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Why Manufacturers and Distributors Should Consider Expanding Into Asian Markets

Posted by Allan Peiser, CPA on Feb 3, 2016 10:41:18 AM

Selling to Asian markets doesn't have to involve moving operations to Asia. The process of adding customers in Asia while keeping production in the West is now faster, less costly and more reliable than ever before. In a time of global economic uncertainty, it's critical for the survival of modern manufacturers and distributors to take another look at the recent improvements in shipping and supply chains that stretch to Asia. The rewards of doing so could introduce your company to, quite literally, billions of new customers.

Some manufacturers shy away from Asia due to the added logistical hurdles or because they've seen others struggle to establish a name for themselves there. Regardless of what's gone on in the past, it's a different world now and technological capabilities in the market are accelerating. Truly, the argument for expanding into Asian markets comes down to two factors: a vastly improved supply chain and greater income growth than in the West.

Many business owners realize that Asia has 60 percent of the world's population today and that just two countries - China and India - have one third of all the people on Earth. What they may not realize is that Asian populations are growing, particularly in the Middle East and India, while Western populations continue to drop steeply. However, the real story is in purchasing power. The World Bank and The Asia Foundation project an annual growth rate of around seven percent for Asian economies through at least 2018, making it the central engine of global growth for the foreseeable future.

The Outlook on China

Some aspects of regional cultures, particularly in China, make selling to these markets a much more favorable proposition as long as you do a bit of research on what motivates buyers. For example, a larger percentage of Chinese buyers put a high priority on purchasing luxury goods, according to recent research on China from The Economist. Some estimates estimate half of the world's luxury spending will come from China in the very near future. Growth numbers for their middle classes have been enormous, and that is opening up vast reserves of disposable income.

Due to cultural pressures, goods related to social status rank highly on consumer wish lists. A related study by retail tourism specialists Global Blue found that 82 percent of Chinese travelers considered shopping to be central component of their travel plans. Indeed, Chinese tourists averaged around $2,800 per person in spending on their visits to Britain last year. That also means that Chinese shoppers will act as de facto brand advocates when they return home, inspiring demand for the Western brands that they purchased on their travels.

On a grander scale, it’s important to look at the volume of goods that Asian firms manufacture for other markets around the world. These manufacturers often have to rely on Western suppliers for parts. Studies by Spencer Stuart International revealed that the top Asian supply chain leaders and manufacturers, especially those serving Chinese markets, are constantly in search of alternate suppliers. This serves to strengthen their negotiating power and keep them up-to-date on advances in manufacturing technology.

India in the Coming Decade

India is the other vast and rapidly growing consumer market, with a middle class that is on schedule to expand by 10 fold over the coming decade according to research by McKinsey & Company. From the 12th largest consumer market today, India will grow to be the fifth largest over the next few years.

McKinsey's report concluded: "Businesses that can meet the needs of India's aspiring middle class, keep price points low to reflect the realities of Indian incomes, build brand loyalty in new consumers, and adapt to a fast changing market environment will find substantial rewards in India's rapidly growing consumer market."

Best Entry Points into Asian Markets

There is no need to wait for a future middle class. Positioning to capture future markets can begin with exploring mature markets in other regional centers, particularly in Southeast Asian urban centers. Thriving Asian markets that have had the most time to adapt to Western business practices include those in Singapore, Hong Kong, the Philippines, Vietnam and Thailand. These are also regional marketplaces where English speakers are plentiful, and there is also the reliable support of thriving expat communities.

These are the regions that tend to provide an easier approach for Western companies just beginning to explore new buyer relations in Asian markets. Supply Chain Quarterly summed up the collective experience of many manufacturers and distributors who have been successful in Asia over the past few years in saying, "the infrastructure differences in Asian countries have made it necessary for companies to experiment with alternate routes to market. Markets like Japan, South Korea, and Singapore, with their well-planned cities and superior infrastructure that allow for economies of scale, operate in a completely modern trade environment."

The Asian Century

The media has proclaimed that our age since the Millennium should be known as "The Asian Century". That's reasonable considering population projections and the economic growth of the middle class across the continent. What role will your company play and what cultural impact will it have in the Asian Century ahead? There will be only one way to find out: expanding your reach into wealthy Asian markets.

For additional information on ways to help your manufacturing business grow and thrive, contact the tax and consulting professionals at Goldin Peiser & Peiser, LLP.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: Manufacturing, Asia, Exporting