APAC Go-to-Market Strategies

Venturing into Asia Pacific? Have you done your homework?

Anand Subramaniam

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Asian Countries

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Note…before you go further!!

The slides following are just snippets and you need to do your own homework

It is not comprehensive but would wet your taste buds !!

You will need to analyse the impact of the various changing forces in the environment, as well as the behavioural / cultural patterns of Asians on business

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“If I'm conversing with you, I'll speak your language. If I'm buying from you, you

speak my language.”

- Japan.Inc. article

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Highlights

Entry Strategies Overview – Asia Pacific Region Macro Environment Management Practices Chinese Family Business Negotiations Country Analysis – Frameworks Readiness Check My Experience / Lessons Learned

Entry Strategies

“You will find the key to success under the alarm clock.”

- Benjamin Franklin

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Asia - Market Development

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Risk / Return

Low

High

Ris

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HighReturn

Contract

Manufactur

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Contract

Manufactur

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Joint

VentureJoint

Venture

LicenseLicense

ExportExport

Direct

InvestmentDirect

Investment

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Market Expansion Strategies

Narrow FocusNarrow Focus Country FocusCountry Focus

Global DiversificationGlobal DiversificationCountry DiversificationCountry Diversification

Co

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Div

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Market ConcentrationMarket Concentration Market DiversificationMarket Diversification

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Your Dream & Share of the Pie…

% of new customers to competitor

% of customers lost to competitor

% of win-back customers to competitor

% of customers in various levels of satisfaction

% of customers who would repurchase

% of target market members with brand recall

% of customers who say competitor’s brand is most preferred

Overview – Asia Pacific Region

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Asia Pacific (APAC) Region

North East Asia

ChinaJapanKoreaTaiwan

Rest - Asia Pacific

AustraliaBangladesh

BhutanIndiaNepal

New ZealandPakistanSri Lanka

South East Asia

BruneiCambodiaEast Timor

LaosIndonesiaMalaysiaMyanmar

PhilippinesSingaporeThailandVietnam

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Good, Bad or Ugly - Colonisation in Asia

Colonisation in APAC

Colonisation in APAC

Taiwan and Korea

colonised by Japan

Taiwan and Korea

colonised by Japan

Many Dutch words have crept into the

Indonesian language

Many Dutch words have crept into the

Indonesian language

Indo-China colonised by

France

Indo-China colonised by

France

Macau colonised by

Portugal

Macau colonised by

Portugal

Indonesia colonised by

Holland (Dutch)

Indonesia colonised by

Holland (Dutch)

India, Burma (now Myanmar),

Malaysia, Hong kong, Singapore

previously colonised by the

British

India, Burma (now Myanmar),

Malaysia, Hong kong, Singapore

previously colonised by the

British

Philippines colonised by Spain

and U.S.A.

Philippines colonised by Spain

and U.S.A.

Apart from Thailand & Japan, no country in the

APAC region was spared from Western

influence

Apart from Thailand & Japan, no country in the

APAC region was spared from Western

influence

Legal systems in India, Malaysia, Singapore, Hong

kong, Sri Lanka are still based on the foundations of British

law.

Legal systems in India, Malaysia, Singapore, Hong

kong, Sri Lanka are still based on the foundations of British

law.

The chaebol system in South

Korea is very similar to the

Japanese keiretsu system

The chaebol system in South

Korea is very similar to the

Japanese keiretsu system

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Why Asia and / or Pacific ?

Why APAC?

Rapid changes in political leadership in several Asian countries e.g. Philippines, Thailand & Indonesia

Rapid changes in political leadership in several Asian countries e.g. Philippines, Thailand & Indonesia

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

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

Huge potential for infrastructure projectsHuge potential for infrastructure projects

Need to understand the wide diversity of cultures - culture influence needs and business practices

Need to understand the wide diversity of cultures - culture influence needs and business practices

Emergence of consumer creditsEmergence of consumer credits

Potential to fulfill needs of some 2.5 + billion people - about 65% of the world’s population

Potential to fulfill needs of some 2.5 + billion people - about 65% of the world’s population

IT demand in U.S. accounted for economic growth in Asian countries in year 2000, outside Japan

IT demand in U.S. accounted for economic growth in Asian countries in year 2000, outside Japan

Macro Environment

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Macro / Micro Environment

Business is affected by key changes in the macro and micro-environment (my focus is on the macro side)

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 micro-environment (will be another slideshow, in time to come)

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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. (India, Indonesia)

Totalitarian system - political power is highly concentrated in a small elite group (Myanmar, Laos)

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Political Ideology

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

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Political Instability

Political instability can have a deterrent effect on foreign investments e.g. few foreign investors dare venture into Indonesia

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

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Legal Environment

Most countries have laws and regulations covering: Foreign imports, Exchange, Price & Transfer Pricing

controls Foreign direct investment (e.g. companies in Malaysia

require Bumiputras to have a share in the company) Forms of market entry, such as licensing, JV and

franchising How products are marketed (e.g. advertising restrictions,

product registration) - Advertising content (scantily clad Caucasian models are not allowed in Malaysia)

Exclusive dealerships (e.g. it is very difficult to change a dealer in South Korea, once the appointment is made)

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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 Hard currencies are usually fully convertible, e.g. US$ Soft currencies are non convertible, e.g. Kyat (Burmese) and

Dong (Vietnamese) currencies

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

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Social & Cultural Environment

Product features, packaging and advertising strategies must be sensitive to cultural differences ‘Lostalot’ - an anti-wrinkle cream from Shishedo, would not sell in HK or

Singapore) Manners (Japanese, for example, would find a direct ‘no’ rather offensive)

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

Some managers are international in their outlook and recognise the fact that different people from different cultural backgrounds behave differently

Asians, generally speaking, have certain similarities when compared with Westerners, but within each Asian nation there are differences

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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

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Impact of MNC (multi-national company)

Utilisation of cheap labour may be interpreted as exploitation by people in the host country

The capital market will favour MNC’s rather than small businesses, thus crowding out locals

On the other hand, MNC’s provide employment for host countries, earns foreign exchange for the host country and transfer technologies to the host country

Management Practices

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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

In many Asian Countries Socialising, relationship building, is an important part of the business process

Face saving is an important issue

Smuggling and barter trade is common

Copyright laws and implementation is still in its infancy

Corruption is still rife in many parts of Asia

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Management Practices

Western style Planning - usually top down, rigid. View may

be too narrow. Ideas from the top may not necessarily work

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

Well qualified. Very often, young, inexperienced graduates are appointed to key positions. This frustrates lower level, less qualified staff

Guided by mission statements which are not often put into practice. Class conscious

Analytical. volumes of reports are required daily, weekly and monthly. Detailed analysis carried out. Often too much analysis, too little action

Asian style Flexible. Customer and staff feedback

considered. Staff has ownership of ideas

Entrepreneurial. Quicker response to customer needs

Street smart. Staff can relate to all levels

Values are put into practice. Top management often spend time on the shop floor not just walking around but actually doing the work

Bit more chaotic. ‘Let’s do it first’ mentality

Very often in family owned enterprises, the owner or his son functions as the patriarch - overseeing and approving every policy, major or minor

Chinese Family Business

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Overview

Overseas Chinese have a tremendous influence in business in the Asia-Pacific Region, particularly in South-East Asia.

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

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Two Dimension – 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

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Core Family Members Owner and key family members hold important management positions and regards

business as private property of the core family and is reluctant to share ownership with others

Power and authority rests with the owners and leadership is autocratic

Management style is paternalistic

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

Rules and systems are often absent (except for the more liberated businesses which hire professional managers)

Functions and roles of positions not clearly defined

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Chinese Clans

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

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Negotiating Tactics

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

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

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Differences – Japanese vs. Chinese

Chinese are willing to compromise, 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, whereas Chinese are less likely to be so formal

Country Analysis - Frameworks

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Specific Country Analysis

STRATEGY CONTEXT PERFORMANCE Goals

Market & growth, stability, autonomy, etc.

Policies Fiscal, monetary

policies Exchange rate

policies Trade &

investment policies Sectoral policies Industrial policies Social polices Constitutional

reform

National Resources

Labor, capital, natural resources, technology, geography

Players in the game Firms Government actors Non-state organisations: unions, employer

assoc., religious groups, political parties, etc. Rules of the game

Formal rules – economics (e.g, contract law), political (e.g. federal system), treaties

Informal rules – conventions, culture, religious beliefs, ideology

International Location International organisations Treaties on Trade and Investment

Economic National income Prices (wages,

interest rates) Inflation Unemployment, etc.

Social Income distribution Mortality, literacy, etc.

Political Political stability,

political freedom, etc. International

Balance of payments Exchange rates Tariffs, quotas

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Entering Specific Asian Market

What are the key drivers of your marketing model?

Are enabling conditions in place for this marketing model?

What is the cost of entry & exit?

What is the cost of waiting?

Is risk / return, trade-off appropriate?

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Market Forecasting - Analogy

Target Market

Same countryComparable product

Same countryComparable company

Same product Neighbor distributor

Same productComparable country

Readiness Check

“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on

the unreasonable man.”

- George Bernard Shaw

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Readiness Check

Expectations clear and achievable objectives a realistic idea of what this venture entails an openness to new ways of doing business an understanding of what is required to succeed in

the Asian marketplace

Resource Management senior management commitment effective response to customer inquiries culturally-sensitive & language barriers

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Readiness Check (Contd.)

Financial & Legal Resources intellectual property safeguards advise on legal and tax implications capital required and financial risk minimisation

measures

Competition market research and market-entry methods

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Readiness Check (Contd.)

Ideal Customer Profile current / future users of your product or service strategies – focus, differentiation and / or cost

leadership Industry vertical / geographic factors affecting the use

of your product or service

Product Modification modifications required to make it appeal to Asian

customers documentation to meet technical or regulatory

requirements

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Readiness Check (Contd.)

Local Representation professional, technical or other skills

including after-sales service resource capabilities and competencies

Capacity ability to meet existing customers and your

new foreign clients

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Risks / Opportunities

Cultural Analysis Country specific sensitivity

analysis Language / Interpretation Meetings Dress codes Protocols Expectations

Political & Legal Review

Financial Planning

Risk Review

Segmentation / Positioning

Competitive Analysis

Market Entry & Exit Plans

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Country Attractiveness / Competitive StrengthC

ou

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s

High

Low

Competitive Strength

InvestGrow

Selectivity

DominateDivestJoint venture

Harvest/divestCombineLicence

High Low

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Country Attractiveness / Competitive Strength

Country Attractiveness

• Market size• Market growth • Competitive conditions• Prohibitive conditions

Government regulations• Market seasons and

fluctuations• Economic and political

stability

Competitive Strength

• Image• Product fit• Market Share• Market support• Contribution margin• Technology position• Marketing ability / capacity• Quality - distributors and

service

Your Homework

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Your Company History

Significant milestones achieved and past experience Legal structure, any subsidiaries, affiliates, joint ventures, strategic alliances.

Goals and Objectives Linkage of country specific goals to your overall company goals and objectives

Management Ownership & Organisational structure key personnel and summary of their qualifications, past or present Asian experience

Asia Market Entry Team Readiness of personnel to ensure success of your Go-to market strategy Specific individuals and positions assigned responsibilities Asian skill sets and knowledge (languages, culture, international marketing, logistics,

transportation, documentation, banking, politics, economics, legal, financial, etc.).

Company Finances Financial health and percentage of sales and profits to be contributed from specific Asian

country Percentage growth of sales and profits relative to overall growth.

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Country Specific Market Analysis

Rationale - to enter a specific market

Country Profile Political, economic, social conditions, regulatory environment, legal structure.

fiscal/ taxation structure Infrastructure conditions (e.g. telecommunications) Cultural and business practices

Industry Profile Direct customers (e.g. buyers, agents, distributors, trading houses) or actual end

users (e.g. individuals, businesses) and current market trends

Competitive Analysis Overall competitive conditions, the existing competitors Unique selling attributes or competitive advantage(s) of each Channels of distribution Marketing practices used Typical payment terms offered

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Specific - Market Strategies

Strategic Alliance, Channel Partner, Co-marketing / production, JV, Licensing, Franchising

Specific Market - Product or service description(s) Typical usage by the end users (what problems are being solved?) Unique selling attributes or competitive advantage(s)/market niche Describe required product modifications Product and quality characteristics Product specifications standards (health and safety) Labeling, packaging, markings, language(s) Seasonality and life cycle of the product or service Foreign intellectual property protection (trade name, trade secrets, trademarks, patents,

industrial designs, copyrights, etc.)

Pricing Strategies Costing analysis, pricing constraints, current market pricing, margins Legislation (price controls, resale price maintenance, etc.) Price sensitivity (market acceptance of higher or lower price) Market penetration pricing strategy (market skimming, penetration pricing, flexible pricing,

static pricing)

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Specific - Market Strategies (Contd.)

Sales and Promotion Strategies Sales methods (company representative, subsidiary or affiliated company, foreign agent,

foreign broker, mail order/Internet orders) Promotion methods Advertising availability and regulatory constraints (newspapers, magazines, radio, television,

Internet, posters, flyers, letters, etc.) Demonstrations, trade fairs, trade missions, etc Promotional tools (samples, in-store giveaways, discounts, consignment, etc.) Promotional message (consider cultural, religious, lifestyle/image, economic influences, etc.) Sales financing support, pre-arranged financing for purchaser Performance bonds and guarantee requirements After sales services (returns, repairs, warranties, maintenance, training,

communications/hotlines, etc.)

Product / Service Strategies Unique selling attributes / competitive advantages Profile of typical customers Required product modifications for the specific Asian market Product life cycle Growth Potential Intellectual Property protection

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Country Specific - Legal & Fiscal Dispute Resolution in sales contracts

Mediation / Arbitration clauses Law of contract: the chosen legal system under which the contract is enforced Venue: the jurisdiction of the court, i.e. where will the case be heard? Securing Payment: if decision is favorable, who will enforce the collection agreement? Language consideration: the language used to bind the parties within the sales contract.

Contract terms and Conditions Currency of payment and exchange rate Method of payment (cash, L/c, documentary collection, open account, consignment) Product measurement methods and quality standards Insurance. Warrantees, after sales services, etc

Product Liability considerations: applicable foreign laws and regulations.

Intellectual Property

Sales Agent and/or Distributor agreements Consideration of foreign laws and regulations that affect agreement, Commissions,

Territory, Duties

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Financial Analysis

Facility and Equipment Requirements: detailed list of capital expenditure items

Sales Forecast for each market Cost of Goods Sold: for each market Projected Income Statement Projected Cash Flow Breakdown Analysis: number of units and dollar sales to

cover cost of goods and international overheads Financing Requirements: identify term financing and

working capital requirements, equity contribution and collateral available to secure needed financing

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Risk Management

Country Risk assessment of political, regulatory and economic conditions, contingencies for

problems (e.g. pre-payments, insurance, etc.)

Commercial Risk assessment of creditworthiness, contingencies for non-performance such as

default, refusal to accept goods, insolvency

Currency Risk contingencies for maintenance of value, (e.g. contractual value maintenance,

forward contracts, currency options, etc.)

Internal Risk contingencies for ensuring adequate manpower skills and availability control over

production and distribution costs

Market Risk contingencies for changes in domestic and foreign market conditions

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Success Factors

Culture - Personal chemistry is important, as is the successful development of a shared set of values

Organisation - Innovative structures and designs may be needed to offset the complexity of multi-country management

Management - Issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partner(s)

Mission - create win-win situations, where participants pursue objectives on the basis of mutual need or advantage

Strategy - Establish separate strategies with different partners; strategy must be thought out up-front to avoid conflicts

Governance - Discussion and consensus must be the norm. Partners must be viewed as equals

My Experience

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Approaching Asia

Consider each market potential separately “Comprehensive” Asia expansion plan doesn’t work Realisable potential often at odds with popular

perception

Research and design flexible plan Use numbers and facts, not cultural misperceptions Develop strategy that can be flexible

Expect challenges Be prepared to adapt and change Commitment and time precede success

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Getting Ready…!!

Finding suitable partners Research ideal partner, don’t rely on limited

connections Ask what you can do for them in your own market

Building relationships Business is built on trust, not legal contracts It takes time, but reputation in local markets go far

Developing distribution channels Bundling, customisation all crucially important Use existing channel – consider local competitor’s

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Why Partner?

Research, research, research Find an ideal partner, don’t settle on company you know Let business logic drive; understand their true motivation

Beyond research: gather intelligence Interview local insiders – only they know inside scoop Knowing the target decision maker and his/her motivation

equally important – often bureaucratic and hierarchical

Negotiate for your success Seek win-win: don’t be greedy Use facts and business logic; offer creative solutions

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Some Tips..

Leverage their desire to get exclusives Asian companies often seek exclusive licensing deals

for their home country market and beyond – often based on revenue-sharing

Think twice about licensing if: Potential partner can pose a direct challenge at later

date (licensing often understood as passive transfer of technology and know-how)

Alliance with Asian companies work only when: You really know them (don’t just communicate via

phone and email, visit and sit down with them)

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What I learned..

Relationship with the right local partner is key Right here means = access to your target market, is

respected, is motivated.

High quality/support expectation

Training and re-training – Hand holding !!

Cost of doing business very high but customers can afford to pay once relationships are built

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What I learned…(Contd)

“free evaluation system please…”

Product quality & support are key

Product Demos with cost and value proposition

Must show constant innovation path (future!)

Marketing important but…so is after sale service, product training, documentation (local language)

Don’t push… patience is the KEY

Be Ready - have a good liver and a concrete stomach !!

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What Worked..

Respect ! Respect ! Respect – at ALL Levels

Offer a Stable / Reliable Product at Premium Price

Technically Differentiate

Brand Leadership Position

Strong Local Presence

Educate and build personal relationships via knowledge transfer / coaching / mentoring

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Remember… “Take the time to examine the local culture”, find out how things are done, be flexible

and adapt.

Asians appreciate your efforts to learn about their culture and language. Such efforts will probably increase their interest in doing business with you.

Treat all markets differently. Don’t assume that because you’re successful in one, you’ll be successful in another. There are cultural differences out there that you need to respect.

Be careful to look into the meanings that your name or corporate image may have in the target market. You don’t want to discover, too late, that they are inappropriate in the local language or culture.

“It takes years to build a market, but only days to lose it.” Make sure your management is committed and are prepared for the long haul.

It’s important to be diplomatic, especially when ‘securing payment’ for overseas sales. Demanding payment up front can be a terrible insult in some cultures.

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Other Slides to Visit

Benchmarking - http://tinyurl.com/ohbny4 Business Planhttp://tinyurl.com/paxobq Channel programhttp://tinyurl.com/oppzvl Competitive Intelligencehttp://tinyurl.com/p2t9tz Innovationhttp://tinyurl.com/odxacl New Product Developmenthttp://tinyurl.com/psgzaf Market Research /

Intelligence http://tinyurl.com/nwhezy

Market Entry Strategyhttp://tinyurl.com/lq7ut8 Sales & Proposal Processhttp://tinyurl.com/qxy32g Sales Performance Measureshttp://tinyurl.com/ntmwm9 Solving Client Issueshttp://tinyurl.com/mzv9tt Turnaround strategieshttp://tinyurl.com/pww8tz Your Organisationhttp://tinyurl.com/llohxf

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“We must be silent before we can listen. We must listen before we can learn. We must learn before

we can prepare. We must prepare before we can serve. We must serve before we can lead.”

- William Arthur Ward

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Good Luckhttp://www.linkedin.com/in/anandsubramaniam