Module 2 (part A)

Opportunities and challenges of

doing business in Asia-Pacific

International Business Division

School of International Business and Marketing
UEH University
Learning objectives

1. Understand the opportunities of international business in the

Asia – Pacific region

2. Understand major challenges of international business in the

Asia – Pacific region
1. Growing consumer market

• Growth and the continuing emergence of the Asian middle

class
• Growth results from increasing purchasing power, rather than
population growth
• Emergence of large, wealthy middle class across the region
• The ‘golden triangle’: Japan, South Korea, China
• India and South East Asia
• Shift in demand
• from limiting purchases to staple commodities to high value and quality products
and services
• Increase in urbanization offers business opportunities in infrastructure, smart
cities development and more
1. Growing consumer market

• Growth and the continuing emergence of the Asian middle

class

Fig 1: Estimated share of the personal luxury goods consumption

worldwide by consumer nationality in 2018 and 2025
 1. Growing consumer market

• Growth and the continuing emergence of the Asian middle

class
only 7.2% of Japanese irms operating in China were
ceasing or planning to cease production in China.

“I don’t think that the Japanese manufacturing industry

could survive globally without being present in a market as
big as China’s,”
Homma Tetsuro,
CEO of Panasonic's In-house China & Northeast Asia
Company

Fig.2 Share of global urban consumption growth, 2015–30, by country/region.

2. Increasing Consumer Market Digitalization

• Growth or e-commerce
• the region makes up 62.6% of the total global revenue in e-commerce
• In 2021, China’s e-commerce sales of nearly US$2.8 trillion accounts for
over half of all e-commerce sales worldwide and more than 50% of the
country’s total retail sales
• Japan and South Korea’s e-commerce sales at US$144 billion and
US$120 billion, respectively, rank fourth and fifth worldwide after China, the
United States, and the United Kingdom.
• Practices: mobile payments, AI-driven logistic and delivery services, and
livestreaming-enabled social commerce (China), mobile payment, inluencer
marketing, eficient product delivery, and special-holiday shopping events
(South Korea)
• The growth in the region is attributed to
• good-to-outstanding, and rapidly improving, mobile internet connectivity
• declining costs of mobile phones
• mobile internet subscriptions across the region
2. Increasing Consumer Market Digitalization

Fig 3: Retail e-commerce market in Southeast Asia, 2019 and 2025 (forecast), by
country
(in billion US$).
2. Increasing Consumer Market Digitalization

• Growth or ride-hailing
• Online transport and food delivery
• US$11 billion in 2020 and expected to reach US$42 billion by 2025
• Needs for digital payment
• 2019: US$600 billion in gross transaction value
• 2025: expected to exceed USD1 trillion

• Fintech is expected to rise sharply in the ASEAN region

• Over 70% of adults are currently unbanked or underbanked
• The industry is worth US$11 billion and could rech US$60 billion by
2025
2. Asia as a leading hub for Innovation

• The region is home to world-class firms

• Over 40% of 2020 Fortune Global 500 originate from the region

Fig 4: Fortune global 500 by country/region, 2020

2. Asia as a leading hub for Innovation

• Iliminating the “all brawn and no brain” image

• Change in the type of firms
• contract manufacturing firms, who are now pivotal in global supply
chain
• Firms with regional and international reputation
• Most prominently are digital technology firms: Alibaba, JD.com, Didi, Meituan,
Ele.me, Tujia, Ctrip, eLong.com, Ant Financial, Weibo, WeChat, Tiktok, Grab
• Groups of startups: GoJek and Tokopedia jointly form GoTo, SEA, Shoppe is
backed by Tencent
• Leading manufacturers in semiconductor chips (TSMC), smart phone display
panel (Samsung), image sensor technology (Sony)
• Becoming a leading hub for innovation
• 2021, more than 25% of all unicorns have been incubated in the Asia-
Pacific
• Attract tech investments
3. Regulatory reviews and change in many countries

• Improvement for accountability and information security

• While domestic protentionism remains significant, more
regulations apply to the private sector to drive growth
• Deregulation provides opportunities for competition and
innovation
5. Human Capital

• Asia has been a manufacturing centre for labor-intensive

products and services
• Over 30 million guest workers in the region
• Aging population trend creates potential for web-based
technologies to support older workers and improve
engagement
• Competition for talent and leadership, requiring a company
culture and core values that inspire employees to stay
6. Vastly differing rules across countries

• Most governments have a favorable view on FDI

• Level of political risks in Asia-Pacific context remains high
• Protectionism reflected through over-regulated markets, unfair
competition from highly protected state-owned enterprises, and
market protectionist policies
• Corruption: abscence of appropriate regulations can lead to higher
costs of doing business and damage of firm’s reputation
• Bureacracy remains an inherent feature of many markets in the region
• Intellectual property: threat of piracy and the lack of protection of IP
are well-known
6. Vastly differing rules across countries

• Variation of institutional environment in the region creates

different level of risks across countries
• Common law: Hong Kong, India, New Zealand
• Civil law: China, Taiwan, South Korea, Vietnam
• Implementation of law
• Contracts are only viewed as a formal document that is subject to
change
• Verbal contracts and interpersonal trustworthiness are more important
thatn written contracts
• Lack of formal rules and regulations to dictate the legalities of doing
business
• Fragmented judicial systems make it difficult to claim damages or
enforce action to protect MNE inteleectual or commercial interest.
6. Vastly differing rules across countries

• Legal risks dictates the level of foreign investments in the host

country. MNEs must deelop capabilities and willingness to
engage with the governments to better manage risks that may
arise
• Constraints on foreign equity ownership
• Profit remittance
• Marketing and distribution
• MNEs face complexities and challenges in maintaining good
corporate governance and disculusre practices due to the
diversity of rules, regulations and stakeholder expectations
between the home and host country
• Internatioal accounting standards are not recognized by all
7. Overcoming informationa deficiencies

• Problems with information in the Asia-Pacific

• Lack of availability
• Poor quality information
• Commercial information may be difficult to obtain
• Remedies add to cost of doing business in the region
• Private collection
• Develop local partnership
• Imitative behaviors when firms tend to follow similar strategies
8. Inequality

• Uneven historic development progress leads to significant

variation of attractive business opportunities, which are likely to
be found in prosperous cities or regions
• Dangers of relying on agreegated data measuring factors
• Commercial conditions vary greatly across regions within and
across countries
• Laws, infrastructure, poor administration in less-developed areas.
9. Levels and forms of competition

• High levels of competition as domestic firms have moved

aggressively to take advantage of strongly growing markets
• Large investments in R&D and marketing skills
• Foreigned firms have moved into the region to establish a distinct
market position
• Widespread of powerful business groups in the regions
• State-owned enterprises
• Large, diversified family firms under the control of favoured elites
• Enjoy advantages not available to foreign firms
• Have access to low-cost funds, receive national strategic information, protection
from the government
• Familiar with the host country conditions and have established business
networks
10. Understanding institutional and market
weaknesses

• Market failure is prevalent in the region

• Market failure refers to situations where markets do not operate
efficiently of effectively
• Market failure adds to transaction costs and uncertainty, and requires
innovative business reponses
• Failures can occur in labor, products, technology markets.
• Government intervention is needed as a remedy
• When formal institutions are weak or absence, informal
institutions play a greater role.
11. Managing in distinctive business systems

• Challenging to learn how to do business in different markets

• Using social relationships to facilitate the exchange of ideas and
knowledge by increasing levels of trust and information sharing
• Managers rely on personal relationships to compensate for a lack of
trust, or the absence of market processes
• Social relationships persist and often extend beyone commercial
into political and social links
• The creation of such networks often develop through school gives
locals advantages over outsider.
• Doing business in Asia requires requisite period of establishing trust
and relationship building
13. Strategies of doing business in Asia-Pacific

1. Strategic flexibility to address rapid growth and change

• Market dynamism requires continuous and effective
environmental scanning to identify and anticipate market
opportunities.
• Resource management is critical as they need to be swiftly
redeployed across locations
• Firms need to work closely with suppliers and partners
• Necesity for flexibility is strong
• Location and sourcing decisions can change quickly
13. Strategies of doing business in Asia-Pacific

2. Needs for market knowledge to overcome institutional

differences
• Managers need to understand how institutional weaknesses or
voids manifest themselves, and how they influence an
operating strategy
• Lack of consumer protection offers an opportunities to trusted
international brands
• Strategies to deal with weak IP laws:
• Modifying products to eliminate leading edge technologies
• fragmenting supply relationships to ensure that no single partner has
access to the entire technology
• Accelerating technological change and product updates
13. Strategies of doing business in Asia-Pacific

3. Managing government involvement

• Use of local partner organizations
• Make substantial investment to indicate strategic commitment
to the country
• Willing to share technology and to continually upgrade
• Avoiding direct competition with a state-owned business or
challenge government policy
• Providing differentiated products and services that offer value
to buyers reflected in premium prices and returns
13. Strategies of doing business in Asia-Pacific

4. A need for strategic adaptation

• Single business strategy or model is unlikely to bring success
• Technological knowledge and premium product features can be of
little value
• Needs for different strategies for different segments
• Needs for different competencies across countries