The ancient Silk Road is getting a modern boost through the Belt and Road initiative. How are Asian brands expanding? And what opportunities exist for brands in Asia itself?
The Silk Road is probably the most well-known network of trading routes which connected the East and West. In fact, it represents one of the earliest phenomena of political and cultural integration between these two parts of the world.
In October 2013, Chinese President Xi Jinping announced his ambition of building the new Silk Road. This Belt and Road initiative is set to drive a new kind of multilateralism, as it is the largest single investment initiative since the Marshall Plan. It is said to have the participation of 65 countries and South East Asia is expected to play an important role in the growth of the project. According to The Economist, China has so far invested over USD 900 billion in projects ranging from highways in Pakistan to railway lines in Thailand.
The investment will immediately stimulate global development and support continued growth in the middle class, offering the opportunity for Asian nations to move up the manufacturing value chain by producing and exporting high value goods.
Whereas the Western world seems to increasingly focus on developments within its own borders, Asia, with China in a leading role, is amplifying its USD 1 trillion initiative towards “Globalization 2.0”. With President Xi having announced at the World Economic Forum that “pursuing protectionism is just like locking oneself in a dark room”, it looks like we are on the verge of a large-scale economic shift.
This shifting paradigm also brings significant opportunities for Western businesses that can provide services to support the growth of Asian brands in the West. Asian companies are increasingly looking to seize opportunities to grow and globalize their brands outside their domestic or regional markets.
Haw Par, for example, is an Asian company that is expanding West. The business was first established in Rangoon in the late 1870s and later consolidated in Singapore where it is still headquartered today. It sells an analgesic with origins in Chinese Traditional Medicine but is now competing with Western brands. It is now available in over 100 countries globally with year-on-year sales growth of 27 percent in 2016.
Asian brands continue to expand into the Western world, undoubtedly increasing the competition in these markets. Consequently, Asia remains a key growth driver for the overall global consumer goods market.
According to The Marketing Insider, market optimism in Asia remains strong. With USD 4 trillion in new spending and 400 million first-time and upgrading consumers in Asia’s emerging economies like China, India, Indonesia, Vietnam and Thailand, multinational consumer goods companies are looking to the East.
However, Asian brands themselves are also taking advantage of the vast growth within the ASEAN region. South East Asia, for instance, is home to over 650 million people – more than Europe. As already half of the global middle class lives in Asia, the inner-Asian growth trend is not surprising.
A great example of this is the Indonesian food and beverages company, GarudaFood. Within a short period of time they have expanded their business to several South East Asian countries and become a fast-growing brand in both modern and traditional trade channels.
Companies should be aware of the opportunities and pitfalls of doing business in Asia. Brands need to be able to cope with the changing growth trends and constant developments of the Asian market. This is something that applies especially to Western brands going East. Asia is highly fragmented in its channel structure; modern trade is growing and is the dominant channel in some countries, but in many markets, traditional trade remains the dominant go-to-market option.
Understanding that Asia is a complex and hugely diverse region is crucial to any expansion plans. There is a strong distinction between developed Asia, with modern retail customers where listings, prices and promotions need to be negotiated centrally, and emerging Asia, with a high density of traditional trade customers where sales representatives drive the transactions.
In my next post, I will share how companies can take advantage of the opportunities that lie in wait, including via the omni-channel approach.
Luke Horton is General Manager, Business Development, Business Unit Consumer Goods at DKSH Thailand. He has lived and worked in Thailand for over five years and has developed a deep understanding of the Thai FMCG sector.