You have a successful business operation in Europe, Australia or the US and you are looking to expand your horizons. The Asian market is an attractive one, with over 60% of the world’s population living there. The continent is a vast one to cover, so maybe you set your sights on the smaller ASEAN market, where 650 million people reside. Either way, Acclime is here to help your expansion into the region.
The old adage of businesses don’t plan to fail; they fail to plan is particularly true in Asia. A carefully thought out strategy is required to plan your foray into the market, with specific countries targeted. Whether you are looking to simply sell your products in the region or set up manufacturing facilities in Asia, planning is key.
Market entry report
The first thing that should be commissioned by a company looking to expand into Asia is a market entry report that covers the countries in which the company sees potential new markets for its products. A market entry report will cover the demographics of the market that you are considering, its competitive landscape, relevant pricing points, local customs, the regulatory environment and any incentives that are available in a particular country to attract your business.
The market entry report should examine the three main ways of entering a market – export, licensing or in-country manufacture.
Exporting is the least risky alternative in expanding a business as you retain control of the manufacture of your product in your home country. The capital investment required is less than setting up in a foreign country, and you have time to learn the market without committing a large investment upfront. The disadvantage is that you are relying on a third party to sell your goods, unless you put a marketing resource in the country. This decision should be made after conducting a thorough marketing analysis in the country in which you are seeking to enter. The market analysis is vital whether you are exporting or actually manufacturing.
The marketing analysis will provide you with an idea of whether you need your own marketing resources in-country, or whether you can rely on a local agent. Also very important in an export model are the logistics of supplying the product to the market and the distribution to customers.
Under a licensing model, a company looking to sell its product in Asia would license the manufacture of a product to a local manufacturer. This method is popular in the beverage industry, for example, with many beer manufacturers licensing the manufacture of their product to local companies. The main advantage in the beverage industry is that local manufacture avoids costly transport of goods that are, for the most part, 95% water. There is a limited amount of capital that needs to be deployed in a licensing scenario, as the licensee will make to investment. However, because of the investment required by the local licensee, longer-term licensing agreements or joint ventures are usually required.
Having done the appropriate research, many companies decide to set up a company in their target country(s) as the vehicle to undertake their expansion into Asia. In determining whether this is an appropriate strategy, thorough research on costs and logistics needs to be done to determine the best location in which to establish. Government incentives and Special Economic Zones should be considered as well as the supply chain to ensure your products can get to the market efficiently.
Factors critical to success
1. Know your market
Not only do the different countries in Asia present differing market opportunities and challenges, but there can be numerous market characteristics within one particular country, for example, in China and Indonesia which are vast markets spanning a large geographical area. You need to analyse where your product will sell best and the strategies that you need to adopt in the various markets to ensure traction for your products. You need to have the right organisational capabilities and appropriately skilled personnel on the ground to navigate the local market.
2. Know the local culture
Asian markets are not necessarily receptive to the western way of doing things – from marketing through to pricing and dealing with local staff, cultural issues play a large role. Spend time getting to understand the local culture of the markets that you intend to enter. This will save time and frustration in the longer term.
3. Find the right partners
The right partners in your business journey will make a huge difference to the potential success of your business when expanding into Asia. Reliable partners in your business such as your distributors, marketing agents and corporate services providers are critical to success. In looking at potential partners, a business should examine its strengths and weakness and choose partners that complement their strengths and fill the gaps in the company’s 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, your 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 way needed to be successful.
4. Understand non-trade barriers
There are many barriers and obstacles of a non-trade nature that can be thrown up in the markets in Asian countries. Complying with local licensing regulations is a must. You need a thorough understanding of local supply chains, not only for the importing or manufacture of your products but also the logistical issues of getting your product to market. Comprehending the local customs can be the difference between success and failure – in this respect, a local partner is essential to give you a thorough understanding of the culture as well as to potentially overcome any language barriers that may exist.
An important quality to possess when expanding into Asia is patience. This is required in setting up your operation, obtaining licenses and work permits. Things don’t necessarily move as quickly in many countries in Asia as they do in a company’s home country. Also, patience is essential in establishing your products and services in the market. Market acceptance of what you have to offer may take some time. Not being discouraged in the short term and having the resilience to overcome the short term challenges should be rewarded in the longer term. Another key part of patience is possessing sufficient capital to give the business the chance to overcome the shorter-term challenges. This is all part of the planning process before entering the market.
Asia is a large, attractive, growing market. With the right planning and the right partners, such as Acclime, your expansion out of your home market into Asia can be a great success. Asia offers significant opportunities, but those opportunities come with risks. Managing those risks requires a comprehensive, well-considered strategy that sets out in detail the planned steps to enter the market and succeed in your overseas expansion.