Asia-Pacific Business

Asia-Pacific Marketing Federation Certified Professional Marketer

Copyright Marketing Institute of Singapore

Organization
1) Course objectives 2) How to study the subject 3)Desired outcome 4) Contents

Course Objectives
To provide a foundation of business and marketing practices unique to the Asia-Pacific region. To familiarize candidates in general economic and business climate affected by the PEST environment. Foreign investments and their impact on Asia-Pacific countries.

How to study the subject

Recommended reading list Magazines and periodicals in Asia-Pacific example Asia INC,Asia-week Newspaper reports of happenings in the AsiaPacific region Useful to take part in group discussions to assess how the political and economic issues of the day,changing business landscape (example mergers and acquisitions) impact business decisions.

Desired Outcome
Understand how changing PEST environment in the Asia-Pacific region impact managerial and business practices Appreciate relationship between business and government Understand the dynamics of interactions and influence of the countries within the Asia-Pacific region and the regionalisation and globalisation of their state and private enterprises.

Contents
Overview of the Asia-Pacific region The Macro and Micro-environment Marketing practices Management practices Some key pointers - The Chinese family business - Negotiation techniques Conclusion

Overview of the Asia-Pacific Region

North-East Asia - Japan, Korea, Taiwan, China South-East Asia - Myanmar, Laos, Thailand, Cambodia, Philippines, Vietnam, Malaysia, Brunei, Singapore, Indonesia, East Timor Rest of the Asia-Pacific Region - Australia, New Zealand, Nepal, Bhutan, Bangladesh, Pakistan, India, Sri Lanka

Brief history of the colonisation of the Asia-Pacific Region

India, Burma (now Myanmar), Malaysia, Hongkong, Singapore previously colonised by the British Macau colonised by Portugal Indo-China colonised by France Indonesia colonised by Holland (Dutch) Taiwan and Korea colonised by Japan Philippines colonised by Spain and U.S.A.

Impact of colonisation
Apart from Thailand and Japan, no country in the AsiaPacific region was spared from Western influence 400 years of Spanish presence and another 50 years by Americans has resulted in a Westernised culture in the Philippines Many Dutch words have crept into the Indonesian language Legal systems in India, Malaysia, Singapore and Hongkong are still based on the foundations of British law. The chaebol system in South Korea is very similar to the Japanese keiretsu system

Why the strong interest in the Asia-Pacific Region

Potential to fulfill needs of some 2.5 billion people about 60% of the worlds population Need to understand the wide diversity of cultures culture influence needs and business practices Stages of economic development range from underdeveloped nations, e.g. Myanmar, Laos, to developing nations, like Malaysia, to Newly Industrialised Economies, like Singapore and Taiwan, to fully developed nations like Japan - presents both threats and opportunities

Why the strong interest in the Asia-Pacific Region

Huge potential for infrastructure projects Rapid changes in political leadership in several Asian countries e.g. Philippines, Thailand and Indonesia Emergence of consumer credits IT demand in U.S. accounted for nearly 40% of economic growth in Asian countries in Year 2000, outside Japan

Association of South-East Asian Nations (ASEAN)

Formed in 1967 - today comprise of Thailand, Malaysia, Singapore, Indonesia, Philippines, Brunei, Myanmar, Laos, Vietnam and Cambodia Set up as a group for closer economic, social and cultural cooperation Trade between ASEAN partners (except Singapore), still not very significant Economies of ASEAN countries dominated by Chinese, although they form only about 6% of the regional population

ASEAN Free Trade Agreement (AFTA)

Launched in 1990 Supposed to convert ASEAN into a free trade zone or at most 5% duty by 1st Jan. 2003 Raw or unprocessed agriculture to be included under AFTA No progress made in the area of services

EAEC & APEC

EAEC _East Asian Economic Caucus - an economic grouping without Westerners Comprise of ASEAN and Northeast Asian economies No significant progress in this alliance APEC - Asia-Pacific Economic Cooperation Forum (ASEAN + China, Taiwan, Hongkong, South Koreaa, Japan, U.S., Canada, Mexico, Australia, New Zealand, Papua New Guinea and Chile) APEC not truly an Asia-Pacific body as U.S. and Canada contributes to a large portion of the trade

Newly Industrialised Economies (NIEs)

Consist of South Korea, Taiwan, Hongkong and Singapore Most successful economies in the world with sustained growth rates of 7-8% p.a.(until the 1997 economic crisis and the 2001 global downturn) The only economies in the developing world likely to catch up with industrialised countries in terms of technology, infrastructure and per capita income One of the key drivers of the economies of Taiwan and Singapore is the electronics industry

The Macro and MicroEnvironment

Business is affected by key changes in the macro and micro-environment Changes can present opportunities or threats for businesses Factors affecting the macro-environment are political, economic, social and technological Trading practices, channels of distribution, the competitive environment, form part of the microenvironment

The Political Environment

Political systems can vary from democratic to totalitarian Democratic system - multiple centres of power, none of which is powerful enough to completely control decision making Examples of democratic systems in the Asia-Pacific region: India, Indonesia (a new democracy) Totalitarian system - political power is highly concentrated in a small elite group Examples of totalitarian systems: Myanmar, Laos

Political Ideology
Political philosophy covers issues as government intervention, role of market forces and attitudes towards profit and risk towards a foreign firm Ranges from capitalism to socialism Capitalism - private ownership of business enterprises is encouraged Socialism - public ownership of businesses is common, with substantial government regulations of the workings of a free market China is a mixture of capitalism and socialism, whilst Vietnam is a socialist state

Political Ideology
Nationalism could affect attitudes towards foreign made products and foreign owned companies Japanese, for example, favour Japanese made products, although the trend is slowly changing Some Indian extremists are against their government encouraging the presence of foreign companies Procurement of goods or services for government use usually preference is given to local companies

Political Instability/International Politics

Political instability can have a deterrent effect on foreign investments e.g. few foreign investors dare venture into Indonesia now Instability also means a higher degree of political risk, like unexpected introduction of import controls and expropriation of foreign assets e.g. Myanmar Differences in political opinions and strained relationships between countries affects business Example, Muslim countries do not buy goods from Israel, human rights activists in Western countries boycott goods made in sweat shops

The Legal Environment

Most countries have laws and regulations covering: Foreign imports Foreign direct investment (e.g. companies in Malaysia require bumiputras to have a share in the company) Forms of market entry, such as licensing and franchising How products are marketed (e.g. advertising restrictions, product registration

The Legal Environment

There are laws governing foreign imports. Legislation may change from time to time, depending on the need. Laws governing imports include: Tariff/non-tariff barriers Quotas Subsidies to domestic producers Buy local campaign (the Malaysian government had such a campaign during the 1997-1998 crisis) Exchange controls

The Legal Environment

Reasons for government control of foreign imports: Protect strategically important industries Reduce unemployment Prevent dumping Protect local industries

The Legal Environment

While most governments encourage Foreign Direct Investments (FDIs), there are often rules and regulations governing foreign investments, such as: Investment if only on a joint venture basis (as in many construction companies) Local content requirement Export/import requirement (e.g. in Myanmar for every $100 worth of goods exported, only $20 worth of imports is allowed) Transfer pricing controls

The Legal Environment

Marketing of products may be subjected to the following controls: Safety standards, registration, labeling requirements Price controls (especially for essential products like cooking oil, rice) Advertising content (scantily clad Caucasian models are not allowed in Malaysia), sales promotion techniques Exclusive dealerships (e.g. it is very difficult to change a dealer in South Korea, once the appointment is made)

The Economic Environment

Each Asian country has its own currency. The convertibility of a currency determines how difficult it is to convert one currency to another Full convertibility means that both residents and nonresidents can purchase any amount of foreign currency Hard currencies are usually fully convertible, e.g. US$ Soft currencies are non convertible, e.g. Kyat (Burmese) and Dong (Vietnamese) currencies

The Economic Environment

Governments impose various exchange restrictions to control their limited supplies of foreign exchange. Examples of exchange restrictions are: Licensing - exchange rate fixed by government licenses which require all recipients and exporters who receive foreign exchange to sell to the central bank at the official buying rate Multiple exchange rates Import deposit requirement Quantity controls

The Economic Environment

Types of risk exposure in international business: Transaction exposure - foreign exchange rates on settlement date Economic exposure - most broad type of exposure that has long term effects: costs, prices, sales, profits, investments Translation exposure - consolidation of financial statements into different currencies into home currency or reporting currency

The Economic Environment

Currency exchange rates can be greatly affected by political changes e.g. the Indonesian rupiah changes substantially with each major political development Regional economic groupings (AFTA,EAEC, etc;) will impact economies of both member and non-member countries Chinas entry into WTO will have a profound effect on the other SEAsian economies

The Social/Cultural Environment

Understanding the social/cultural environment in each country is important because: Product features, packaging and advertising strategies must be sensitive to cultural differences Business negotiations involve individuals from different cultural backgrounds - misunderstandings can arise from lack of knowledge of cultural backgrounds Choice of markets to penetrate may be influenced by cultural factors, e.g. it is generally easier to introduce a product to another country whose culture is similar to the home country

The Social/Cultural Environment

Some managers are very international in their outlook. Such managers recognise the fact that different people from different cultural backgrounds behave differently Others believe that what works well at home should work well abroad too There are various terms to describe such management orientations

The Social/Cultural Environment

Management orientations: Ethnocentric - home country is superior. Whatever methods used to market products at home should be applicable to foreign countries too Polycentric - each host country is unique Regiocentric - sees similarities and differences in a particular region in the world. For example, Asians, generally speaking, have certain similarities when compared with Westerners, but within each Asian nation there are differences

The Social/Cultural Environment

Management orientations continued: Geocentric - has a world view - sees similarities and differences in home and host countries. Managers with a geocentric orientation seek to create a global strategy that is fully responsive to local needs and wants. Examples of companies with a geocentric orientation General Electric, Hewlett Packard

The Social/Cultural Environment

Main elements of culture which impact on marketing are: Religion Values and attitudes Language (both verbal and non-verbal) Names and customs (a name like Lostalot - an antiwrinkle cream from Shishedo, would not sell in HK or Singapore) Manners (Japanese, for example, would find a direct no rather offensive)

The Technology Environment

IT and communications infrastructure advance at different rates in different countries and at different rates even in the same country Singapore is highly developed in the IT and communications infrastructure. India is the IT capital of Asia, yet barely half the population own home computers

The Technology Environment

Apart from, product and process technology change is also changing the competitive environment of many industries/countries Singapore, for example, has embarked on a major, government sponsored research into life sciences New product, process and information technologies allow companies to seek competitive advantage in global markets

The Micro-Environment
Knowing the macro-environment of countries in the AsiaPacific Region is not enough. One must also be familiar with the micro-environment. The micro-environment includes: The competitive environment Impact of multi-national companies (MNCs) Distribution chain Common trade practices The company - including market entry strategies and risk management

The Competitive Environment

In doing a competitive analysis of foreign markets, it is necessary to first of all look at the competitive structure. Having done that, the company looks at the competitive position, then finally formulate a competitive strategy to minimise risk of failure in market entry.

The Competitive Environment

Competitive structure - the broad competitive environment and structure of the industry including the number and size of competitor, the extent of competitive rivalry, exit and entry barriers, the relative power of buyers, and the threat of suppliers Competitive position - an analysis of the companys strengths and weaknesses in relation to its competitors Competitive strategy - the overall generic strategy of the firm in the foreign market (cost leadership, differentiation, or focus)

Impact of Multi-national Companies

Multi-national companies from U.S., Europe and Japan and to a lesser extent Taiwan and South Korea, have a strong presence in many Asia-Pacific countries. They often dwarf the thousands of small businesses in each country they are in, and thousands of workers are directly or indirectly employed by them. It is therefore important to understand the impact MNCs have on the home and host countries.

Impact of Multi-national Companies

Setting up operations in foreign countries could mean loss of jobs for people in the home country It also means an outright transfer of technologies and outward flow of capital Home country exports are reduced

Impact of Multi-national Companies

On the other hand, there is a profit motive - costs could be too high in the home country Overseas trade barriers - high import duties by host country may encourage setting up of operations there Huge domestic market in host country Close to source of raw materials, cheap and skilled labour

Impact of Multi-national Companies

Utilisation of cheap labour may be interpreted as exploitation by people in the host country The capital market will favour MNCs rather than small businesses, thus crowding out locals On the other hand, MNCs provide employment for host countries Earns foreign exchange for the host country Transfer technologies to the host country

Distribution Chain
A typical distribution arrangement in Asia-Pacific countries is for a manufacturer to appoint a sole agent to take care of the marketing and distribution of his products. The sole agent will then distribute through a system of wholesalers, who in turn distribute to retailers. Very often, agents have branches in key towns to give better logistics support. Each branch would have its own warehouse and administration team.

Distribution Chain
Typical distribution chain: Manufacturer (overseas) => Agent/s => Wholesalers => Retailers => Consumers Manufacturer (local) => Wholesalers => Retailers => Consumers Manufacturer => Agent => Supermarket chains/hypermarkets

Distribution Chain
The emergence of large independent chains and hypermarkets in many Asian cities, and the advent of ECommerce, is beginning to challenge the traditional distribution route. Hypermarkets like Makro and Carrefour are often serviced directly by the agent Very often they act as wholesalers themselves In IT savy countries, bigger supermarkets have introduced orders via computers

Distribution Chain
Government tenders are normally dealt with directly by the agent Industrial equipment which require regular servicing are also usually sold by the agents own outlets or through exclusive distributors This arrangement is necessary because each distribution point has to have properly trained personnel

Distribution Chain
Advantages of using an agent/distributor by a foreign company: The foreign company may not have extensive contacts or resources required to penetrate the new market Contacts are vital particularly when dealing with government or government owned companies May bypass constraints or business ethics or practices

Common Trade Practices

Chinese businessmen in China and some traditional Chinese businessmen in other parts of Asia prefer to conduct business in informal settings like over dinners or karaoke lounges Australian and New Zealanders prefer the negotiation table Socialising, relationship building, is an important part of the business process Face saving is an important issue

Common Trade Practices

Smuggling and barter trade is common Parallel imports from one Asian country to another could seriously affect business Copyright laws and implementation is still in its infancy Corruption is still rife in many parts of Asia

Common Trade Practices

Credit terms in the trade may vary from 30 - 90 days Small retailers normally purchase in cash from wholesalers, for fast moving consumer goods Traditional Chinese wholesalers sometimes sell at cost, and use the cash to roll over to maximise the credit terms given to them

The Company
A company, whether or not it is within the Asia-Pacific Region or outside of it has to have the appropriate capabilities if it desires to do business in the A-P Region. The company, for example, has to: Have a geocentric, rather than ethnocentric, orientation Have adequate production facilities to cater for the export market Be prepared to make changes in product and packaging requirements even for small batches Have an export department

The Company
The export department must have sufficient staff e.g. one person taking care of ten markets is not sufficient Key personnel must be familiar with international risk management, cross cultural issues and other factors (such as appropriate market entry strategies), associated with doing business outside ones home country

Market Entry Strategy

The basic elements of a foreign market entry strategy are as follows: Assessing products and foreign markets - choosing the product/market Setting objectives and goals Choosing the entry mode - direct export, contractual arrangements like appointing an agent or joint-venture, or investment Designing the market plan Monitoring and controlling the operations

Market Entry Strategy

Choice of entry mode can determine a companys success or failure in a foreign market. Direct export: At a fairly basic level, companies export products based on best price to an import agent recommended by friends or associates, or contacts made at trade exhibitions Company personnel rarely visit the import agent and there is little marketing support

Market Entry Strategy

Direct export - cont At a more involved level, company personnel makes regular visits to work with the agent There may be sales representatives paid by the company but attached to the agents office A company may also have a regional office in the country of import Such an office normally have a full sales and marketing team

Market Entry Strategy

Licensing: Licensing is an arrangement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees or some other form of commission A company with advanced technology or strong brand name can use licensing to improve its profits For example, Disney can license its brand name to another company to put the brand name on caps, shoes, etc; in return for a fee

Market Entry Strategy

Franchising: Franchising is a form of licensing in which the franchisor provides a standard package of products, systems and management services The franchisee provides market knowledge, capital and personal involvement in the management Well known examples are MacDonalds, Kentucky Fried Chicken, 7-11 chain stores and petrol stations

Market Entry Strategy

Joint ventures: In a joint venture, the foreign partner and local partner share ownership They share profits as well as risks It could be in the form of a manufacturing plant, a distribution network or massive capital/technology injection, as in huge infrastructure projects involving the building of airports, highways and communication systems

Risk Management
Managing risks when doing business in your home country and managing risks when doing business abroad can be quite different Often, you are familiar with the people, the environment, the culture, the systems and the companies you deal with, when doing business in your own country However, once abroad, risk exposure increases substantially - from possible currency exchange losses to copyright piracy, to outright dishonesty on the part of the people you do business with

Risk Management
It is important to understand the process and tools of risk management. The risk management process: Risk identification What dangers and possible events can be harmful to the company? Which possible losses of money, material and equipment must be taken into account/ Which events outside the company can disturb or interrupt its operations?

Risk Management
The risk management process Risk evaluation What will be the possible maximum/minimum cost of a damage event to the company? How often are they expected to occur? How likely are the different loss events? How critical is each loss event for the existence of the company?

Risk Management
The risk management process Risk policy decisions Which of the identified risks is the company prepared to accept? Against which others are protective measures (e.g. accident prevention) indicated? How much money can the company make available for risk reduction?

Risk Management
The risk management process Risk control Which measures should be taken to increase the companys security against unforeseen events? Who will be responsible for these measures and the control of their effectiveness?

Risk Management

Tools of risk management Risk avoidance: A conscious decision by the company not to engage in certain activities because the dangers are considered too great to be acceptable.

Risk Management
Tools of risk management Risk reduction: Measures designed to improve the security of the companys operations Risk transfer: Measures designed to shift all or part of the known risk to another company, usually a supplier or a customer - by agreement or through a change in company rules

Risk Management
Tools of risk management Risk division: Reduce danger to the company overall by removing risk concentrations (e.g. warehouses) to several locations - or by spreading the risks over several markets, products or operational units Insurance coverage: Determine for which risks the company requires insurance coverage, and combining it with other risk control measures wherever possible

Marketing Practices
Heavy advertising is still perceived as good marketing by many small and medium size enterprises Environmental marketing is gaining ground, though still a problem with some chemical industries in India and timber companies in Indonesia Animal rights activists are almost non-existent in Asia and has little impact on marketing activities

Marketing Practices
Ethical marketing is self-regulated - consumers voice is not as strong as in the West In-door promotions with gifts and lucky draws are popular in many parts of Asia Billboard advertising is prominent in Hongkong, and key cities in China and Indonesia TV remains one of the most popular medium

Management Practices
Management styles in Asian companies vary considerably, depending on the size of the company, the number of Western trained managers in the company, and whether the company is a Western MNC or a branch office of an MNC. Or, sometimes, within the same company, there is a mixture of both Western and Asian styles of management.

Management Practices
McKinseys 7-S framework can be used as a basis for comparison between Western and Asian styles of management: Strategy Western style - planned. Usually top down, rigid. View may be too narrow. Ideas from the top may not necessarily work Asian style - flexible. Customer and staff feedback considered. Staff has ownership of ideas

Management Practices
Structure Western style - complex. Usually several layers. Communication both upwards and downwards take a long time to filter through. Result is loss of valuable time. Asian style - simple. Structure usually flatter, allowing for quick feedback e.g. Giordano, the Hongkong clothing chain, has a fairly flat structure

Management Practices
System Western style - sophisticated. High degree of control. Rules and regulations abound to ensure conformity, e.g. IBM Asian style - minimum. Enough to keep track, but not to choke. Staff feel that they are trusted

Management Practices
Style Western style - bureaucratic. High division of labour. Result is minimum contribution from staff because each staff sees himself/herself as just one of the cogs in the wheel Asian style - entrepreneurial. Quicker response to customer needs

Management Practices
Staff Western style - well qualified. Very often, young, inexperienced graduates are appointed to key positions. This frustrates lower level, less qualified staff Asian style - Street smart. Staff can relate to all levels

Management Practices
Share values Western style - guided by mission statements which are not often put into practice. Class conscious - management and staff often have separate canteens and separate toilets Asian style - values are put into practice. Top management often spend time on the shop floor not just walking around but actually doing the work

Management Practices
Skills Western style - analytical. Volumes of reports are required daily, weekly and monthly. Detailed analysis carried out. Often too much analysis, too little action Asian style - a bit more chaotic. Lets do it first mentality

Management Practices
Yes men still prevalent Seniority takes precedence over meritocracy (although this is slowly changing) Respect for hierarchy Consensus building (widely practiced by the Japanese)

Management Practices
Trust is very important. Contracts are signed, but the spirit in executing the contract is often more important than the contents of the contract Muslims in Malaysia are given time off for prayers on Fridays Very often in family owned enterprises, the owner or his son functions as the patriarch - overseeing and approving every policy, major or minor

The Chinese Family Business

Overseas Chinese have a tremendous influence in business in the Asia-Pacific Region, particularly in South-East Asia. For example, Chinese comprise only 2.5% of the population of Indonesia, but they control 73% of the market capital. Likewise, in Thailand, Chinese form only 14% of the population, yet they control 81% of the market capital It is therefore important to have an understanding of the Chinese family business

The Chinese Family Business

There are two dimensions of the Chinese family business: Business involving core family members Business involving clans - non-family members, but sharing the same surname or originating from the same province in China

The Chinese Family Business

In a business involving core family members, the owner and key family members hold important management positions Power and authority rests with the owners and leadership is autocratic management style is paternalistic

The Chinese Family Business

The owner regards business as private property of the core family and is reluctant to share ownership with others Some large Chinese companies, although technically public, are family controlled and influenced Key family members occupy top management positions Secondary key management appointments goes to relatives

The Chinese Family Business

The structure is small and simple, with concentration on sales, service or production Only a few larger businesses develop functional departments Rules and systems are often absent (except for the more liberated businesses which hire professional managers) Functions and roles of positions not clearly defined

The Chinese Family Business

Specialisation level is low, with a lot of generalists dealing with a range of activities Personal relationships and feelings take precedence over objectivity (giving rise to the yes men mentality)

The Chinese Family Business

Management control is characterised by emphasis on loyalty and subjective assessment mechanisms There is often a suppression of professional talents There is also a lack of an institutionalised succession mechanism

The Chinese Family Business

Chinese clans, particularly the Hakkas, are very closely knit A Hakka businessman in East Malaysia, for example, will be glad to assist a fellow Hakka in Singapore, even if they are total strangers This close association has made it easier for Chinese to develop guanxi (connection/relationship) and guanxi-wang (networking) amongst themselves

Negotiation Techniques
With Chinese and Japanese wealth dominating much of Asia, it is worthwhile looking at the negotiating styles of the Chinese and Japanese, as negotiations are often the pivotal point in any business deal

Negotiation Techniques

Although Chinese and Japanese are culturally different, they share many similar negotiation techniques They often push for further concessions after agreements are made They are usually tough negotiators

Negotiation Techniques
China and Japan are relationship oriented rather than contract oriented Their negotiating teams are normally larger than their Western partners Both China and Japan do not like detailed and restrictive contracts

Negotiation Techniques
There are some differences in negotiation techniques between the Chinese and Japanese: Chinese are willing to comprise, whereas Japanese see compromise as defeat Chinese have a more hierarchical approach in decision making whereas the Japanese are more consensus seeking Japanese tend to set a more polite tone to proceedings. Chinese are less likely to be so formal

Conclusion
The various slides are just snippets of what candidates need to know. It is not comprehensive, and candidates are expected to read widely, and more importantly, to be able to critically analyse the impact of the various changing forces in the environment, as well as the behavioural/cultural patterns of Asians on business.