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Why are businesses relocating data centres to Southeast Asia?

Why are businesses relocating data centres to Southeast Asia?

Data centres are sprouting around Singapore and its neighbours but what are the factors that make the region so attractive to providers?

A Google data centre layout

A Google data centre layout

Credit: Google

Southeast Asia is in its heyday as a data centre hotbed. Multinational organisations such as Google, Amazon, Microsoft and Equinix are all making the region a favourite destination for the location of their data centres.

In fact, rarely a month went by in 2018 without a major announcement of this kind.

This trend looks set to continue in the new year, with Alibaba Cloud, the cloud computing arm of Alibaba Group, announcing the launch of a second data centre in Indonesia - only ten months after the inauguration of its first one in the country.

But what is making Southeast Asia such an attractive location for data centres?

The backbone of essential business operations

Data centres are a core component of business operations, comprising of centralised warehouses (physical or virtual) used for the remote storage and processing of data and information.

Most of our daily activities cause us to interact in one form or another with data centres: from energy bills to health records, all information managed by organisations is most likely stored in data centres.

Data centre downtime can cost enterprises millions in lost revenue and compensation, and disruption in one of these warehouses can cause irreparable damage to a company and its reputation if there’s no efficient backup strategy in place.

That’s what happened to Visa, who in June 2018 saw 5.2 million of its transactions fail because of a switch failure in one of its data centres.

With the increased usage of cloud-based services, the Internet of Things (IoT) and big data analytics, the construction of data centres has rocketed in recent years across the globe.

One burning issue associated with data centres is the immense amount of pollution they generate.

These warehouses run 24 hours each day, every day and to stay available, servers need to run 100 per cent of the time, even if they are not in use or are being partly used. This entails a massive use of electricity, which most of time relies on fossil fuels for its generation.

To be sustainable and environmentally friendly, data centres providers must ensure efficiency and increase the amount of renewable and green energy that they use to power them.

Data centres in Southeast Asia

The multi-billion dollar Southeast Asia data centre market is poised for major growth and it is anticipated that it will more than double its value in the next four years.

According to Technavio’s forecast, the data centre market in the region is expected to grow steadily at a compound annual growth rate (CAGR) of 13.88 per cent during the period 2017-2021.

Not only that, the wider Asian continent is preparing to take over Europe as the largest data centre market worldwide by 2021.

In an interview with CIO Asia, Krupal Raval, Digital Realty CFO for APAC, said that the reason why big corporate giants such as AWS and Google are relocating their data centres in Southeast Asia is the increasing digitalisation across the region, which calls for a strong underlying cloud infrastructure that can facilitate expansion.

“There is a growing opportunity for these companies with more brands and businesses readily expanding their operations in Southeast Asia," he explained. "With that expansion comes the need for data storage, hence the migration of such providers to Southeast Asia.

“With that in mind, data centres are relocating to be closer to their customers and businesses to maximise the connectivity between themselves and their customers – this means a stronger connection with less delay and better latency."

The key segments that make Southeast Asia such an attractive market for data centre relocation today are IT infrastructure, server market and uninterruptible power supplies (UPSs).

In 2016, Southeast Asia’s IT infrastructure market was valued at US$6.28 billion and the UPS segment is expected to reach a market value of US$490 million by 2021.

On top of these considerations, the increase in demand for cloud-based services is a key factor driving the data centre market growth.

The Asian data centre provider ranking leaderboard is headed by Equinix, SUNeVision (iAdvantage), NTT Communications and Global Switch.

Recent announcements of data centre relocation in the region include Facebook, which in September 2018 announced that it will be spending $1 billion (S$ 1.4 billion) to build a data centre in Singapore, its first in Asia. The facility is expected to open in 2022.

Whereas Singapore is already the undisputed data centre hotspot in the region, Indonesia is challenging its position as prime data centre investment focus by attracting multinationals such as Google, Alibaba and Amazon.

According to the Nikkei Asian Review, Google's move reflects a growing interest in Indonesia as an alternative to Singapore, traditionally the focus of cloud service investment because of its good fibre connectivity.

Amazon is expected to invest 14 trillion rupiah (US$924 million) in the country over 10 years, initially focusing on cloud services.

These moves have been welcomed by the Indonesian government, who aims to make Indonesia ASEAN’s largest digital economy by 2020 through the implementation of its Digital Economy Vision.

Malaysia and Thailand also hold important positions in the top Southeast Asia data centre destinations ranking.

The case of Singapore

As previously mentioned, within the Southeast Asian data centre market, Singapore has become the region’s hotspot.

According to an October 2017 report by Cushman & Wakefield, Singapore is the most robust market in the Asia-Pacific data centre market.

With providers such as Amazon Web Services (AWS), Google and now also Facebook and Alibaba Cloud recently announcing the expansion of their data centre infrastructures in the country, Singapore has turned into one of the most mature data centres markets across the globe.

Facebook’s new facility will be located at Tanjong Kling (formerly known as Data Centre Park) in the west of the city-state, will span 170,000 sqm and according to the social media giant, it will “support hundreds of jobs”.

But why has a country with a total land area of just 719.9 sq km has become a prime target for top data centre operators such as Equinix or AWS?

"We selected Singapore for a number of reasons, including robust infrastructure and access to fibre, a talented local workforce, and a great set of community partners," Facebook said in a blog post after the announcement of its new data centre.

There’s no doubt that the city-state’s low tax environment has also made it an attractive destination for large corporations.

Ranked among the top 10 worldwide business destinations, Singapore’s zero GST tax rate for international services and exports has attracted a substantial amount of foreign investors.

A DataSource report also notes that in Singapore’s favour is its “strong network infrastructure, diverse connectivity to major APAC markets, its pro-business environment and political stability”.

As of Q4 2017, Singapore’s co-location data centre market comprised: 33 data centre providers; 42 unique operational data centres; 2.6 million sq ft of data centre space; ~76,000 racks/cabinets; and US$934 million of collocation services revenue as of 2017.

Singapore has a current total supply of 370 MW of IT power supply among co-location operators. Around 59 MW of IT power is readily available for data centre use, and 103 MW can be converted into IT power within three to six months.

John Corcoran, CEO of Global Switch, said that his company is investing heavily in its Asia Pacific footprint as demand increases all over the region.

“If I look at our current portfolio, roughly two-thirds of our revenue and profit is generated from Europe and the UK, and then one third from Asia Pacific,” Corcoran said.

“[…] We are already in the top five Tier 1 markets of Europe, including London, Paris, Amsterdam, Frankfurt and Madrid. But we also wanted to be in the five Tier 1 markets of Asia Pacific, and at the moment these markets are Sydney, Singapore, Shanghai, Hong Kong and Tokyo.”


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