On-line brokerages are invading Asia.
Even though demand for Internet-based trading in the United States is expected to keep growing for several years, many providers of such services are looking for new ways to expand. Among these, E-Trade Group of Palo Alto, Calif., DLJ Direct of New York, and Charles Schwab & Co. of San Francisco have opened offices in the Far East.
"U.S. firms are worried about land-grabbing and are faced with the fact that if they don't respond they may never catch up abroad," said Bill Burnham, analyst with Credit Suisse First Boston in San Francisco. "There is not a lot of business right now in Asia, but firms want to make sure they aren't shut out."
The economic troubles in many Asian countries cut two ways for companies looking to establish footholds there, experts said. Though some investors are shell-shocked and reluctant to engage in heavy trading, Asian financial institutions have also been hobbled, providing a potential opening for U.S. companies.
"There are huge opportunities to get in when local players can't do much," said Michael E. Gazala, senior analyst with Cambridge, Mass.-based Forrester Research Inc. "Local markets are buffeted in Asia, and there is opportunity to come into the market with strength and be ready when their economy turns around."
Mr. Gazala said foreign investors are as interested in on-line investing as those in the United States, and companies that establish a strong brand identity are likely to attract the most users.
DLJ Direct is one of the early entrants, through a joint venture with Sumitomo Bank of Japan. It is building an Internet trading system that should be operational in the second quarter of 1999.
At first, the initiative will give Japanese investors the ability to trade domestic equities, investment trusts, and money market funds over the Net. Over time, the system will provide access to U.S. securities, including investment products offered by DLJ's parent, Donaldson, Lufkin & Jenrette, and its affiliates.
"We have wanted to spend time in Japan," said DLJ Direct chief executive officer Blake Darcy. "They have a large market and the second-largest economy in the world."
Mr. Darcy said he expects that 20% of DLJ Direct's revenues will come from overseas within the next five years.
He said creating an on-line service in Asia is an entirely different proposition from doing so in the United States.
"Asian customers don't have a history of self-directed investing and they don't have a discount brokerage segment of the financial services industry," said Mr. Darcy. But because Asian consumers are heavy savers, it is worth the effort to try and attract some of their funds. Japanese consumers have about $10 trillion in savings, he said.
E-Trade has struck a deal with Softbank Corp. to offer on-line brokerage services in Japan. Softbank, a major international Internet investor and publishing company, recently acquired Osawa Securities Co. to jump-start the relationship. Through Osawa, E-Trade can get both a broker-dealer license and a seat on the Tokyo Stock Exchange.
"Our approach is to first have domestic Web-based trading with access to the local exchanges," said Judy Balint, president and chief operating officer of E-Trade International. "Then we can bring on U.S. equity trading."
Ms. Balint said the overseas market already is a strong one for E-Trade, which is partly owned by Softbank. The on-line broker has more than 25,000 customers outside the United States, and they are "a strong indication of the demand for U.S. equities," she said.
Patricia Meier, senior vice president of Schwab International, said it is only logical that on-line providers are expanding overseas.
"We sat back and said, 'If it works here, it has got to work outside,'" she said. The Internet is "an efficient way to reach a market without having to build brick-and-mortar on every street corner."
One sign of the Asian market's receptiveness to on-line trading, Ms. Meier said, is that 80% of the trades handled through Schwab's Hong Kong office are from on-line investors, versus about half at all Schwab offices in the United States.
On-line investing is attractive to Asians because "we offer access to a more stable market," Ms. Meier said.
Neil Benedict, vice president of international development at Omaha- based Ameritrade Inc. said he agrees that the overseas market is full of potential. He said he expects 5% to 10% of the company's business in the next year to come from international markets.
"Although Internet penetration is not as high as here, it is growing tremendously in Europe and Asia," he said.