Why Business in Asia is Changing

As the region continues to evolve, it's time to make way for a new generation of Asian entrepreneurs.

Ross McCullough | UPS

With the 29th Asia-Pacific Economic Cooperation meeting in Da Nang, Vietnam this week, it’s worth reflecting on just how much has changed since the first APEC meeting in 1989.

The days of Asia’s “Tiger Economies” are fading into the rear-view mirror.

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Vietnam is one of the most dynamic manufacturing economies in Asia.

While the rapid rise of Taiwan, Singapore, Hong Kong and South Korea have largely shaped the global economy, we see a number of reasons for optimism as the region continues to evolve – and the old guard of the earlier economic boom makes way for a new generation of Asian entrepreneurs.

Stepping into the limelight

Political, societal and economic changes during the last decade have increased openness in Asia – particularly in economies like Vietnam formerly closed off from the world.

In the years after Vietnam’s 1986 “Đổi Mới” market reforms, it would have been hard to imagine the country would become one of the most important players in the global economy.

But in 2015 the country’s exports topped $162 billion, and Vietnam is now one of the most dynamic manufacturing economies in Asia. A more recent example of this is Myanmar, which transformed rapidly from military dictatorship to democracy during the past 10 years.

Such changes were followed by economic reforms and the lifting of sanctions in 2016. Myanmar now has one of the fastest growing economies in the world and remains on track to achieve 8 percent GDP growth in 2018.

As the region’s economies open up, it paves the way for greater economic connectivity, creating opportunities for collaboration and more comprehensive supply chains. However, it also creates new challenges.

Fierce competition among Asia’s manufacturers

Decades ago, Japan was pretty much the sole manufacturing power in Asia. Then came the Tiger Economies, China and India. Now, taking a broader look at manufacturing in Asia, countries around the region have created an “industrial patchwork” where markets compete and collaborate across sectors.

Today almost all Asian economies play a role in the global manufacturing network. Thailand is known as the “Detroit of Southeast Asia” because of its strong auto manufacturing industry while Vietnam is earning a reputation for low-cost, high-output manufacturing, as well as its increased production of high-tech products.

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Asia will account for more than 40 percent of global middle class consumption.

China is transitioning from low-cost production to value-added manufacturing, and Taiwan is diversifying its exports from semiconductor production into other fields like Internet-of-Things (IoT) technologies.

Of course, some of the key beneficiaries are citizens of these countries.

By 2030, Asia will be home to nearly two-thirds of the global middle class and will account for more than 40 percent of global middle class consumption, which will generate huge demand for regionally produced products. This also creates a buyer’s market for companies where they can shop with different manufacturers in various markets, find suppliers that suit their needs and have ready-to-go supply chains set up in the region.

Ultimately, this has helped make Asia an attractive destination for production, where the region itself has effectively become a marketplace of manufacturers.

Asian businesses look different

There’s a classic image of the typical Asian business from the Tiger Economy period: huge businesses with a range of interests and investments, often headed by a larger-than-life tycoon. In recent years, however, new kinds of Asian businesses are appearing, taking innovative approaches to structuring and financing.

This is particularly noticeable in China and Southeast Asia where fresh-faced companies are seeing a meteoric rise, offering everything from e-commerce products to ride sharing to food delivery. Many of these markets are undergoing rapid development, moving from agrarian to highly complex economies in a matter of years.

One of the clearest examples is in financial support for startups. According to figures from Tech in Asia, funding for start-up businesses in Southeast Asia grew by 60 percent in 2016, up to $2.6 billion. While it’s early, this demonstrates how Asia’s economy is moving at a breakneck pace.

This same level of change is also transforming how businesses sell their products.

E-commerce upends traditional retail

Asia is home to one of the world’s most diverse retail environments.

In Hong Kong, for example, you can walk out of a high-end shopping mall and into a night market where you can buy your dinner and a new pair of shoes with very little money. This same flexibility has permeated Asia’s online shopping ecosystem. UPS’s Pulse of the Online Shopper study examined the flex shopper – someone who learns about a product on their smartphone, researches a purchase using a tablet, compares alternatives at physical stores and purchases using an app.

Click here to download the UPS Pulse of the Online Shopper whitepaper.

These cross-platform interactions make up the omni-channel customer experience. This has significant implications for the region’s commercial landscape, both for customers who can now research and makes purchases across numerous channels, as well as for retailers who are locked in competition to provide greater levels of accessibility and integration for shoppers.

The same goes for logistics providers. No longer is it enough to simply ship to a retailer. Firms need to facilitate the multi-directional flow of goods between a retailer’s warehouses, physical stores and end-customers.

For example, a Singaporean shopper might see a top in an outlet around the downtown area. It doesn’t fit, though, so she looks online to see if the retailer’s other locations have bigger sizes in stock. Having found a bigger size at a store near Changi Airport, the customer requests to have the item shipped from the other store to her home in Ang Mo Kio.

If this product doesn’t fit, the logistics company will then have to ship the item back to one of the retailer’s locations or to a central warehouse. It’s this new retail reality that is driving change in the logistics industry in Asia while providing shoppers with more convenience and control over their purchasing.

Make change work for you

Much has been made of the rise of Asia, but it would have been hard even 10 years ago for members of APEC to predict this much change. While the business environment is more demanding, the rewards are much greater.

As such, it’s important to find the right partners and suppliers to ensure you’re maximizing your business potential in Asia. Don’t just react to the changes in the Asian Century – understand them, embrace them and make them work for you.

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Ross McCullough is President of UPS Asia Pacific Region.

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