16 Oct 2014

Expanding overseas? Consider these markets

For many Australian organisations, overseas expansion is a necessity at some point. Our relatively small population and expensive business climate caps potential growth, while the country’s location close to Asia opens up many potential expansion opportunities.

America and Europe (especially the UK) have traditionally been where Australian organisations have expected to look to when expanding overseas, but the growth of Asian markets have meant that for many organisations it now makes more sense to look closer to home. With better time differences and economies that are already comfortable in dealing with Australian organisations, Asia is increasingly the first expansion opportunity for local businesses.

Each market through Asia is different, however, so here’s a couple of summaries of opportunities and challenges that are unique to each market to get you thinking.

China

Opportunities – China has a massive population and is a rapidly growing economy – it overtook Japan to be the world’s second largest economy a few years ago and the rate in which cities are being built up is staggering.

Challenges – It’s a market economy that is detached from other economies in the world, meaning that no matter how strong your brand is, there’s every chance that it won’t succeed in China. In fact, it’s estimated that as many as 37% of products that succeed in western economies (including the US) fail in China.

There’s also some bureaucracy and governmental challenges to manage, and despite the size and modernisation of the economy, corruption remains a challenge as well. However, the biggest concern that Australian organisations need to watch out for in China is Intellectual Property. China has very different IP laws and if your business relies on patents and the like for competitive differentiation, you might find the legal system in China to be a hostile one should a situation arise.

Japan

Opportunities – Japan has a highly skilled workforce and a lucrative consumer environment. Despite its economy being eclipsed by China, Japan also remains a hub of R & D and its people have an average wage of close to $25,000; well above China’s average wage of just shy of $5,000. Individual Japanese citizens have a much higher buying power than individual Chinese citizens, in other words, and this translates into a high consumption society – Japan is competitive but lucrative if you can develop a presence.

Challenges – Japan ranks below 100 in the world in terms of ease of doing business within it. More than any other market in Asia it is essential to have local help on board for any attempt to break into the market, as relationships are king and the business environment is filled with confusing red tape for the uninitiated. A difficult regulatory and taxation market requires a lot of man hours to manage properly, and with 6,852 islands, doing business across Japan isn’t as logistically easy as its relatively small landmass would suggest to reach the entire population.

Singapore

Opportunities – Singapore is perhaps the most natural initial expansion point for Australian companies. With English as its national language, and a healthy expat population, Singapore is a city that is already modern, vibrant and “westernised”. It also has a business culture that is closer to Australia in terms of regulation than any other nation throughout Asia. It’s also the easiest city in the world to do business in, according to the World Bank and International Finance Corporation.

Challenges – Because Singapore is so easy to do business in a lot of businesses are doing business in it. With a small population (six million or so is a large city, but a small nation), margins tend to be very tight in Singapore thanks to this competitiveness and growth is limited by the raw population. Most organisations use Singapore as a stepping stone into other Asian nations.

South-East Asia (including Vietnam, Thailand, Malaysia and Philippines)

Opportunities – The growth through South East Asia is staggering, with Thailand, Malaysia and Vietnam especially reporting rapidly modernising economies. Furthermore, nations such as Philippines and Myanmar enjoy massive growth potential and big populations, even if they’re not economically stable yet. These markets are also relatively uncompetitive with fewer multinational corporations and smaller local businesses than nations such as Singapore, China and Japan.

Thailand especially is worth highlighting as a nation with a strong history of protecting investors, making it a popular “test centre” for new products. This is backed by some of the strongest intellectual property rights laws in the region.

Challenges – Corruption is an ever-present challenge in South East Asia, especially among the less developed economies such as Philippines and Myanmar. Australian businesses will need to be very ready to adapt to very different business cultures and aware of strategies to avoid coming up against corruption. A local business partner that understands each environment is a must.

Political risk is a problem throughout South East Asia as well, and even the more advanced economies such as Thailand are prone to wide-scale protests, riots, and military action. These can severely affect a businesses’ capacity to transact.

Obviously entering a new market is never done on a whim and any organisation will take the time to do due diligence research before setting up its business. But by making good use of the information resources available to Australian organisations, the proximity of the Asian markets makes them much more attractive opportunities than setting up in Europe or America.

Top