There are many openings for technology firms in the Far East, but the region is becoming increasingly complex. We talk to Ben Simpfendorfer, whose new book explains all.
For the past few decades the refrain that we should embrace business opportunities in the Far East has rung out with increasing frequency and volume. But, according to author Ben Simpfendorfer there is now midway through the second decade of the 21st century, a 'new' East. For those of us used to the idea that all we need to do is open up a factory out in the sticks and a few shops in the city, the whole game is about to change.
In 'The Rise of the New East' Simpfendorfer explains that when we refer to the East today we really mean a geographical region that extends from Beijing to Mumbai to Istanbul. It's home to half the world's population in more than 50 countries. As with the old days of the Silk Road trading network, "it is a region connected by commerce, religion and history. The new East is a region where local companies are fierce competitors, where e-commerce and digital media have created retail revolutions, and where there are bigger populations and more cities than in Europe and the United States combined. Trying to tap the opportunities presents a huge and growing challenge for any company."
Simpfendorfer states that it is a mistake to think about opportunities in specific countries as multinationals build out regional strategies. But how, he asks, do you weigh a commercial opportunity in China's Hefei against another in India's Chennai? Where should the goods be sourced? Should they be adapted for local markets? Do you need local partners? "There are few books that compare opportunities across multiple geographies and business, and that was my reason for taking up the challenge."
The author, who is the founder and managing director of Hong Kong-based consultancy Silk Road Associates, has spent the past 15 years working as a China strategist for several global banks, having started his career in the Middle East. Speaking both Arabic and Mandarin, he is well qualified to compare opportunities across multiple countries. "This was the motivation to set up the consultancy, as companies are increasingly looking to build genuinely sustainable regional businesses." He says that writing his new book presented him with an opportunity "to speak with those business people already grappling with the challenges."
One of the main challenges is that the region's commercial landscape changes so quickly. "It is also relatively opaque. The only way to make sense of those changes is to speak with the region's smartest business operators, whether in Beijing, Bangkok, or Mumbai, and then draw connections between their experiences."
Simpfendorfer found that the challenges faced by Disney in Mumbai and, say, Procter & Gamble in Zhenghzhou are strikingly similar. But, as he observes, most books on the region either limit themselves to an analysis of a single country or focus on big-picture numbers. They also tend to be "written mainly from behind a desk, rather than on the road."
A quick look through 'The Rise of the New East' reveals some extraordinary statistics, including that of Hollywood having half of China's film market, while a mere 8 per cent of India's film market, owing to the strength of the local film industry. "Even the powerful Disney brand has struggled to succeed in India. The company has had to buy a local studio to produce local films with local actors, directors and scriptwriters." It is Disney's experience in India, rather than China, that will be the model for global companies wanting to get a foothold in Asia, he says.
Some companies will be more successful than others, with the most predictable route to failure being the reluctance or inability to embrace the size and complexity of the region's markets. "For a start, China is too big and too regionalised, and so companies need to focus on specific regions or even cities in order to succeed." It's a question of working out 'which' China as well as 'why' China. And then there is the consideration of multi-country strategies. For mid-sized companies, expanding first into south-east Asia followed by China is an increasingly compelling proposition, if only because of the former's more manageable and less competitive markets.
China might not yet have a Steve Jobs or Jeff Bezos, but Simpfendorfer says Chinese consumers are innovating in the way they shop and interact online. "They are buying more frequently and spending more, at least relative to income, than are American or European consumers, and so the country will be a global disruptor in the retail and online space. No foreign company can afford to overlook the impact of e-commerce, digital media, and big data on their business in China, especially as they try to tap the country's vast number of cities."
For CEOs out there who have 'China-fatigue' this promised land of opportunity seems to have been the pot of gold at the end of the rainbow for decades. We are endlessly reminded of the untold riches, low-cost labour and cheap manufacturing that await the canny investor. So what is the real message coming out of the region? And will Europe ever really get to grips with trading with the New East?
"China is no longer cheap," says Simpfendorfer. "In fact, I speak with foreign companies who say it would be cheaper to hire an engineer in Australia or Spain than China. Wages for low-paid jobs in Bangladesh, Cambodia, or Myanmar are also just a third of those in China. The fact that China's youth population will decline by more than 120 million by 2030 will only add to labour shortages and wage inflation. But that means Chinese companies are looking for technologies to replace labour to boost productivity, not only in blue-collar positions, but also white-collar."
This will inevitably create openings for European equipment and technology providers. It's just a question of who will have the knowledge to prepare them to reap the benefits. This book is a good place to start.'*