The pros and cons of breaking into the Asian market

Asia’s relatively high growth forecasts make it an alluring market for businesses with expansion plans. Find out more about the pros and cons before you decide whether breaking into the Asian market is for you.

China and India lead the world in terms of economic growth forecasts for 2012 and are likely to be the driving force behind the global economic recovery for quite a few years beyond that. If you couple this with the burgeoning middle class and growing consumerism across many countries in the region, targeting Asian countries seems like the most profitable and logical option for any business looking for new markets.

But, successfully expanding into a foreign market can be a lot harder than it sounds. Here’s a quick list of the pros and cons to help you decide if Asia is the right target market for your business.

Pros:

Asia is a large and diverse market with an emerging middle class and strong growth forecasts.

China is expected to displace America as the largest economy in the world, and India is likely to overtake Japan to become the third-largest economy, and steady to strong growth is expected from a number of other Asian countries including Russia, Indonesia, Malaysia, Thailand, Hong Kong and Iran.

·       While entering a market in a growth phase does not provide an ironclad guarantee of success and profits, it does increase the likelihood. Targeting a market in a growth phase improves your odds.

·       Consumer confidence and spending are likely to be higher than in other markets providing demand-driven growth. Good news for businesses offering the right products and services.

·       Asian companies are more likely to be profitable in a growth phase. This decreases (but does not eliminate) the risk of payment defaults – especially relative to countries, such as EU-countries, experiencing a much slower recovery.

·       Asian currencies are likely to remain strong, making imports from countries with weaker currencies more affordable, and potentially also more profitable.

·       Asia has a rapidly expanding middle-class driving growth in many areas.

Cons:

Asia is not one large homogenous market; it has many different cultures, languages, norms and ways of doing business.

·       With the notable exception of India, where English is widely spoken by businesspeople, most Asian countries will have both language and cultural barriers to entry.

·       There will be hidden costs involved in getting up to speed on import restrictions and requirements, packaging needs, regulatory red tape, as well as country-specific cultural norms and local business etiquette.

·       Customer preferences can differ quite markedly from the local Kiwi market and you’ll need to research consumers in each country (and possibly in different regions of the same country) to ensure you provide what your Asian customers want to buy.

·       You’ll probably need a new marketing strategy, complete with brand name and packaging, to suit your target country.

·       Local knowledge is indispensable for almost any export venture, but more so for Asian countries. You’ll either need to use an agent or distributor or possibly open an office in your target country, employing people with local knowledge and experience – and will probably need to travel to the country several times a year, at least in the early stages.

·       As with any export venture you’ll also need sufficient capital to enable you to ramp up production while dealing with longer payment cycles (depending on your terms of trade and shipment methods) and higher transport and delivery costs.

·       Some Asian counties will carry a high risk of copycat products emerging, which means you might need to invest in protecting your intellectual property and brand overseas.

Exporting, in general, carries higher risks and costs than trading in New Zealand, simply because you are further away from your customers and your market. However, if you have a viable product or service, the capacity to scale-up (or outsource) production and sufficient resources to break into an export market, looking East has the potential to provide you with access to a growing and robust market.

This article by Shaz was written as an online article and newsletter article to business banking customers in 2012.