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MARKETS & INVESTING | Contributed Content, Singapore
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Stephanie Ng & Rhoda Siu

Here's what expanding in Asia means to Singapore businesses

BY STEPHANIE NG & RHODA SIU

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.

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 US$16tn in 2012.

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.

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 US$83bn in foreign direct investment from the top 10 Asian economies, including Singapore, to China.

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 this particular shoe retailer, have leapt at the opportunities it holds (please refer to Case 1).

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Case 1: Vietnam: The Emerging Dragon
An eponymous fashionable brand from Singapore retailing ladies footwear and accessories with more than 190 stores worldwide was established in 1996 by two brothers.

Its humble beginnings can be traced to a simple shoe store at a local hotel and since then it has established itself as one of the market leaders in Singapore. Riding on the success of the retail outlets in Singapore, the brothers continued to launch new stores across the region in Asia.

In a bid to seek out new selling opportunities and improve brand confidence, internationalization has been a major expansion strategy for many corporations, including them. Leveraging on the abundance of opportunities offered in the emerging markets, Asia was the answer.

The wave of Asia’s consumer demand growth enabled the brand to expand its global footprints in Vietnam, in 2007. Vietnam is touted as the up and coming top performer for Asia, averaging 8% GDP growth since 1990 to 2007, and 5% growth in 2012.

Global retailers like them 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 US$220 in 1994 to US$931 in 2012, they &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.

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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.

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.

Another famous bakery chain is a prime example of a Singaporean business which successfully navigated this minefield, and is now looking to expand aggressively (please refer to Case 2).

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.

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Case 2: China: The Land of a Billion Mouths
Geographical proximity and the lack of a language barrier means that it would be natural for Singaporean companies to look to expand to China, and to build upon these reasons, the China-Singapore Free Trade Agreement (CSFTA) was concluded in 2008.

Covering areas from goods and services to IP, it worked to phase out tariffs on 95% of exports from Singapore to China by 2010 and prevents additional market access restrictions from being imposed in areas such as the types of legal entity or joint ventures that a service supplier may use.

However, merits must be qualified: a different customer mentality, its unique history and culture and the size of the market may be significant barriers to penetration if a company has not analysed its entry strategies thoroughly.

Nevertheless, success is well within reach, and the Singaporean bakery chain 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, capitalising on the trend for innovative pastries, its reputation as a premium bakery and a desire among Chinese consumers for reliability.

Furthermore they recently announced that it would be forming a joint venture with Jumbo Group in Shanghai; Jumbo Group’s CEO Ang Kiam Meng cited it’s established brand recognition in China as one of its main strengths.

It's’s path to profitability was not a straightforward one; for example, its food court business lost money for seven years. The founder and chairman, mentioned a shortage of local talent and prime retail space as main difficulties, while he had to contend with uncooperative franchisees and different consumer tastes.

He tackled these by physically flying to China and supervising set-up operations himself and although it was gruelling to split his time, the strategy has paid off. In 2012, China represented 32% of the chain's ’s S$447.3m revenue, second only to Singapore. Perhaps now is the time for Singaporean business owners to consider taking advantage of CSFTA’s provisions on easier movement of business persons.

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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.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.

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Stephanie Ng & Rhoda Siu

Stephanie Ng & Rhoda Siu

Having spent her primary school days at the French International School in Hong Kong, Stephanie lived in Singapore for another 10 years before completing her undergraduate studies in Law at the University of Cambridge. She decided to concentrate her career on her business interest and is now working as an Analyst at BDO Consultants, specialising in international business intelligence. Rhoda Siu is also an analyst at BDO Consultants. Her expertise lies in feasibility studies for internationalisation advisory, corporate strategy and planning, and industry/country analysis.

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