Does Asia Hold the Answer for Singapore? [By Rhoda Siu & Stephanie Ng]

In today’s interconnected world, issues such as saturated domestic markets and the need to grow sales mean that it has become a necessity for businesses to look for opportunities overseas. The desire to serve markets outside their home countries leads businesses to ask the question of “where?”: as the continent for rising stars of the global market, Asia has been the answer to many.

The Lure

A plethora of palatable features entices business owners to choose Asia, not least because of the basic formula that the larger a population, the larger the source of demand. Add to this increasing levels of education and purchasing power, and the Asian market starts to look irresistible: China and India each offer more than 1.2bn consumers, with a combined total GDP (purchasing power parity) of over S$23.7tn in 2013. Furthermore, the sheer size of Asia’s population and its overall pyramidal age structure means it can add the advantage of abundant yet comparatively low labour costs to its persuasive portfolio.

Total GDP 2013e

Source: CIA

From 1980 to 2008, South Asia saw an average annual GDP growth of 5.9%, the result of a cocktail of factors ranging from more advanced infrastructure and modernisation to increases in sectorial innovation hubs. Foreign eyes are not the only ones to set its sight upon Asian shores, and Asia itself has leveraged upon this growth opportunity; for example, in 2013, there was a total of S$107.1bn in foreign direct investment from the top 10 Asian economies, including Singapore, to China.

Singapore’s Foray into Asia

Singaporean business owners would also do well to sit up and notice the greater integration taking place within the region. It is up to them to take advantage of political alliances such as the ASEAN Free Trade Area, which covers matters including tariff liberalisation, easier customs procedures and freer trade in services, and it accounted for 34% of total Southeast Asia exports in 2009. Singapore has also signed other agreements with Asian countries such as India. A closer look can reveal how Singaporean enterprises can benefit from the range of tariff concessions and relaxed regulations. Reforms have also transformed many Asian nations such as Vietnam, leading it to be lauded as a “Tiger Cub” economy of Asia, and Singaporean businesses, such as Charles & Keith, have leapt at the opportunities it holds (please refer below).

Planning and Research are Crucial

For Singaporean companies ready to look to broader horizons, the incredible diversity found in Asia is glittering with opportunity and variety on one hand, but also threatens the ruin of unprepared businesses on the other. National cultures, business practices and political and legal environments can be so divergent across borders as to require meticulous market research and clear feasibility planning, shirked at the risk of misadventure. BreadTalk is a prime example of a Singaporean business which successfully navigated this minefield, and is now looking to expand aggressively (please refer below).

have you considered

Source: BDO

Furthermore, Singaporean companies should be aware that the lure of Asia’s diversity can conversely make its supply chains very complex. There is a need to consider distinctive local conditions, regardless of how close physically and culturally their target market is to Singapore, as all markets are unique. This is on top of fluctuating domestic demand and market unpredictability and companies should evaluate the efficiency and leanness of supply chains spanning multiple regions. Infrastructure, customs and regulations differ across the Asian landscape and even between provinces within countries, testing business’s flexibility, nimbleness and preparedness as they steer growth.

Although it may start to sound like a daunting road to tackle, strategies can be formulated to gear companies for the journey. Every strategy will be different according to each company and its vision and goals, but scrupulous research, market experience and quantitatively-backed advice form the cornerstone of internationalization success. While the path of internationalization is well-trodden, it is not any less risky or tempting, and the potential returns can prove lucrative to any business willing to take their ambitions one country further.

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The Emerging Dragon: In a bid to seek out new selling opportunities and improve brand confidence, Asia was the answer for popular Singaporean company Charles & Keith. It expanded its global footprint to Vietnam in 2007, a country touted as the up-and-coming top performer for Asia, averaging 8% GDP growth 1990 to 2007. Global retailers like Charles & Keith look to tap into Vietnam’s market, fuelled by the country’s growing urban middle class with high disposable income. With per capita income of citizens increased five times from S$283 in 1994 to S$1,201 in 2012, Charles & Keith continued to capitalise on the consumer’s growth and opened its seventh outlet in Bitexco Financial Tower, Ho Chi Minh City. Investment appetite for Vietnam market will develop further as the market contains tremendous growth.

c&k

The Land of a Billion Mouths: Geographical proximity, the lack of a language barrier and the China-Singapore Free Trade Agreement mean that it would be natural for Singaporean companies to look to expand to China. The BreadTalk Group is such an example. Founded in 2000, it started its overseas growth with one store in Shanghai in 2003 and now aims to double bakery outlets in China to 500 from 2012-2014. BreadTalk further announced that it would be forming a joint venture with Jumbo Group in Shanghai; Jumbo Group’s CEO cited BreadTalk’s established brand recognition in China as one of its main strengths. BreadTalk’s path to profitability was not a straightforward one; its food court business lost money for seven years. But with persistence, on-the-ground knowledge and research, China has grown to represent 32% of BreadTalk’s S$447.3m revenue.

breadtalk

By Rhoda Siu and Stephanie Ng

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