Geopolitics and doing business in Hong Kong and China.
The Asia-Pacific region has become the economic growth engine for the world, presenting massive potential for foreign businesses. As a group, Asian economies now represent as much as 40% of global GDP.
This presents an exciting opportunity for Australian businesses. But before you rush to expand your company into Asian markets, it’s important to step back and the nuances and challenges of the Asian region, so that you can get your strategy right.
There’s no doubt about it … the opportunity is huge.
APAC is home to over 4.5 billion people – nearly 60% of the world’s population. It’s a diverse region with seven of the world’s ten most populous countries including China and India.
The rapid development of Asian economies and the economic and social transformation of these countries, particularly China and India has created 3-4 billion new individuals with purchasing power and big dreams. Suddenly, there are a lot more people to sell to.
- India’s electronics market is expected to increase from US$28 billion in FY17/18 to US$100 billion in 2020.
- In China, high quality Australian milk can sell for up to $9 per litre, compared to $2-$4 per litre at home.
We Have What Asia Needs
Image source: asialinkbusiness.com.au
While the bulk of Australia’s exports to Asia are concentrated in commodities like meat, wheat, coal, gold and copper, there’s a close match between what we can supply and what Asian consumers want across a range of sectors. Goods and services that Australia produces that are in demand in Asia include quality education, amazing holiday destinations, high quality food, organic cosmetics, wonderful wine, awesome coffee and trusted baby products.
Unfortunately, massive opportunities usually come with strings attached, and this is definitely the case for Asian markets. Here are a few of the challenges you’re likely to face …
Similar, yet so Diverse
Asian countries seem similar to outsiders but are actually highly diverse. You can’t afford to assume that what works at home will work in Asia (it might not), or that a “one-size-fits-all” strategy will succeed (it definitely won’t).
Take McDonald’s for example. The fast-food giant famous for its focus on meat had to add vegetarian meals to its menu when it entered India.
You need a specific strategy for each country based on the local business environment, laws and regulations, market trends and customer preferences.
Don’t assume that Asian markets will be a walk in the park. It’s likely that you’ll have to deal with stiff local competition.
Naturally, local companies have a home team advantage. That’s because they have a better understanding of the local preferences and challenges better than you do, and probably have an established customer base too.
But the challenge doesn’t end there. With dramatic growth in most Asia economies and a growing middle class in China and southeast Asia, local businesses now have more capital than they used to. They also have access to sophisticated advisory services to help them compete against well-healed Western businesses.
In some economies, companies also have significant government support. Singapore and Hong Kong provide extensive assistance to companies looking to “go global” and China’s government has established five-to-ten year plans for local businesses to grow. China also has high concentrations of wealth among members of the Communist Party and related business families.
And just in case you thought that your technology had to be better than anything in Asia … you could be wrong. Contrary to what many in the West presume, innovation in Asia is booming. You only need to look as far as Indian ride-sharing giant, Ola or Indonesian delivery app, Gojek to see that.
When it comes to payment options in Asia, there’s a lot of complexity to get your head around. Although it is leading trends like ecommerce and mobile payment adoption, it’s also one of the most fragmented regions when it comes to payments. Some economies still rely on cash as a key means of payment, but others, like China are moving to a state where most payments are made digitally and on mobile devices.
Chinese consumers also favour payment methods such as Alipay, UnionPay and WeChat Pay, which are known, but not widely used in Australia.
Light Financial Regulation and Enforcement
Asia’s financial regulation landscape is also fragmented. While countries like Singapore are highly regulated, others have far less financial regulation than Australia and enforcement can be patchy. A number of Asian economies are also well-known for corruption and using back-channel methods to do business.
These factors can create uncertainty for foreign companies around what constitutes acceptable business practices and legal compliance risks. Businesses operating under compliance protocols like the OECD Anti-Bribery Convention and the US Foreign Corrupt Practices Act (FCPA) may be less competitive in this kind of climate. If you want to get ahead, there may be hard choices to be made about how flexible you’ll be in the way you operate.
Currency Rate Fluctuation
There is no single regulator of Asia-Pacific region currency trading and Asian economies can maintain low rates of exchange in order to promote exports (China’s recent moves to devalue its currency are a classic example of this). Foreign companies often have to work with local currencies and complex regulatory environments, creating further challenges to growth and profitability.
Varying Legal Systems
No two jurisdictions in Asia are alike and you have a different set of rules and requirements to comply with in each new market you enter.
Even though some Asian economies have undertaken significant economic liberalization, many still place significant restrictions on the operations of foreign companies. Local shareholding requirements are also common.
Weak protections for intellectual property and proprietary technology can also be a challenge for foreign companies who face thriving counterfeit markets in local Asian economies.
In some jurisdictions there is a question mark over the impartiality of local judiciaries to set and maintain legal precedent, which protects intellectual property and proprietary technology.
Unique Business Cultures
Lastly, but importantly, Asian business cultures are distinctly different to Western business culture, and the differences go much deeper than whether to hand over your business card with one hand or two.
To varying degrees, Asian cultures focus on hierarchical structures and group dynamics over individual autonomy, which is almost the opposite to what you find in a country like Australia. Gender gender norm applies in some countries too.
Asian companies benefit from a preference for local talent and protectionism of local industries and business practices. Governments in Asia underpin these practices with policies that favour local culture and business, sometimes at the expense of Western companies.
Asia is an amazing place for companies with big dreams and an appetite for risk … but to do well, you need to do it right!