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Our experts suggest every business should consider these top questions before market entry into Asia. For more information, contact our experts
One of the most attractive reasons for any business to enter the Asian market is how quickly a business can establish a presence and focus on growth. However, it is also a region where the consequences of choosing the wrong base of operations can become a significant burden in the long term.
This makes it critical that businesses take the time to ask themselves the right questions before settling on a future home in Asia.
Often, we encounter businesses which have set out with a specific target market for expansion, for example, Vietnam. Sometimes this is based on a local connection, but just as often based on out-dated or partial information about realities on the ground.
It’s also often a sign that the business may have skipped the most critical step in planning their expansion - a look in the mirror.
The first question is not what your business is bringing to Asia, but what your business will rely upon to thrive there. What is the central activity of your business? If you are a manufacturer, some regions which recently were globally renowned for their manufacturing zeal have now moved on.
China was historically a strong destination for western industrial delocalisation for Europe, but today it has evolved into a consumer market, where the logistical costs far outweigh its neighbours, where supply chains have shifted.
For hi-tech businesses, by contrast, a wide range of locations have opened up, competing to attract next-generation skills and technology. If your business would thrive through incentives and support for research and development, it's worth considering which incentives are most critical to your success.
The governments for Singapore and Hong Kong, for example, are actively developing hubs for high-tech skills and development of new products.
Hong Kong is indeed a leader in supporting innovative companies with multiple initiatives and financial support. Nicholas Yang, Secretary for Innovation and Technology says: “To encourage more private venture capital funds to invest in Hong Kong start-ups, we have established a HK$2 billion Innovation and Technology Venture Fund to co-invest with the private VCs. In addition, another HK$7 billion was provided to the Hong Kong Science Park to enhance support for its tenants and incubates. Up to 300 per cent super tax deduction on R&D expenses, without upper limit, is now available to all Hong Kong companies. All in all, the Hong Kong SAR Government has already invested over HK$100 billion in innovation and technology development during the past three years. There is more to come. Hong Kong's innovation and technology ecosystem is more robust than it ever has been”
Who are my customers, and where are they?
Once a business has a clear sense of what it needs, the next set of questions are about where you will be selling, and to whom.
Asia is home to some of the largest and fastest growing consumer markets in the world, and nowhere is that truer than in China. For many businesses, China represents such a vast market that it can stand alone as the focus for a business’ medium-term growth.
However, as a continent-sized market, reaching your customers quickly and efficiently is important. For executives that must travel regularly to multiple Chinese cities in the North of the country, a base in Shanghai would reduce the need for border crossings and could help ensure faster routes to your market.
For others, their business’ core customers lie in the sophisticated and interconnected supply network of trade between nations in the region. As our recent Business Outlook has shown, Singapore has cemented its position as the best connected hub for access to countries across South-East Asia.
With an airport 20 minutes from the center of town, it also has huge appeal for businesses which need to send staff travelling to multiple markets. Efficient travel enables large-scale international strategies without excessive time lost.
Having considered markets and geography, it becomes crucial to review the legal framework of the markets you wish to enter, and determine which are the best fit, or least burdensome to your work.
As understanding the legal framework requires time, care and attention, we recommend businesses start this work once they have narrowed their scope to key few markets. However, it is, without a doubt, this is the single most important factor for growth.
Understanding the impact of the local legal framework can be a definitive factor for many businesses. The Indonesian government, for example, limits the percentage of allowable foreign ownership for several sectors, including agriculture, oil & gas, and retail, the limits to which are published in a ‘Negative Investment List’ (DNI), which is revised roughly on a 3 year cycle. A thorough understanding of current limits, and expectations for the future, is vital for executing any medium-term plan.
Our experts enable you to enter, establish and structure your business in new and diverse markets, through our alliance of vetted partner firms. Whether you are testing a market, or expanding at a rapid pace through joint ventures, investment projects or M&A, we help you manage the risks & complexities of business expansion.
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This article is intended for general information only and is not intended to apply to any specific situations or to constitute legal advice.
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