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.
Export
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.
Licensing
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.
Direct investment
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.
