-added services, such as E-commerce, it is a little
premature for Unicom right now. I think that E-commerce will
boost the export industry dramatically.
Traditional exports from China to the west will increase from
$150 billion to $250 billion over the next three-four years. I
hope that people interested in Chinese goods will drive that
figure from 5-10%, which is about $10-13 billion exports
through E-commerce. I think that market reaction to these
developments is very positive.
Do you have any partnerships with suppliers such as
Cisco? Which suppliers do you use? Do you have any partners
such as CommerceOne, used by SingTel, for the E-procurement
Zeng: We have struck a lot partnerships. Some of them
are already defined. We are still in negotiations with some big
names. But we are pretty close to finalizing some of these
How will the launch of three new operators to
challenge the virtual monopoly of China Telecom affect
Sparkice's operations? Do you believe that additional
competition in the fixed market will stimulate Internet
Zeng: I think that, as the market is so big, one or
two new operators will not necessarily be able to meet the high
demand. They may double the number of operators, but the market
is still ten times the size. So everyone will still be busy. Of
course, competition has started and this development will
benefit Internet usage.
Could you tell us about your relationship with China
Unicom? How did the JV come about? Could you tell us about the
relationship with the Bank of China and CyberCash to develop a
debit payment system? Could you tell us about the Yangtze River
Zeng: We are probably the first joint venture where
Unicom provided some of its own money as an equity investment.
It is different to other models. At that time, our target was
to try and be a value-added services provider for China Unicom.
We started as an intra-country franchise. So we have developed
a pretty good relationship.
The Bank of China and CyberCash only developed an on-line
payment system last year for donations for the Yangtze River
project. We donated a lot of money as well as gifts. We worked
with China Red Cross and we created a system where people
around the world who had a credit card, Visa or Mastercard,
could make a donation.
Is it true that you are considering a listing for
Sparkice? If so, when is the listing likely to take place? What
has been the result of discussions with Morgan Stanley Dean
Witter? How much would a listing raise?
Zeng: Most of the IT and E-commerce companies become
successful, partially because they are able to list in public.
Sparkice will follow the same model, but we are in the final
stages of deciding when, where and how to go public. We have
had some initial talks, but we have not committed ourselves
yet. Morgan Stanley is just one of them.
This is a new business model. All models are very unique. I
haven't seen anything comparable to this model. We are talking
about a trans-continental E-commerce business-to-business
model, focused on the supplier's side. Right now, the model is
more domestic, focused on the buyer's side. It is pretty hard
for me to convince the original people to understand from a
How do you intend to become the leading E-commerce
portal to, from and within the Chinese community? How do you
view the potential of operators such as Cable & Wireless
HKT, which is also targeting this market, by offering a
bilingual portal? Will you also provide bilingual
Zeng: I think that we are focusing on the transaction
part. I have not heard about other major competitors doing that
yet. Hong Kong has a lot of money and an advantage in
management, but I don't think that they have a very close
relationship with the government and merchandise issues in
mainland China. We don't care about competition, but we do
provide a bilingual service as well.
Are you considering a link-up with Cable &
Wireless HKT, which is also exploring the potential for
Zeng: If there is a chance, I would like to discuss
these issues, but I have not spoken to them yet.
Consumer spending in the Asia Pacific has declined due
in part to the Asian crisis. In addition, many of China's
inhabitants still live in rural areas with little disposable
income. Will you be able to bring the Internet to these areas?
Or will it remain a big city phenomenon in China?
Zeng: That is a very good question. We do not want to
target just the English-speaking Internet users in cities. That
will be limited. We have a country of two billion people, where
95% of the population can't speak English and don't know how to
use a computer. We have tried to develop an E-commerce
appliance for those people. Yes we are definitely interested in
extending our reach.
How do you assess Sparkice's role in transforming
China into an "information economy"? Are your operations
dominated by users outside China who want Chinese-made
products? When do you expect the domestic market to
Zeng: I think that it is good to keep our feet on the
ground. We have a good relationship with the Chinese
government. We also need to have a very good international
management team with a clear vision and focus, as there are so
many opportunities and there are a lot of factors that will
help us obtain a leading position in China.
I do think that our operations are dominated by users outside
China. There are two directions - inside and outside China -
and there may be opportunities for big name companies that want
to sell some products in China. They can also leverage their
franchises. The domestic market will grow rapidly. It has
already grown faster than we had expected.
You serve as an Internet advisor to several ministries
in China. You write 1-2 policy papers a month. What are the
main themes of the policy papers which you contribute?
Zeng: They mainly concentrate on E-commerce, the
history of the west and the future for China.
How do you view the potential for Internet telephony
in China? Which particular services will, in your opinion,
prove most popular in E-commerce? Similarly, which E-commerce
services will prove most profitable?
Zeng: The market is big. It really depends on whether
China has a lot of international friends and connections. It
depends on whether China becomes part of the globalization
process. It also depends on some other issues.
So I think that the future is big, but the pace and scale of
growth is related to other issues, such as the foreign
companies allowed into China or the Chinese companies that
operate outside China. I think that the user will gain access
to universal service, hardware and software, which will help
people make money. I believe that there will be more in that.
The Internet is by its very nature an open playing
field, where you have access to all kinds of information. What
are your opinions on the possible regulation of content? How is
this issue being addressed in China?
Zeng: I think that there are two ways to stop people
seeing something. You can block his eyes or you can tell him
not to look at it. I think that mature teaching methods should
involve advice not to look at such content, explaining to
people that they will derive no intrinsic benefit from this
So let the people have the choice. It is more important than
blocking eyes. In my opinion some regulation is fine, but the
key long-term issue concerns the increasing maturity of people.
Finally, what are your hopes and ambitions for the
company over the next two-three years? What role do you see for
the company in the telecoms sector in China? Which emerging
trends do you perceive in Chinese telecoms?
Zeng: We have renamed the company Sparkice.com,
instead of Unicom-Sparkice. This will simply become a
subsidiary. We are just forming a holding company to put equity
into Sparkice.com. I think that Sparkice.com will become the
leading E-commerce facility for global companies that want to
buy and sell into China. We will play a key role on the
value-added side, driving the Chinese telecoms industry.
We are the people creating the infrastructure. High demand for
high-value services will drive the infrastructure. That is the
key. I think that the latest IP technology, bandwidth and
competition will be the key trends in China. But a policy of
retaining control, while still opening the door, should be the
way forward to ensure the smooth functioning of a healthy and
rapidly growing telecoms industry.
Is there anything you would like to add?
Zeng: We are looking at things in terms of a global
business-to-business base, instead of looking at things from
the buyer or supplier side. We want to be the platform for
whoever wants to buy or sell something in China.
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