Throughout Southeast Asia, the race is on to build and expand data centers. To find out what’s driving the movement and learn where it’s headed, GLG recently assembled a panel of experts: Matt Pfile, CEO of Crane Data Centers; Hak Kiat Chng, former COO at DCI Data Centers; and Fredrik Johansson, currently a Managing Director at Balder Investments, who served as the session’s moderator. Their conversation, edited for clarity and space, follows.

Fredrik Johansson: A large-scale digital transformation currently is underway in Southeast Asia. What’s driving demand?

Matt Pfile: COVID has been a real catalyst, and while that’s not unique to Southeast Asia, many of the trends we saw prior to COVID in the region have only accelerated growth. Much of business has shifted online for productivity and continuity purposes. Among consumers, online retail has grown because people are not shopping in person. In addition, and somewhat unique to Southeast Asia, is that another billion users are coming online. All those factors have coalesced to create huge demand for data centers.

Fredrik Johansson: Do you think the expansion trends in Southeast Asia are similar to what happened previously in more mature markets, or is something different going on?

Matt Pfile: There have been some unique challenges. Many Southeast Asian countries don’t have the political or economic stability of Western developed countries, so large international firms trying to deploy capacity in the region must take a different tack for each country. Given the growth potential, they can’t afford to ignore a country even if it presents challenges. In the past, many U.S. companies — which are the ones I’m most familiar — were able to grow their businesses without paying as much attention to some of the more challenging places on the globe. Now, to continue to grow their businesses, they really need to serve these more challenging areas, which likely means having to serve some of them at least regionally and, in some cases, locally.

Fredrik Johansson: Are there differences in the way Chinese and U.S. hyperscalers expand in these markets?

Hak Kiat Chng: There really aren’t. Typically, each enters with an edge in infrastructure. From there — depending on the local business focus and demand — they have two basic options. If demand is very robust, they could opt for core deployment. If they are more cautious, due to economics or the political situation, they could choose to grow the edge. In Vietnam, for instance, which has a very highly skilled and highly digitalized population, hyperscalers are cautious because of the government’s regulations and are sticking to edge data centers.

Fredrik Johansson: What differentiates the hyperscalers?

Matt Pfile: Each has different product sets and different needs. Facebook, for example, has a very concentrated product set and a strategy to serve users in Asia primarily from Singapore, though there are some other serving nuances. Amazon, on the other hand, takes a country-by-country and availability-zone-by-availability-zone serving strategy. Microsoft and Google tend to have differentiated product serving strategies. Since each hyperscaler has different product offerings and associated serving strategies, I would caution against lumping them all into the same bucket and expecting them to think about the world in the same way.

Fredrik Johansson: Given their differences, what do you think are their key considerations when selecting a location or a provider partner for a project?

Matt Pfile: As a general rule, the first obvious step is to determine which country to enter. They often start small and test the market. Of course, small can mean different things to different players, but generally, like any business venture, they want to make sure that they’re making the right choice, so they’re not going to necessarily go and deploy tens of megawatts into a country if they haven’t first tested the market.

In the beginning, they often work with local providers of data center capacity, which could be either local companies or international companies. There’s generally an ease of doing business with international firms because they have standardized product offerings and operational standards. With local players there tends to be a bit more scrutiny and investigation, but there are some excellent local players across Southeast Asia, and they are very much able to compete with international players.

Fredrik Johansson: What do you see as problems as expansion continues away from localized hubs?

Matt Pfile: Language is one, though that can be overcome. The more challenging situation is how to handle things like local corruption and red tape, which is where local partners can be really valuable. While U.S. companies face liability for being involved with any type of corruption, business can still be conducted leveraging strong relationships in Southeast Asia rather than bribery. Local companies can thrive by leveraging the relationships they’ve built up over time and can leverage these relationships to serve global hyperscalers. They also can help with some red tape issues that can seem inane but can cause big problems. For example, sometimes a government will require paperwork to move a piece of equipment from one location to another. Even though hyperscalers have amazing financial resources, they may lack the local relationships that require years to build.

Hak Kiat Chng: Another stumbling block can be staff mobility. Sometimes data centers have to get into the business of transporting workers from where they live to the data center location. And if two or three hyperscalers set up shop within proximity to each other, there can be a mad rush to grab key personnel and expertise, which can lead to instability, poaching, and many other problems.

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About Hak Kiat Chng

Hak Kiat Chng is the former Chief Operating Officer and Senior General Manager at Keppel Data Centres. He also oversaw project management, technical operations, account management, and P&L of Keppel Data Centres in Singapore. Later, the position expanded to oversee operations for the whole Asia Pacific and European region.

About Fredrik Johansson

Fredrik Johansson is currently the Managing Director of Balder Investment, a consulting firm specializing in data centers and real estate. He was previously the fund manager and a director of the Securus Data Property Fund, a more than 200 million USD private Shariah-compliant equity fund that invested in data center assets across Asia Pacific (APAC) and Europe.

About Matt Pfile

Matt Pfile is currently the CEO of Crane Data Centers. Previously, Matt held the position of Data Center Energy & Location Strategy, Asia, while working at Google LLC. Before this, Matt held the position of Data Center Energy & Location Strategy, Americas at Google LLC, where he held numerous other roles. Prior to this role, Matt held the position of Associate while working at InvestRx.