The building blocks for success in Asia
The world is coming to Asia, and it needs a plan for when it arrives. While it is tempting to dive headlong into the region's burgeoning markets, companies must first address the many challenges that come with doing business in Asia. Only then will they be able to realize the full potential that the region has to offer.
Overview
It's not difficult to understand why Asia holds great appeal for companies from around the world. They see a vast market of 4.2 billion consumers[1] that global professional services firm PricewaterhouseCoopers (PwC) projects will spend US$8.5 trillion in 2014[2]. With corporate and government spending expected to remain strong as Asia continues building up its infrastructure, housing and capital investment, companies rightly see the region as the market of the future.
Asia appears a particularly attractive proposition when its growth prospects are contrasted with the stagnant home markets of many of the world's major multinationals. The World Bank[3] projects annual GDP growth of just under 2% in Europe and just under 3% for the USA, while Asia is expected to register GDP growth of around 8%. In retail, PwC projects 2% to 3% growth in global retail and consumer markets from 2010 to 2014, but expects Asia Pacific to come in at 6% during the same period.
Yet, recognising that Asia holds great potential is one thing, accessing this potential, and doing so profitably, is quite a different story. Explaining some of the challenges companies face, Yew-Poh Mak of Ernst & Young China Advisory Limited says, "The diversity across the region, not to mention the rapidly changing business landscape, market conditions and regulations, mean you have to be open-minded and adaptable. What works in one country, or even one province, may not work in another. The best market entry strategy of last year may have already been superseded."[4]
While this may sound challenging, the reality is that most companies have little choice but to attempt to enter the Asian markets, as they cannot afford to miss out on the growth opportunities in the region. The key, therefore, is for companies to quickly come to grips with the challenges that Asia presents, so that they can start to reap the benefits of a presence in the world's new engine of growth.
Facts on the ground
Achieving corporate success in any new market is akin to tackling a complex puzzle where all the pieces need to fall into place for it to be solved. Everything from logistics and talent to management structure and marketing strategies must be optimized to allow a company to reach its full potential.
For Syngenta, a leading global agri-sciences company, the challenge of connecting locations around Asia came to the fore when it was considering where to set up a new R&D facility. It ultimately selected Singapore, as the city-state's central location, test bedding infrastructure and transport links provided the company with excellent connectivity to major markets around the region. "Syngenta's Kendall R&D laboratories will support our research network around the region and allow us to bring better technology to Asian farmers," said Peter Pickering, the Region Head of Syngenta's Seeds business in Asia Pacific.
Similarly, global logistics leader DHL set up its Logistics Division's regional headquarters in Singapore to tap into its efficiency and regional linkages. "DHL's choice of Singapore is based on the country's world-renowned efficiency, extensive connectivity, excellent infrastructure and great human capital," explained John Allan, Global CEO, DHL Logistics Division.
Stability - in terms of safety, security and the business environment - also plays a key role in the efficient running of DHL's business operations, greatly decreasing the risk of disruptions and delays to its services. Knowing that there is limited risk of natural disasters, crime or regulatory upheaval puts companies on a firmer footing to build for growth, particularly in Asia's rapidly changing markets. Singapore's ability to offer such stability has also attracted the likes of luxury goods group LVMH and Proctor & Gamble, one of the world's leading consumer care companies, to set up regional operations in the city-state.
Besides ensuring a safe and well-connected business environment, companies also need access to the talent that will lead their entry into Asia. Given the wide range of markets within Asia, diversity in the talent pool is key. Initially, starting or expanding a base of operations often requires bringing in people from around the region and the world. To ensure that this talent can be attracted and retained, it is important to consider the location they will be working in - it should ideally have a culturally diverse society and be attractive for them in terms of tax regulations, immigration and work pass procedures. In an increasingly globalised world, the standard of living and quality of life must meet expectations.
Perhaps most importantly, though, companies must be able to understand their markets. On the operations side, this means coming to grips with human resource and regulatory issues, while on the customer side, it can be a significant challenge to understand and adapt to local consumer preferences. Companies must decide, for instance, whether they want to adapt their existing products to meet Asian tastes, or whether a completely new product is required for the market.
Two companies that have established product-development operations in Asia to better understand and meet the needs of the Asian markets are Welch Allyn and Hill-Rom. Welch Allyn, a leading global manufacturer of frontline medical products and solutions, expanded its R&D operations in Singapore in 2010 to design next generation digital connected products specifically for Asian markets. Similarly, Hill-Rom opened two new R&D centres at its Asia-Pacific Innovation Centre in Singapore; one to identify and develop innovative global respiratory care products, and another to focus on developing technology solutions for emerging markets.
The Singapore difference
Given the diverse markets across Asia, a strong central management function is key - one that has the right resources and infrastructure to support communications, operations and transactions around the region. For a growing number of companies, Singapore is meeting these needs.
They are attracted to Singapore for its dynamic, open economy, cultural diversity and pro-business regulatory environment. Indeed, the country was ranked first worldwide in the World Bank/IFC Ease of Doing Business rankings, and has a globally recognised IP protection regime that was ranked third globally in the World Economic Forum's Global Competitiveness Report 2010-2011.
From its central location in Asia, companies are able to stay connected to their markets throughout the region while accessing Singapore's English-speaking, globally-oriented talent pool. The majority of the city-state's workforce is bilingual and has cultural and historic ties to Southeast Asia, as well as to the Asian giants: China and India.
Furthermore, efficient, modern transportation and communications infrastructure provide a reliable foundation on which to build a regional management structure. However, it is soft infrastructure where Singapore increasingly stands out and has made the greatest strides in recent years, focusing on business support elements such as regulations, strong IP protection and rule of law, a growing number of FTAs, and advanced research institutes to support new product and service innovation.
The Human Capital Leadership Institute (HCLI), a partnership between Singapore Management University, Singapore's Ministry of Manpower and the Singapore Economic Development Board, was established in 2010 to accelerate leadership development and strategic human capital management capabilities in Asia. Through its Singapore Business Leaders Programme, HCLI aims to help companies address the challenges they face in growing their business footprint in Asia. In a similar vein, the Institute on Asian Consumer Insight, a centre launched in July 2011 at Nanyang Technological University, will act as a pan-Asian consumer research hub, providing much-needed thought leadership in understanding Asian consumer needs.
While challenges remain, there are solutions and support available to overcome them. The key is to understand the market and make sure all the building blocks for success are in place. For companies that see Asia as their future, the time is now to explore opportunities and enter this exciting and rapidly evolving market.
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