The opportunities for international expansion in Asia

Expanding a business internationally can be challenging, but Asia offers five major markets and many of the world’s fastest-growing economies, writes Siddharth Shankar

Expanding a business internationally is a difficult undertaking at any time. But with the current geopolitical tensions and heightened uncertainty, you would be forgiven for thinking this isn’t the time to take a risk on an overseas launch. However, international expansion could prove key to beating gloomy forecasts.

Many of the world’s fastest-growing economies are in Asia. India, Bangladesh, Cambodia, Myanmar, Laos, Vietnam, the Philippines, China and Mongolia were all expected to grow by between 7.4% and 6.2% over the course of 2019, for example. This makes Asia an increasingly important, and lucrative, focus for businesses based outside the region. When it comes to international expansion, there may now be more opportunity for firms within Asia than within the European Union. 

Research by HSBC has found that approximately 70% of future world growth will be from emerging economies. And analysis from the United Nations Conference on Trade and Development reveals that Asian economies will be larger than the rest of the word combined in 2020. It’s therefore becoming increasingly important that businesses shift their focus to markets that will, in the future, dominate the world stage. 

Five major markets

To successfully expand into Asian markets, it’s critical not to fall into the trap of treating the continent as one homogenous market. The region is made up of five major markets – namely China, the Indian subcontinent, Association of Southeast Asian Nations (ASEAN) countries, countries in the Middle East’s Gulf Cooperation Council (GCC)and East Asia. Lumping all these highly diverse regions and countries into one convenient bracket has been the downfall of many businesses. It’s crucial to understand the cultural, social, political, geographical and economic factors at play in each Asian market individually. 

First, the products that will be successful in each market will be very different. Heavy industrial products, for instance, are in demand in India, Thailand and Cambodia. Huge infrastructure construction is needed within these countries, yet their own heavy industry manufacturing is relatively weak. 

Energy products – relating to traditional fossil fuels and renewable energy equipment – are competitive in ASEAN countries as well as in China. China and India have now realised the increasing need to forge a cleaner and leaner path to development. Luxury goods are particularly in demand in GCC countries and Japan. Meanwhile, in China and India, the appetite for traditional beverages, such as whisky and gin from the UK, has reached a whole new level.

As well as the economic, geographic and societal factors that affect a product’s potential in Asian markets, it’s often more difficult to form an understanding of the cultural factors. This requires in-depth local knowledge. For instance, a company launching a range of hats in China might have unrivalled success selling a red hat but find a green version of the same hat would flop. This is because, within local culture, if a man wears a green hat it might mean his wife is cheating on him – never a good look! A local partner can prove essential in navigating these testing cultural nuances. 

The strategy required to expand into each market is also diverse. Launching a product portfolio in Asia’s two largest markets – China and India – requires taking an altogether different approach in each case. Western products can be launched directly into China, with westernised branding, even as a new brand. Conversely, to maximise the chances of success when expanding into the Indian market, it is often advisable to expand into influential markets with links to India first – for instance, Singapore or the United Arab Emirates. 

This allows the target segment of consumers in India to form an understanding of the brand before it is available in India, thereby piquing demand for it. Indian consumers tend to follow their culture, tradition and values strictly. As a result, overseas companies are often forced to give an ‘Indian touch’ to their products and marketing in order to succeed. 

Regional differences

Even within a country, it’s important to be aware of the vast cultural differences that often exist between one region, or city, and another. 

You would probably be forgiven for thinking that the capital city in each location is the best place to launch a new business. But sadly, it is not that simple. Not all capitals work. To give a European example of what I mean, it’s notoriously difficult to do business in Rome. It might be the heart of Italy’s political and religious institutions, but if you were going to launch a fashion business in Italy, you would almost certainly bypass Rome and head straight for Milan, with all its design and fashion credentials and networks. 

It’s the same in each of the five major markets in Asia. The capital cities may be the perfect place to build political alliances – but that doesn’t mean they are the best place from which to launch a particular product or brand. Often, looking beyond the capital and targeting smaller cities, and even towns, can deliver better results.

You may not have heard of places like Tangshan and Sanya in China – but they are exactly the sort of cities that are worth thinking about. Both cities have local economies that are thriving due to huge local wealth, or large tourist attractions. Both also have effective infrastructure and would deliver excellent results for the launch of brands from certain industries.

Cultural identity

Deciding which city to launch from is not even necessarily about choosing one of the biggest cities. Do your research – think about the cultural identity and interests of your target customer and work out where they are most likely to be based. It’s the only way to find the city with the best fit and consumer base for your product.

Before honing in on a launch city, it is also worth spending time reflecting on the bigger picture. Each of Asia’s five major markets presents exciting growth opportunities. 

India has a population almost equal to that of China but a GDP growth rate that is almost double China’s. Looking to East Asia, Japan is the world’s third-largest economy, while South Korea has one of the world’s fastest-growing economies. Meanwhile the ASEAN region, which includes Singapore, Malaysia, Thailand, Vietnam and Indonesia, has a combined population of 640 million people and an economy worth over $2.8trn USD, with increasingly open internal trade. 

Market focus

So which specific markets within Asia should businesses focus on? Let’s take a more in-depth look at two very different, but highly promising opportunities:

A. The major market: India 

India’s GDP growth forecast for 2019 is 7.3%, making it one of the fastest-growing economies in the world. Rising salaries mean the region has a burgeoning middle class, with an increasingly disposable income. According to the Economist, HSBC recently estimated that the size of India’s middle class in India had reached 300 million, a figure it predicts will rise to 550 million by 2025.

The demand for products and brands in India is at an all-time high and this is set to continue for the foreseeable future. Indian consumers have become more value sensitive than price sensitive. If they feel that a particular product offers them more value, they are often willing to buy the product, even if the price is high. 

India is a multi-religion country which has a population of around 1.4 billion people. There are four broad segments to the market:

•  The socialites: socialites belong to the country’s elite. They like to shop for luxury products, travel in high-end cars and buy opulent villas. They are always looking for something different. Socialites are also very brand conscious and would go only for the best-known brands in the market.

•  The conservatives: the conservatives belong to the middle classes and are often a reflection of the true Indian culture. They are traditional in their thought processes, slow in decision making and they seek a lot of information before making any purchase.

•  The female profesionals: the so-called ‘working woman’ segment of society has seen tremendous growth in recent years and, as they have become empowered in the workplace, their impact on consumer trends has boomed.  

•  Youth segments: the younger generation is optimistic and enthusiastic. They believe in having a modern lifestyle, are brand cautious and are often ready to pay for quality.

B. The market to watch: Thailand

Thailand is the second-largest economy in the ASEAN, accounting for 17% of ASEAN GDP. There have been huge changes in Thailand over the past 40 years, transforming it from a low-income country to an upper-income country. After a slowdown between 2015 and 2017, Thailand’s economy looks to be on the up once more, with a growth rate of 4.1% in 2018. 

It is increasingly easy to do business in Thailand, as the infrastructure improves and the government makes positive regulatory reforms. There is a growing middle class and, in the capital of Bangkok, new luxury brand shopping centres are springing up. 

In conclusion, the combination of fast-growing Asian economies and a troubled eurozone means there is a lot of opportunity for firms to expand into Asia. While in-depth research into the complex cultural, social and economic factors of launching a brand into each individual market within Asia is essential to avoid falling into common exporting traps, the potential rewards are high.

Siddharth Shankar is a leading expert in exporting and CEO of Tails Trading, a firm helping UK SMEs to export their goods.

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