Go East: it's time for Asia!

By Denis Depoux

Asia in experiencing population growth, rapid industrial development and better economic growth rates than those of Europe and the United States. For many industries, the region has become the center of gravity, the place where the future begins. Yet, Asia is a region of great diversity, and that poses a challenge to countries from the Global North wishing to carve out a slice of these attractive markets for themselves. How can they build a presence in Asia and what to they stand to miss out on if they don't? We examine why Asia's star is rising and what you should be doing about it.

Why Asia?

Asia is the most dynamic region in the Global South, the group of more than 100 countries in Asia, Africa, Latin America and the Middle East that are home to around 80 percent of the world's population. This group, many of whose countries are seeing burgeoning young populations, rapid urbanization, expanding middle classes and rapid technological advancement, offers a wealth of potential for international businesses. But within the region, it is Asia that has become the center of gravity for many industries and an increasing focus for overseas businesses.

How has Asia achieved this pole position? The continent has well developed ecosystems, built by Chinese companies keen to diversify their supply chains and ripe for exploitation by overseas market entrants. In addition, many South and Southeast Asian countries are undergoing a shift from a resource-based economy to a transformational economy, with individual countries offering different strengths that can be leveraged by incoming companies. The region offers strong capabilities in multiple industries, including energy equipment, construction materials, automotive, chemicals and pharmaceuticals. And while innovation is to some extent stalling in the United States in Europe, Asia is becoming a world innovation hub on the back of its growing populations, ecosystems and investments.

A reshuffling of supply chains

Much of the new focus on South and Southeast Asia is driven by companies striving to reduce their dependency on China – including Chinese companies eager to diversify their footprint. This has combined with factors such as the COVID-19 pandemic, Russia's ongoing war in Ukraine and the energy crisis to cause a reshuffling of supply chains. North American and European companies are now investing in South and Southeast Asia and taking advantage of regional trade opportunities, at the same time improving their diversification and avoiding potential trade tariffs imposed by China. In parallel, Chinese players have been developing local ecosystems, making South and Southeast Asia a region of opportunities for players from around the world.

Mastering the challenge

The diversity of Asia poses challenges for players, however. Asian markets are sophisticated and complex, with their own cycles, structures, segments, distribution patterns, logistics and stages of development. Consumer expectations differ widely from those of North American or European customers. The region is home to many cultures, with limited commonality between countries such as Japan, China, Korea and India. Moreover, administrative and regulatory complexity mark the region, with rules and regulations differing widely from one country to another. And, of course, Asia is geographically vast, creating logistical challenges.

How can international businesses master this complexity? The solution, we believe, lies in becoming Asian in Asia. By this, we mean taking a local approach, understanding the ecosystem and managing the market from within; indeed, trying to manage the market from outside is expensive, impractical and very likely doomed to failure. Companies need to build their own octopus-like structures, embedding themselves within Asian ecosystems, supply chains and markets. They can capitalize on Asian governments' desire to promote foreign investment by creating favorable conditions for social and economic development. We also recommend that they shift their decision-making processes to Asia, allowing them to control their local presence more effectively and exploit local design, research, production and financing resources.

Another priority for international businesses entering the Asian market is to recruit and develop local talent. While labor markets especially in South and Southeast Asia benefit from a high share of people of working age, finding the right people with the right skill sets can be difficult. Here, we recommend strategic workforce planning, including a systematic approach to identifying gaps in the workforce, defining the required skill sets, filling recruiting pipelines and, where locally skilled people are not available, upskilling employees accordingly. This information will also be invaluable in empowering market entrants to navigate Asia's diverse set of employees, suppliers and customers.

Want to find out more about how you can build a presence in Asia – and how Roland Berger can help you on this journey? Contact one of our experts below.

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