Think bigger! How to scale up in Asia21st Sep '16
Sexy consumer products, great. Complex supply chains, not so much. Andrew Cave looks at scaling up in the East as part of the Routes to Growth series
‘Danish fashion retailer Bestseller has opened one store every 17 days in China since starting in Beijing in 1997’
Entrepreneurs are used to being told about the importance of rapidly scaling up their businesses. But in South-East Asia, that task can be daunting.
For example, if a company decided to establish a base in every Chinese city of more than 5m people, it would need 16 offices there alone.
Across the 10 members of the Association of Southeast Asian Nations (ASEAN), moreover, marketing research group Nielsen forecasts that there will be 69m people living in “megacities” of more than 5m people by 2025.
The physical distances between operations and markets, sizeable cultural differences between individual South-East Asian countries and the significant amounts of time that executives need to spend there also make this a tough nut for Western businesses to crack.
Examples of companies achieving genuine scale in South-East Asia do exist, however.
Danish fashion retailer Bestseller has opened one store every 17 days on average in China since starting in Beijing in 1997. It now has more than 6,800 outlets in 300 Chinese cities.
Tangle Teezer, the UK hair products group, amassed sales of nearly £1m in 24 hours in China last November. The nation is now its biggest market.
Bestseller and Tangle Teezer’s offerings are universal and travel well. It may be harder for purveyors of less sexy products, but the opportunity is there.
Consultant Deloitte says scaling up in South-East Asia involves understanding local supply networks and regulatory frameworks, identifying policy risks and opportunities, and assessing high-level demand and timing of required materials and services.
Companies should be realistic about the costs and ensure they have adequate funding. Care is needed on the internet, since censorship still operates in some territories.
South-East Asian partnerships also require thought and preparation. Greater emphasis is placed on long-term relationships than in the West, while logistics require astute management and control of distribution.
In China, for example, no single distributor is allowed to cover the entire nation, with laws limiting each to servicing only a handful of regions.
China is best regarded, in any case, as a number of markets rather than a single homogenous mass. McKinsey Global Institute says South-East Asian countries have “complex, multi-layered distribution networks, with complicated routes to markets and low-capability middlemen slowing the flow of goods”.
Strict quality and service standards are therefore essential in building networks of dealers and distributors.
Increasing your sales footprint in China and South-East Asia may also mean rethinking demographic and geographic targets to address different groups of customers with distinctive cost, reliability and service requirements.
Skills shortages and high employee turnover are also significant problems in much of South-East Asia and particularly in China, causing headaches in constantly having to train staff.
A study by the International Labour Organisation and the Asian Development Bank forecasts that more than half of all high-skill employment in Cambodia, Indonesia, Laos, The Philippines, Thailand and Vietnam could have to be filled by workers with insufficient qualifications in future.
MySquar, which runs the MyChat social network in Myanmar, experienced such difficulty in recruiting programmers in the country that it set up its technology centre in Vietnam instead.
Developing written working procedures, practices, routines and responsibilities can help, retaining knowledge and learning within organisations and enabling new employees to be trained faster.
Elsewhere, the World Bank states that 264m adults in South-East Asia still do not have bank accounts – a huge opportunity.
Mobile technology and e-commerce can help combat daunting logistics, with mobile banking bringing millions of extra consumers within reach.
The timing and pace of South-East Asian expansion is crucial. When the founders of Airbnb were planning to grow their house-sharing website, business incubation specialist Y Combinator advised that, while it was important to scale up globally, this could come behind other priorities, such as addressing the company’s domestic market, IT challenges and marketing.
The risks are clear but rewards are also there for those who succeed. The growth of the Chinese and South-East Asian markets means there should be plenty of opportunity for all.