How to build Business and Brands

in Asia - Part I -

Asian Opportunity, Challenges, Pitfalls, Trends and Key Success

Drivers

Anuj JN http://sg.linkedin.com/in/anujjnprofile

“How to build business and brands in Asia”

Opportunities, Challenges, Pitfalls, Trends and Key Success Drivers

- Especially for leading western brands aiming for growth in Asia -

A perspective talk given by:

Anuj JN, Marketing & Business Development Director - Asia

When: Tues 26th April 8.30am

Where: Gilbert Sauvage

Sign Up: Student K Drive (limited places, please sign up by: Thurs 21st April)

Any questions please email Nonie Mackie - Career Services nonie.mackie@insead.edu

…than just population demographics.

1. Quality & Cost of resources

2. Reverse learning for Western markets

3. Blocking new emerging Asian global

players with more flexible models.

There is more to Asia…

Country Population

(M)

GDP per

capita (PPP)

(US$)

% popn

below 25 by

2020

Malaysia 25 15,800 42

Singapore 5 60,500 37

Indonesia 246 4,700 40

Hong Kong 7 49,800 20

Taiwan 23 38,200 29

China 1,316 8,500 33

S. Korea 49 32,100 28

Japan 127 35,200 22

Thailand 65 9,500 32

Philippines 90 4,100 45

Vietnam 85 3,400 40

Asia – A Heady Cocktail

• Eclectic mix of developed & developing nations.

• Multitude ethnicity and cultures with fast growth.

Think Regionally , Sell Locally….Think Cities and not regions

Example China – Distribution Objective

Year 1st-tier 2nd-tier 3rd-tier County TOTAL

Y1 • 100%

• 80 M inhabitants

• 50%

• 60 M 140 M

Y2 • 100%

• 80 M

• 100%

• 120 M

• 30%

• 108 M

• 20%

• 168 M 476 M

Y3 • 100%

• 80 M

• 100%

• 120 M

• 60%

• 216 M

• 40%

• 336 M 752 M

Y4 • 100%

• 80 M

• 100%

• 120 M

• 100%

• 360 M

• 60%

• 504 M 1064 M

Y5 • 100%

• 80 M

• 100%

• 120 M

• 100%

• 360 M

• 100%

• 840 M 1400 M

From Far East to Next West…

• Great Diversity - Distances, Differences in

industrial sophistication, Purchasing power and

Consumer behavior are substantial.

• 1/3 of total Populations on the planet. ½ with

India included.

• 124 Cities with Populations of > 1 Mil each.

• Japan is the second largest consumer market

in the world.

• China is the fastest growing economy at the moment.

• Key Characteristics - Ambition, Education, Enterprise,

Determination, High savings and asset creations

• A competitive and dynamic landscape with local and global brands.

• Transitioning from sourcing markets to lucrative consumer markets…

Source of Quality Resources

• Natural – Raw Material rich nations

– Good Manufacturing Base

• Human – Lo cost labor – Vietnam, Indonesia and China

– White collar workforce – Hi Efficiency and Productivity

– Quality Supplier base – Packaging Postponement at lower cost

• Technological – Advanced technologies – e.g., Japan Mobile Market

• Japan became P&G's learning center for mobile marketing, and the company hopes to expand the concept globally.

– Outsourced Technical expertise – e.g., Indian software Development capabilities

Reverse Swing…

• New Competence

– Competence development in demanding,

diverse and dynamic markets which

improves competence in terms of

cost, quality, time and Flexibility.

• Test of Corporate Resilience

– Success in catering to Asian needs

enhance corporate goodwill outside Asia.

• Reigniting Western Markets

– Cutting edge product designs in Japan for vanilla designs in US

markets.

Effective Block to Future Threat

• In the land of Sun Tzu – Know your enemy and know

yourself and you can fight a hundred

battles without disaster.

• Asian Global Companies

– Japanese Kaisha and Keirestu

– Korean Chaebols

– Hua Qiao organizations

• Global Ambition

– Li Ning

– TATA

Common Pitfalls of Asian Management…

• Attitudinal adjustment – Leadership home markets vs Challenger in Asia

– High Handed approach prevents

developing local trust and respect

• Inconsistent Top Management – Frequent changes in ‘Project Asia’ ownership and strategies

– Signals through senior management appointment

– Lack of understanding and internal education to group teams re: synergy fit in the value of doing biz in Asia

– Group KPIs are not in line with Asia Management team

• Inflexibility of adapting business models – Constraints based strategy vs consumer focused strategy

– Asia as a region does not mean its one market

– Underestimating the speed of change in preferences and tastes

Common Pitfalls

• Definition of Long term strategic

timeframe – Disengage from markets at first signs of

negative returns

– Asia as an experiment vs Long term

commitment

• Lack of underestimating Asian competitors and their competencies – Financial muscle vs flexibility and local understanding

• Human Resources woes – Expats heavy and Regional heavy

– Not investing in local talent and intelligence early on

– Not building trust among local employees – Isolated vs engaged - committed Execution team

• Marketing Myopia – Treating brand investments as Expense vs asset investment

Typical Challenges

• Low Cost local competition – (Automated vs Hand Assembly)

• Consumer base with modest income and low per

• capita consumption – GDP 14 T same as US but private. consumption is

50% of GDP vs 72% in US))

• Fragmented distribution channel increases the

cost of coverage – 5 Million Outlets in India & 32 provinces in China

Carrefour has no central DC)

• Disparate preferences – (Specific product development needs and preferences)

• Minimal brand loyalties – Experimentative & global brands have low awareness

• Indirect services to customers – Old boys networks

“Japan is the toughest, most difficult consumer market in the world. If you can beat the

competition here, you can beat them anywhere else in the world ... Japan is a strategic

market for Procter & Gamble” BOB McDonald – President P&G - Japan

• Application of standard success formula –

– Market research, Local affiliation for reach, proven resource

deployment…didn’t work

• Special Challenges –

– Tough Competitors and long standing relationships with wholesalers.

1.5 Million outlets and 17000 wholesalers.

• Constant Learning

– New approaches to distribution – 100 key wholesalers and 5 partners

– New skills in product development – R&D center in Kobe

– New Paradigm – Its planet Japan…

Fidelity to methods that work back home is futile.

• The proprietor of KFC and Pizza Hut. KFC.

• Opened its first restaurant on China’s mainland in 1987. Now operates 2,497 in the country (compared with 5,253 in the United States).

• 30 percent of global revenue from China. Sales soared 31 percent last year, helped the company shrug off the US recession.

• Plans to hit more than 20,000 restaurants in the country.

• KFC in China “can be every bit as big as

McDonald’s in the US.”

• Insight – Customer expect a very wide

variety of offerings and short innovation cycles.

• Action – – Customization to Chinese palate in menu.

Sells as much Chinese food as Pizzaz.

– Opened ‘East Dawning’ pure Chinese chain

in 2004.

– Launch new items every month.

Success in Asia – YUM China – Key Lessons

Asia Strategic Framework

• Vision – Realistic Goals – Setting rightful KPIs (Profits, Presence, Market Share,

– Defining Time period (e.g., Japanese way)

• Business Model Drivers – Dualistic approach not sufficient

(Cost or Differentiate)

• Local Competitors giving lo cost and ‘acceptable quality’

• Brand Franchise Building – Understanding Asian Consumer and differences

• In Groups vs Crave for individualism

– Relevant Positioning and brand building – The Asian Way • Key Trends

• Capabilities Creation – Resource acquisition viz Distribution, Network, Market Intel

• Guanxi

• Organizational Model – Regional vs Local teams ( Entrepreneurial small regional teams vs strengthen local

teams)

– Asian team inclusion and participation in senior management

– Manufacturing in Asia

Asian Consumers vs Western Consumer

• Foreign Perception – – Foreign products and foreign people are better perceived in

Asia

– Global brands vs. local brands, foreign education vs. local education, and foreign workers vs. local workers.

• Display of Status – – Importance of displaying your status through outward

appearances of rank and wealth in Asia.

• Not exactly following Maslow’s heirarchy – Need for self actualization and belonging is replaced with

Status and Affiliation

– People may deprive themselves of food to buy a refrigerator to enhance their social class

• Low defenses – – Local consumers develop brand impressions with less

defenses than westerners.

– They place more literal emphasis on the messages that advertising conveys than those in the west.

• Influence of cultural heritage – – Strong emotional ethos mired in complex social identity and

myths.

Very Asian…

• Concept of ‘Loss of face’ – – Acting on the basis of these others' expectations and needs,

blurring the distinction between self and others – Linked to brands usage.

• Need for approval and acceptance– – Saying ‘Yes; when you mean ‘No’.

• Different conception of individuality – – More emphasis on the way individuals are connected to the

people around them, fitting in and living in harmony. Vs West model of individual talents, abilities and personality traits.

• In group Affiliation – – Group Think. However, the importance of the in-group

doesn’t mean social conformity e.g., LVMH

– What constitutes an in-group in India is quite different from that in Japan. in India the interdependent self means enduring loyalty and sense of belonging to a community defined by caste, language, geographic origin and social class.

• Power Distance – – 80 in China vs 60 in SEA vs 55 in the world.

Key Success Drivers

• Challenging but unavoidable – – Asia is not a sideshow but necessary for survival

• Boardroom Decision – – Building a brand is a corporate strategic issue and

not a short-term tactical activity.

• Glocal Approach - – Retain their brand identity but localize the

communication, product offerings etc.

– Best of both the worlds – Contextual and conceptual adaptation

– Cultural sensitivity

– Backed by CEO and KPIs for the whole team

– Mix of local talent in senior management

• Flexibility & Open Mind - – Willingness to REINVENT keeping the core

values intact

– Decision making process which could be at variance with core organizational norms and accepted practices

• Focus – – Transfer of technology, knowledge and build

intelligence

– Building Marketing assets

• Corporate Branding to attract talent

• Consumer branding to build goodwill and associations

• Distribution network

– Relationships

• Collaborate with Asian brands to gain a foothold –

– Leverage the resources of the local companies.

– Strong brand equity, financial prowess and the business acumen of the global brands and the local networks, established distribution channels and the strong knowledge of local customers of the local companies.

– Shanghai Volkswagen Automotive Company was formed as a result of collaboration between Shanghai Automotive Industry and Volkswagen.

– In India, the collaboration between Japan’s Kawasaki and India’s Bajaj to form the highly successful Kawasaki Bajaj.

Key Success Drivers