8 Success Factors In Emerging Markets Opportunity Analysis for South East Asia

May 20, 2014. Rising domestic demand in South East Asian countries has made the ASEAN region a key focus of new investments by multinationals. Of particular interest are ASEAN’s emerging markets, Vietnam, Cambodia and Myanmar. According to the Organization for Economic Co-operation and Development (OECD), growth will remain robust in the medium term, growing at a pace that is comparable to pre-global financial crisis times. Real GDP growth rate in the Southeast Asian region is projected to average 5.4% per annum between 2014-18. What are the success factors in ASEAN's emerging markets?

Those familiar with Asia will know that the rate of economic development of each market is distinctively different, in spite of their geographic proximity to each other. Each South East Asian market has be looked at individually, as shown by the charts below.

Year to reach high-income country status (best scenario)

Projected-time-to-become-high-income-countries-based-on-best-scenario__www

Differences Between Southeast Asian Countries

South East Asian Countries Real GDP Growth (2014-18) Challenges Required Medium-term Policy Responses*
Lao PDR 7.7% Poverty
Natural resource management 

Infrastructure

Reduce poverty through inclusive growthImprove national resource management, in particular mining, to ensure environmental sustainability

Develop transport infrastructure to speed up rural development

Cambodia 6.8% Agriculture 

Financial sector

Tourism

Improve productivity of agriculture, in particular rice productionImprove the prudential and supervisory framework for the financial sector

Develop tourism-specific infrastructure

Myanmar 6.8% Private sector development
Human resource developmentFinancial sector development
Create a business-enabling environmentUpgrade education and anticipate future demands for skilled labour

Create a stable and efficient financial system

Indonesia 6.0% Education 

Disaster management

Social security reform

Widen access to education, in particular for low-income householdsStrengthen natural disaster management and protection infrastructure

Accelerate reform of the pension system to improve transparency and quality

Philippines 5.8% PovertyHuman capital development

Governance

Create more jobs for sustainable poverty reductionBuild holistic disaster risk reduction and management capacities to reduce vulnerability to natural hazardsImprove agricultural productivity and transport infrastructure in Mindanao
Viet Nam 5.4% Human capital development 

Private sector development

Financial sector development

Increase access to education and strengthen TVET to improve the quality of human capitalEase access to credit and lower transport costs to develop the private sector

Restructure the financial system to enhance the effectiveness of monetary policy

Malaysia 5.1% EducationSME development

Taxation

Improve the quality of educationImprove the productivity of SMEs

Widen the tax base and improve tax administration and compliance

Thailand 4.9% Education 

Agriculture

Green growth

Upgrade human capital by improving the national curriculum and teaching standardsImprove agricultural productivity through modernisation and education

Improve institutional co-ordination to achieve green growth

Singapore 3.3% Land use
SME development 

Education

Optimise land use and allocation by incorporating a green growth strategyRaise SME productivity through well co-ordinated assistance programmesStrengthen lifelong learning to increase labour market flexibility
Brunei Darussalam 2.3% Human capital developmentPrivate sector development

Innovation

Improve private sector development to diversify beyond the hydrocarbon economyLegislate and implement competition policy

Improve tertiary education attainment

Source: OECD Development Centre, MPF-2014. The cut-off date for data is 6 September 2013. *As suggested by OECD.

Common mistakes in emerging market entries

In fact, most companies that have already ventured into Asian markets admit to having made strategic errors along the way. According to the “Business Perspectives on Emerging Markets 2012″“2017″ report by M-Brain (formerly Global Intelligence Alliance), fewer than one in 10 companies say they were completely satisfied with their strategy on emerging markets.

The main regrets are not adapting more to local conditions, not entering sooner and not acquiring better market intelligence. Over half say that information on emerging markets is not readily available in their organizations, with three out of four doubting the accuracy and completeness of the information that they do have.

After these most common problems, a host of other potential pitfalls awaits the unwary. Not seeking a local partner, inefficient decision-making, failing to cultivate local talent, not anticipating supply-chain issues, not building sufficient government relationships and rushing into a new market unprepared, all feature as potential traps for companies entering Asian markets.

8 success factors for South East Asia market opportunity analysis, with cases

1. Invest in proper market analysis

Assess your market opportunities carefully. The available addressable market for many foreign companies entering South East Asia is much smaller than the total market, and it is essential to define that market segment, understand your potential customers and competitors, and target it thoughtfully.

So be selective about which markets to enter. Don’t just follow the herd””use market intelligence to specifically identify the best opportunities for your company.

Every market is different and it would be foolish to transpose key assumptions from one to the other, so treat the market analysis of each South East Asian country separately.

2. Invest in local products and services

Expect to adjust your business model and your pricing to suit local conditions.

For example, a Japanese technology company client wanted to explore the market opportunity for its new software product in key ASEAN markets, but understood that some aspects would need to be customized to local market requirements. M-Brain (formerly GIA)’s research helped the company adjust the product to better serve their target customers.

3. Invest in regular intelligence updates

Ensure you get local insights from ground zero on an ongoing basis. This may be easier to do in mature markets such as Singapore, Malaysia or Thailand, but gets much harder when it comes to ASEAN’s emerging markets, where much activity happens under the radar and outside the realm of easily available information.

For example, a world leading mining enterprise commissioned M-Brain (formerly GIA) to provide daily market intelligence on local developments through an outsourced team of analysts, with both the mining industry knowledge, as well as research and language skills to monitor the client’s specified business areas.

4. Invest in local decision making

Put together a specific decision-making team and/or process for your South East Asian market entry to ensure there is sufficient focus on the opportunity and the potential risks. Use local talent and transfer global best practices, training and standards to your team in ASEAN.

A Southeast Asian telecom operator needed an effective way to expand its strategy team resources without taking on additional headcount. M-Brain (formerly GIA) was commissioned to provide this client with agile analytical resources required to monitor evolving trends, innovations, regulations and other market issues in South East Asia, to assist the operator’s senior management in making properly informed decisions.

5. Invest in local partnerships

Consider teaming up with a local partner, but do your due diligence before signing any contracts, and don’t be afraid to do it alone if that really looks to be the best course of action. One example here is finding reliable local resellers. A global IT company client believed its new software product could see good growth opportunities in Thailand. However, it faced a mammoth challenge in understanding the market, without speaking the local language and understanding the local regulations. It relied on M-Brain (formerly GIA)’s local network to identify suitable local partners that would help them sell into the market.

6. Be prepared to develop some local infrastructure

Remember to consider and address supply-chain and procurement issues in advance. Materials, transport and logistics costs can destroy your margin in markets where your prices will almost inevitably be lower than in your home markets.

7. Build key stakeholder relations

Another critical consideration is government relations. Ensure you know who the key stakeholders in the local governments for your target markets are and keep them updated on your company developments.

A global exhibitions company wanted to understand the market potential and its go-to-market strategy for shows on environmental issues in South East Asian markets. M-Brain (formerly GIA) was engaged to speak with key regulatory bodies to understand local governments’ support for green initiatives. This in turn helped to build relations with key influencers before market entry.

8. Invest for the long term

Be prepared to commit resources to South East Asia markets. The payoff may not be immediate, but the long-term prospects could be very attractive.

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