Many successful businesses seeking to expand their horizons find the Asian market attractive due to its large and growing consumer market. With over 60% of the world’s population, Asia is a vast region with formidable and diverse market-entry barriers. The adage, “businesses don’t plan to fail, they fail to plan” is particularly true in Asia. To successfully enter the region, it is essential to have a well-considered strategy focusing on specific target countries. Planning is key for those who are seeking to sell products in the region or set up manufacturing facilities.
The following guide provides insights and strategies for successful business expansion in Asia.
The first step: commission a market entry report
The first thing that should be commissioned by a company looking to expand into Asia is a report that analyses the potential new market. A market entry report reveals the opportunities and challenges associated with local consumer demographics, the competitive landscape, the regulatory environment, and available government incentives.
The report should also examine the three main ways of entering a market: export, licensing, or direct investment. Each of these is summarised below.
Exporting is the least risky option for business expansion as it allows control over manufacturing in the home country. The capital investment required is also typically less than setting up in the foreign country. Exporting also provides an opportunity to learn the market nuances before committing to a larger, potentially riskier, upfront investment.
The disadvantage of exporting is the reliance on a third party to sell goods or products in the new market. Although partnering with a local distributor or agent can be advantageous, it also requires entrusting the partner with the company’s market positioning, client relationships, and brand reputation. To reduce this risk, companies may consider establishing their marketing resources in the targeted country by conducting a thorough market analysis.
The marketing analysis will help determine whether establishing a local marketing resource or local agent is necessary. This includes setting up a local marketing team or a representative company to manage the distribution, promotion, and client engagement.
Under this market entry strategy, a company looking to sell its product in Asia would opt to licence the manufacturing to a local manufacturer. This method is popular in the beverage industry. For example, beer manufacturers choose to licence the production of their beverages to local breweries in Asian countries. The local manufacturer (licensee) pays royalties or fees to the original company (licensor).
In the beverage industry, licensing allows companies to avoid the costly transport of products in which water often makes up around 95% of the total shipping weight. As the licensee is responsible for the investment, the licensing method allows for a relatively low capital requirement. The company can also avoid the costs of establishing production facilities or distribution networks in the targeted market by licensing the rights to a local partner. This method usually requires longer-term agreements or even joint ventures.
Having done the appropriate research, many companies choose the direct investment strategy. They establish a company in their target market as a vehicle to undertake their expansion into Asia. Thorough research on costs and logistics is required to determine the best location for setting up the company.
Government incentives and special economic zones should also be considered as they offer various incentives to foreign investors, including tax breaks, streamlined procedures, and easier access to the local skilled workforce. Supply chains should also be taken into account to ensure products can reach the market efficiently.
Other factors critical to success
1. Analysing market characteristics and adapting strategies
Not only do different countries in Asia present different market opportunities and challenges, they are often vast geographical areas that include numerous internal market variations. It is essential to identify the ideal market characteristics for product placement and adapt the market entry strategies accordingly to ensure the best product traction. This is often made more difficult due to language and cultural barriers, therefore, having organisational capabilities and skilled personnel on the ground is crucial for success.
2. Understanding cultural differences
As just mentioned, cultural issues almost always play a significant role for overseas firms entering Asian markets. The “Western” approach to marketing, pricing, and dealing with local staff may not always be well-received. Understanding cultural standards allows businesses to develop strong relationships and trust, which are highly valued in Asian business cultures. Therefore, it is crucial for companies to invest time in comprehending the local culture of the market they intend to enter.
3. Choosing the right partners for successful business expansion in Asia
Choosing the right partners will play a crucial role in determining the outcome when expanding into Asia. Reliable partners, including distributors, marketing agents, and corporate service providers, are essential for a successful business. Companies should choose partners that complement their strengths and fill gaps in their capabilities.
There may be bureaucratic hurdles to face, and finding a partner that has successfully navigated similar hurdles in the past can be an invaluable asset. Equally, a business model needs to be adaptable to changes in the landscape of the market as those changes occur. Once the right partners are found, communicating with them effectively is vital to ensure the business evolves in the ways needed to be successful.
4. Understanding non-trade barriers
There are many barriers and obstacles of a non-trade nature that can emerge in the markets in Asian countries. Complying with local licensing regulations is a must. A thorough understanding of local supply chains is essential, not only for the importing or manufacturing of products but also the logistics of getting the product to the market. Having a local partner is essential to gain a thorough understanding of any compliance and administrative barriers that may exist.
5. The importance of patience in expanding into Asian markets
An important quality to possess when entering Asian markets is patience. This is required whenever setting up an operation or obtaining licences and work permits. Things do not necessarily move as quickly in many Asian countries as they do in their western counterparts. Additionally, patience is essential for establishing products and services in the market. It may take longer than expected for the market to accept what a company has to offer. In the long run, companies that are not discouraged by short term challenges and have the resilience to overcome them will be rewarded. This is all part of the planning process before entering the market.
Asia is a large, attractive, and growing market. While Asia offers significant opportunities, those opportunities also come with risks. Effectively managing those risks requires a comprehensive, well-considered strategy that sets out in detail the planned steps for entering a market and succeeding in overseas expansion. With the right planning and the right partners, a company’s expansion from its home market into Asia can be a great success.
Questions? Acclime can help.
The above is an overview of the key considerations when expanding into Asia. There are many additional nuances worth exploring depending on the market.
Acclime advises investors in developed and emerging Asia-Pacific markets. Businesses interested in expanding into these markets can contact Acclime and consult with local experts at our offices throughout the region who will help identify the advantages of investing in the current economic climate.