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SpirE-Journal 2007 Q4

Asia-Pacific Outlook 2008

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Asia-Pacific Outlook 2008

In this edition, Spire’s Group Managing Director Leon Perera shares his views on trends that will impact the Asia-Pacific’s marketing and economic landscape in 2008 and beyond.

Spire E-Journal (SEJ): Although economic growth has been robust across Asia in 2007, some slowdown is expected in 2008 due to the global credit crunch. At the same time, inflation is looming large on the horizon. In an environment where consumers are concerned about value, do you see any change in the business environment across the Asia-Pacific?

Leon Perera (LP): 2008 will see continued healthy growth in the Asia-Pacific, but demand will become increasingly bipolar. Domestic demand is the key driver of economic growth across most of Asia and especially in China and India, the region’s fastest growing major economies. Purchasing power will remain healthy in absolute terms. But inflation and inequality is on the rise – Gini co-efficients, indicators of income inequality, have been trending upwards across Asia. This conjuncture of high growth and rising inflation and inequality will create a bipolar marketing environment.

At one end of the spectrum will be low-end consumer market and inflation-hit businesses, which will be increasingly price-sensitive. These buyers will increasingly turn to lower-priced alternatives to the products and brands they currently use – for example retail house brands, generic products, made in China products or even counterfeits. Price-sensitive consumers will also create a growing niche for team buying as well as small-scale traders importing and reselling online.

At the other end of the spectrum, we expect rising incomes among wealthy consumers and rising earnings for companies in sectors insulated from the credit crunch and benefiting from generalized Asian growth, like commodities, energy, construction, telecoms, automotives, shipping and some parts of retail. Among these buyers, purchasing power and spending will rise. Sales of luxury brands and high-technology solutions to this group of buyers will thrive. Indeed, luxury brand retailers are aggressively expanding their presence in Asia and their next frontiers for expansion might be India, Indonesia and Vietnam.

SEJ: China is in the spotlight next year, being host to the Beijing 2008 Olympics. Will this impact the region and the world?

LP: The Beijing 2008 Olympics definitely poses significant business opportunities. Beijing is clearly trying to fulfill its promise to go green, use advanced technology and embrace people as the centre of the Games. The city has already spent between US$35 billion and US$40 billion on infrastructure and environmental improvements. Beijing is implementing a raft of pro-environmental measures in the run-up to the Olympics, such as migrating to natural-gas fired boilers and building new water treatment facilities. In fact, earlier in 2007, the Chinese government pledged to reduce energy consumption per unit of GDP by 20 percent and emission of major pollutants by 10 percent by 2010. The Games will also boost the adoption of new media in China – IPTV, outdoor media and mobile services such as mobile phone newspapers.

Hence the economy of China will see a significant stimulus from the Olympics, particularly in Beijing. This will be a boon to businesses operating in China, both foreign and local – particularly in the environmental and technology sectors. It will also benefit exporters to China. We should recall that most Asian countries (unlike the Western countries) run a trade surplus with China, that is to say they export more to China than they import.

In short, the Olympics will be a significant boost for China and the region in 2008

SEJ: While China is staking a great deal on the Olympics, India and Vietnam are seen as emerging manufacturing superpowers who will provide keen competition to the Made In China brand. Will they displace China any time soon?

LP: Spire’s research suggests that, while China will continue to be the most attractive manufacturing location in Asia by a wide margin, many international companies are quietly increasing (or planning to increase) production foreign direct investment (FDI) into India and Vietnam. This is being driven by the need to diversify risks and tap into the domestic market in these countries. A closer look at the data shows why the gap will narrow but China will remain in the lead.

One-third of respondents in Spire’s survey felt that China was the most competitive location in the region for manufacturing and that they would move more manufacturing there in future. India was the next most favored location for manufacturing. The strong showing of India reflects the attractions of India’s Special Economic Zones, which are attempting to create a “China-like” infrastructure and business environment in designated manufacturing zones. With its entry into the WTO in 2007, Vietnam is well-poised to attract more manufacturing FDI from MNCs wary of placing too many eggs in the China basket.

However Spire’s research suggests that domestic market size has become the second most important factor in deciding where manufacturers locate factories, which augers well for China as the world’s fourth largest economy. The Olympics has certainly highlighted China’s large domestic market. One of the sponsors, Adidas, plans to double the number of its retail outlets on the mainland to more than 5,000 by 2010. An Adidas factory has been erected in Suzhou to cope with the expected demand. China is set to remain the leading production hub in Asia in the mid-to-long term.

SEJ: With the enactment of an ASEAN charter in 2007, talk of pan-Asian economic groupings has revived. Are the similarities across Asian countries more important than their differences and will marketers find Asia a more unified region in the future?

LP: The enactment of the Association of Southeast Asian Nations (ASEAN) charter is a significant development for the region. It is not only a milestone in the journey to create a common economic area in ASEAN, though that alone would be of enough interest since ASEAN is a market of 500 million whose collective GDP would make it the world’s seventh largest economy if the EU were treated as a single economy. ASEAN’s significance goes beyond that.

ASEAN is rapidly emerging as the pre-eminent platform for high-level political and economic dialogue among Asia’s big powers, as the heads of government of China, Japan, India and Korea are frequently invited to attend its summits. The rise of ASEAN will provide an impetus for greater regional economic integration, though this will only unfold over the long-term and might still be derailed if adverse economic circumstances fan protectionist forces.

On a more general note, Asia will remain a far more heterogeneous region than Western Europe or North America for the foreseeable future. There is no common language, religion or culture and standards of economic development are massively disparate. However we do see a number of themes of relevance to marketers which cut across Asia, chief among which are the rise of the silver-haired market.

In 2005, one-fifth of Asia-Pacific’s population was aged 50 or older. By 2050, that figure will nearly double to 40%. While Asian countries like India – where 60% of the population is less than 25 years old – have a large youth consumer segment, others such as China, South Korea and Australia have a mushrooming elderly population.

Despite these astounding figures, Spire’s recent study of regional companies found that only a minority of multi-national companies operating in the region saw any urgency in marketing to the elderly segment. Recognizing the demographic time bomb, though, a third of those without a current Silver Hair marketing strategy intended to implement such a strategy in three to five years’ time.

Another interesting finding of the Spire survey was that the internet and the computer are emerging as growing consumer industries for the older population. Even though ICT companies now have few strategies targeting the older population, more than a quarter plan to develop a more cohesive silver-haired marketing strategy by 2010. This is in keeping with the trend of older people beginning to value the internet as an information source.

SEJ: Asia’s internet and mobile phone penetration is still seeing explosive growth. How important will the internet be to marketing success in Asia?

LP: The internet is crucially important. Asia now accounts for more internet users than Europe or North America. It is also the fastest growing region in the world for mobile phones – in particular, the population giants India and Indonesia have registered world-leading levels of growth in recent years. Yet, in the larger Asian countries the fixed line infrastructure is poorly developed. We expect that mobile phone usage will leapfrog fixed line, and many consumers will access the internet via mobile devices in future, skipping the fixed line internet stage. This will be especially true of China, India, Indonesia and the Philippines.

We have already seen the explosion of E-communities and social media onto the Asian stage. Asians have fallen in love with social media sites like Orkut and Facebook, and these are deepening the involvement of consumers with the internet as a medium. Next year, vendors and consumers will take it a notch higher and mobility will be the focus of these platforms. Google has unleashed its AdSense for Mobile, Facebook developed an iPhone application, and MySpace went beta with its mobile platform.

Online mobile social media would allow brand owners to engage with a wider audience and involve them in their campaigns. The next step would likely be consumer-generated applications and games for mobile devices.

Mainstream MNCs have been slow to reach out to E-communities and social media for marketing purposes, though some trail-blazers have made a start in, for example, running competitions for bloggers to upload their ad clips or create their own on-line ads. The development of novel marketing practices in these new online spaces will be the most interesting challenge facing marketers in 2008.

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