An interactive Asia B2B marketing and growth strategy blog from www.solidiance.com to discuss ideas, thoughts and spread the "Growth & Innovation Gospel" across Asia
A casual interview with Heiko Bugs -Director China, Solidiance on the state of Asia business at end of Quarter 1, 2009
Q1. What is the current status of Asian economy – does it reflect the global recession trends?
“Yes, there is no doubt that Asia is being affected by the global downturn. There are four factors that play a role. Exports are slowing down as the US and Europe consumption is declining, there is a knock on effect as companies reduce inventories to improve their working capital situation further delaying purchases. Many international companies are under pressure in their home markets and this has slowed down expansion and investment activities in Asia. The last factor is overall appetite for risk and the cost of money. Everyone is currently in safety mode. Nevertheless consumers are more upbeat in Asia, local consumption is still growing and local governments, and especially China has introduced a massive investment programs worth over 570 billion USD. India and China will achieve 5+ x% GDP growth this year”
Q2. With so many US/EU firms looking at expansion in Asia, do you think it is the way to go for global MNC’s to pursue growth?
Are there any key markets (country specific) in Asia that are attractive? “Asia is and will be an important growth engine for years to come. The current crisis in the West is rather accelerating this transition. Regarding interesting markets, there is no easy answer as development status, consumption patterns, business culture, technology level etc are fundamentally different across Asia. Ranging from food and mining in Uzbekistan and Kazakhstan to 3G in China, from IT outsourcing in Malaysia and Philippines to construction materials in Vietnam.”
Q3. Is China still attractive to US/EU firms? How is China’s new stimulus plan a benefit to them? Has it been effective?What are the attractive points or competitive advantage of China compared to India, Indonesia, Vietnam or SEA in general?
“China is already a powerhouse in Asia and it will not stop here. The face of China is changing and the opportunities are changing with it. Initially China was known for its cheap products and low cost labour but it has been pushing hard to make the transition to mid/high-tech. Aggressive Chinese companies push into Asia and beyond, competing successfully with traditional machinery manufacturers such as Japan or Germany. But it is also no longer a cheap place. Stricter labour and environmental laws, RMB appreciation, the cutting of VAT rebates and a shortage of qualified labour have lead to significant cost increases. This has opened up opportunities for other places in Asia. A good example is Vietnam and to some extent Bangladesh which have absorbed some of the lower value manufacturing.”
Q4. What are some common misconceptions about doing business in China? How has China changed during the past 10 years? How long will China sustain the current growth rate and where do you see China in the next 10 years?
“Aside from China as manufacturing base, the lure of China was always the (potential) size of its domestic market. For many years this has been not more than a dangling carrot for many international companies. While the market was growing, it was coming from a very small base and it took the last 15 years to develop. Finally domestic consumption has matured into a significant growth factor. Now the challenge is in setting up and maintaining distribution networks serving not only Tier 1 and 2 cities. I am very bullish for China 2020. Partly because of domestic consumption, partly because of China’s proven ability to adapt to changing environments. The political risk of doing business in China is also significantly lower than in Thailand, Indonesia or other more volatile places. And last but not least – the people. Everyone here has the dream to make it big, is driven by ambition and values opportunities over problems.”
Q5. A company considering establishing a presence in China understands that it is not a straightforward task. Can you give some examples of what companies need to know or expect before setting up in China? Where could a company most easily make mistakes trying to enter into China market?
“Most large companies are already present in China and their challenge is usually how to manage growth, how to launch new products and to penetrate the market. Whether it is a market entry or an expansion, it is always critical to understand customer purchasing behaviours and the competitive landscape. Distribution is the current bottleneck for many companies. Do I work with a strict regional split or a matrix system. How should I structure incentives for sales staff, what is the best mix between in-house sales and external agents. What is the cost structure and margin of my key competitors, what is their USP and which strategy will allow me to attack. Because one thing is sure – you will face fierce competition wherever you go.”
Q6. How will regional currency trends impact businesses?
“China has earmarked two provinces (Yunnan and Guangxi) to test direct RMB transactions with other ASEAN countries. The Yangtze River Delta region will become testing region for free currency transactions with Hong Kong and Macao. RMB transaction could be starting within the first half of 2009, which would lead to an increasing trade volume. Eventually we would see the RMB emerging and as a dominant currency in Asia. China is currently monitoring the effect of its economic stimulus plan. If the economy bounces back, it will take a while until we see a freely convertible RMB else this could become a reality within this year.”
Q7. How are your clients reacting? Any success stories?
“We see a whole range of different developments at the moment. While most companies are still in a “”wait and see”” mode a couple others are busy preparing for an aggressive expansion. I spoke with the marketing manager Asia of a large multinational last Friday and they are currently working on a growth plan, have identified key customers and industry verticals and are eager to capitalize on the weakness of their competitors. A crisis accelerates change. When the dust settles some will have lost out to competition, others will have made a big leap ahead. The choice is yours…”