Asia has long been recognised as a hub of economic growth and opportunity, attracting businesses from around the world seeking to tap into its vast consumer base and thriving markets. But while the region offers tremendous potential, there are also notable challenges.
This article explores some of the common hurdles faced by businesses in Asia and highlights the promising opportunities available to savvy entrepreneurs.
Challenges of doing business in Asia
Challenge 1: Diverse cultures and languages
Asia is incredibly diverse: According to the UN, it comprises 48 countries, each with its distinct culture, customs, and languages. Many individual countries are themselves internally highly diverse. For businesses looking to establish a presence in the region, navigating this diversity can be a significant challenge. One of the common misconceptions is that a one-size-fits-all approach can work for all Asian markets. In reality, tailoring business strategies and marketing campaigns to suit individual markets is essential for success.
Businesses need to invest time and effort in understanding local preferences, traditions, and social norms. This might involve hiring local staff, engaging cultural consultants, or conducting extensive market research. Taking the time to bridge cultural gaps will demonstrate respect for the local population and go a long way in establishing trust and credibility.
Challenge 2: Local competition
Entering the Asian market often means facing stiff competition from well-established local players. A common misconception is that global brands will automatically dominate due to their high recognition levels. However, brand loyalty is often specific to each market, and local competitors will have a deeper understanding of consumer preferences and engaging messaging.
Overseas businesses need to conduct a thorough competitive analysis to identify their unique selling points and differentiators in the local context. Creating strong partnerships with local distributors or acquiring established local businesses can also provide a competitive edge.
Challenge 3: Infrastructure and logistics
While Asia’s reputation as a hub of economic growth is often centred around its bustling metropolises and cutting-edge technological advancements, it is crucial to understand that the region is not uniformly equipped with well-developed infrastructure and seamless logistical networks. These challenges manifest in various ways, including inconsistent road and transportation networks, unreliable power supplies, insufficient warehousing facilities, and regulatory hurdles that can hinder the efficient movement of goods. This underscores the need for a nuanced understanding of the diverse infrastructure landscape within Asia.
To effectively tackle this issue, businesses must meticulously select their operational locations and strategic partners. Prioritising investments in enhancing logistics and supply chain infrastructure is crucial for sustainable, long-term success. Collaborating with local authorities and industry experts to identify key areas for improvement can streamline operations and mitigate logistical bottlenecks. Moreover, leveraging cutting-edge technologies such as real-time tracking systems, predictive analytics, and blockchain can significantly optimise supply chain management, ensuring smoother movement of goods and reducing the impact of infrastructure limitations.
Challenge 4: Intellectual property concerns
Protecting intellectual property (IP) rights is a common challenge for businesses operating in Asia. Some entrepreneurs believe that IP infringement is pervasive and that protecting their assets is futile. While it is true that instances of IP violations have occurred in some markets, many Asian countries have strengthened their IP laws and enforcement mechanisms in recent years.
To safeguard their IP, businesses should register patents, trademarks, and copyrights in the relevant countries. Additionally, keeping a vigilant eye on the market and enforcing IP rights when necessary can act as a deterrent against potential infringements.
Challenge 5: The regulatory environment
The regulatory landscape across Asia varies greatly from country to country. Navigating the legal requirements and bureaucratic processes can be daunting for foreign companies, especially when language barriers and translation errors are involved. There is a misconception regarding a lack of regulation or enforcement in certain markets. On the contrary, most Asian countries have extensive, stringent regulations, and non-compliance can result in severe penalties.
To overcome these challenges, businesses must work closely with local legal experts and advisors to understand the laws and regulations specific to each market they wish to operate in. Building strong relationships with government officials and demonstrating commitment to compliance can also prove beneficial.
Opportunities for growth in Asia
So, there are challenges in operating in Asia. But there are also great opportunities. There are huge markets of consumers to be tapped. In addition, many Asian countries are at the forefront of using incentives to attract business to their country. And as historical traders, most Asian countries embrace the benefits of trade agreements, whether they be bilateral or multilateral.
Opportunity 1: Free trade agreements
Free trade agreements in Asia play a significant role in facilitating the movement of goods and services among member countries. The main multilateral treaties in the region are the ASEAN trading block and the free trade agreements between ASEAN, Australia, and New Zealand.
The ASEAN block allows member countries to trade most goods and services at low tariff rates, ranging from 0% to 5%. Additionally, the agreement among ASEAN, Australia, and New Zealand further strengthens business relationships within the region by reducing barriers and promoting free trade.
A more recent agreement is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Signatories in Asia include Japan, Singapore, Vietnam, Malaysia, and Brunei, along with other countries like Australia, New Zealand, Canada, Mexico, Chile, and Peru.
The CPTPP aims to provide small and medium enterprises with cost-effective and tariff-free access to overseas markets. It covers a wide range of trade, including goods, services, and investment, effectively eliminating or reducing both tariff and non-tariff barriers.
The agreement creates new opportunities and benefits for businesses, workers, and consumers in the participating countries. It also encourages other nations to join by agreeing to uphold the high standards set out in the agreement.
Opportunity 2: Tax holidays and special economic zones
Across the Asian region, governments have embraced incentives to attract new business to set up in their country. For instance, some governments offer tax holidays to specific companies that establish manufacturing facilities, while others create special economic zones with incentives available to all businesses operating within.
These incentives have been creatively designed to boost the overall value proposition for companies considering investment in these countries. Examples of these incentives include tax holidays offered to car manufacturers in Thailand, investment incentives and tax breaks given to oil refining and chemical manufacturing companies in Singapore, and the Iskandar area in southern Malaysia, where businesses benefit from state-of-the-art infrastructure and tax advantages.
China provides tax reductions and holidays to certain industries, while Vietnam offers reduced tax rates for businesses operating within its special economic zones. Additionally, some countries offer accelerated tax write-offs, particularly for research and development expenses, to encourage innovative industries to establish themselves on their shores.
To manage these diverse tax incentive schemes, certain countries have dedicated government bodies overseeing the process, such as Singapore’s Economic Development Board (EDB) and Thailand’s Board of Investment (BOI).
To take full advantage of the investment opportunities in the region, it is advised to partner with local experts, as they can expertly guide a company through the complexities of these incentives and help maximise the benefits of setting up operations in Asian countries.
Opportunity 3. Growing consumer classes
A remarkable opportunity in Asia arises from the burgeoning middle-class populations. As the economies continue to grow, disposable incomes are on the rise, resulting in an expanding consumer base. Businesses that recognize this trend and cater to the evolving needs and aspirations of the Asian middle class stand to gain significantly.
Entrepreneurs who offer affordable yet high-quality products and services can tap into this vast market. Adapting business models to align with the preferences of Asian consumers, such as embracing digital technologies for e-commerce and mobile payments, can lead to remarkable growth.
Opportunity 4: Technological advancements
Asia is at the forefront of technological innovation and digitalisation. Countries like China, Japan, and South Korea, in particular, are renowned for their advancements in artificial intelligence, robotics, and biotechnology. This presents an exciting opportunity for businesses operating in these fields or related industries.
Collaborating with Asian tech companies, investing in research and development centres in the region, or partnering with local startups can facilitate access to cutting-edge technologies and foster innovation within businesses.
Opportunity 5: Fintech and financial services
The fintech industry is thriving in Asia, revolutionising traditional financial services and driving financial inclusion. Many Asian countries have embraced mobile payments, digital wallets, and blockchain technologies, creating an opportune environment for fintech startups and established financial institutions alike.
Entrepreneurs with innovative fintech solutions can enter the Asian market to cater to the growing demand for secure, convenient, and accessible financial services.
Overview of popular jurisdictions in Asia
The following table offers a quick glance at key jurisdictions in Asia, providing entrepreneurs and companies with an invaluable overview as they seek to expand or establish their presence in the region.
|100% foreign ownership allowed?||Yes, for a wholly foreign owned enterprise (WFOE)||Yes||Yes||Allowed only for certain industries. Local shareholders are needed in many industries which are set out in a government-published negative list.||Yes||Yes||Usually need to be 51% Thai owned, but structuring can achieve 100% foreign ownership.||Yes, allowed in most sectors. Some businesses require local investors.|
|Minimum Capital required||USD 30K-USD 75K for a WFOE. Otherwise, no minimum capital||USD 1,000||No minimum capital||IDR10 billion (USD 680,000) for a foreign owned company, of which 25% must be paid up. No minimum capital for a local company.||RM 500K to RM 1 million for foreign company, depending on the industry. No minimum for local company.||SGD 1. If Employment or Entre Pass is sought, capital should be appropriate for the business.||THB 15, though in practice it should be enough to be able to run the business.||No minimum for most sectors, but in practice investors should consider an appropriate amount commensurate with their chosen activities.|
|Local Directors required?||No||No||No||At least 1 with a local tax ID. Can be local or a foreigner.||Yes||Yes||No, unless company subject to specific laws.||No, but needs one resident legal representative.|
|Physical office required?||Lease of business premises required for WFOE||Yes, physical premises required||Registered office can be outsourced||Yes, physical premises required||Registered office can be outsourced||Registered office can be outsourced||Registered office can be outsourced||Yes, physical premises required|
|Local licensing required?||Yes||Yes||Only for some sectors||Required or most sectors||Required for most sectors||Only for some sectors||Required for most sectors||Required for most sectors|
|Currency controls?||Yes, approval required for offshore remittances||No, but reporting required over USD 10,000||No but reporting required over HKD 120,000||No but reporting required over IDR 100 million||No but reporting required over RM 30,000||No but reporting required over SGD 20,000||No but reporting required over USD 20,000||Remittances must be through bank account at an authorised institution|
|IP Protection laws in place?||Yes, IP needs to be registered locally||Limited, but protection laws are improving||Yes, IP needs to be registered locally||Yes, IP needs to be registered locally||Yes, IP needs to be registered locally||Yes, very strong protection. Local registration required||Yes, IP needs to be registered locally||Yes, IP needs to be registered locally|
|Auditing of local accounts||Required||Required if not a small company||Required||Required if handling public funds or turnover/assets >IDR 50 billion||Required||Required if not a small company||Required||Required|
|Tax filings||Income tax quarterly and annually. VAT monthly||Income tax monthly and annually. VAT monthly||Income tax annually||Income tax monthly and annually. VAT monthly||Income tax annually Sales and services tax monthly||GST return quarterly, Estimated Chargeable Income and income tax return annually||VAT monthly, income tax half yearly and annually||Income tax annually|
|Government Incentives||Preferential tax rates available in certain regions and for certain sectors||Tax deferral available on projects approved by Council of Development of Cambodia. Import and export duty exemptions also available||Lower tax rates available for qualifying activities in certain sectors||5-20 year tax holidays available depending on industry. Special Economic Zones offer incentives to companies set up there||A range of tax incentives from partial to full exemption from tax available to companies in certain sectors||Lower tax rates available for certain sectors. Some exemptions available||Board of Investment administers income tax and import duty incentives for certain industries||Tax holidays and lower rates of tax available in special zones for qualifying industries|
|Member of ASEAN?||No||Yes||No||Yes||Yes||Yes||Yes||Yes|
Questions? Acclime can help.
Doing business in Asia presents both challenges and remarkable opportunities. By approaching the Asian market with an open mind, adaptability, and a keen eye for opportunities, businesses can unlock the immense potential of this dynamic and promising region. Acclime, Asia-Pacific’s leading business advisory and corporate services firm, can become your trusted partner for navigating the complexities of establishing and growing your business in this vibrant market.
Acclime’s local experts work from offices throughout the region. You can leverage their in-depth knowledge of the local business landscapes, regulatory frameworks, and cultural nuances across various Asian countries. Whether you are looking to set up a new company, expand your existing operations, or explore investment opportunities, Acclime can provide you with tailored solutions and valuable insights to ensure a smooth and successful entry into the Asian market.