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Asia Business Development – Asia Business Consulting » Crystal Ball Gazing: Asia-Pacific in 2005 and beyond

SpirE-Journal 2005 Q1

Crystal Ball Gazing: Asia-Pacific in 2005 and beyond

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Crystal Ball Gazing: Asia-Pacific in 2005 and beyond

In this inaugural, January 2005 edition of the E-quarterly, we interview Spire’s Group Managing Director Leon Perera for his views on trends making an impact in the Asia Pacific’s sales and marketing landscape in 2005 and beyond.

Spire E-quarterly: 2004 ended tragically with the tsunami disaster affecting much of South and Southeast Asia. What impact will this have?

Leon: The tsunami tragedy has taken a terrible toll in human life. Despite this, the experience of past natural disasters suggests that the economic impact on the affected countries should be fairly limited. This is provided that relief efforts contain the risk of epidemics of disease spreading in the wake of the disaster. Ports and shipping have not been seriously affected. Clearly the tourism industry in places like Thailand, Sri Lanka and the Maldives will suffer shortterm damage and this might affect their economies in2005. Estimates of the size of Thailand’s tourist industry range from six to 12 percent of GDP. However recovery is certainly possible if the right systems and assurances are put in place. There is talk that regional governments will establish a tsunami early warning system similar to what exists in the Pacific. Hopefully this materializes quickly. 

Spire E-quarterly: What is the outlook for the region in 2005? Which countries will provide the best opportunities to regional marketers?

Leon: The regional outlook in 2005 is fairly positive. Economic growth will be robust, if not as high as in 2004. Most countries in the Asia Pacific region will be growing GDP in the band of four to five percent. Without a doubt, China will remain the biggest market growth story for the region in 2005 and for quite some after, which is why we have devoted an article in this Equarterly to the China consumer market. China’s fundamentals remain incredibly strong. There is still enormous upside for export-oriented manufacturing, inbound FDI and productivity growth from the application of technology and more efficient allocation of capital by the financial services sector. All this will keep consumer demand very healthy indeed. However companies face stiff competition, falling prices and over-supply in some domestic China markets. Marketers should not ignore exciting growth opportunities in India, Thailand, Malaysia and, for consumer products, Indonesia. All four countries have confident consumers. Australia will remain an attractive high-income market. We believe the downturn in Asia’s third largest economy, Korea, will soon bottom out, moving into recovery around 2006. Japan is something of a question mark, but moderate growth is the likeliest outcome for 2005. In the mid to long-term we believe the outlook for Japan is positive, as its exporters take advantage of China, banking reforms take effect and consumer confidence creeps back.

Spire E-quarterly:: Why Japan? Isn’t Japan perpetually tomorrow’s growth’s story and one which never seems to live up to this promise?

Leon: First of all Japan is by far the largest economy in Asia in hard currency terms, with a GDP roughly equivalent to all the other major Asian economies added together. So a small amount of growth in Japan represents enormous growth in absolute terms. Japan’s problems since the collapse of the bubble economy in 1990 have been balance sheet problems – the ever-greening of non-performing loans by the banks and such like. All this obstructed credit, stoked deflation and made consumers save rather than spend out of fear of future tax rises and unemployment. Although the pace has been slow and progress sometimes stalls, we can see that Japan is steadily eliminating these balance sheet problems through banking sector reform and corporate consolidation. At the same time, Post Office reform and other measures hold out the hope of Japanese consumers realizing higher rates of return on their savings. All this is laying the groundwork for a gradual resurgence of consumer confidence in about three to five years time. Japan may not return to the growth rates of the late 1980s but it may attain rates mid-way between those of the European Union and the United States. This will throw up vast opportunities for marketers, though ones that will be hard to tap given the distribution and cultural barriers associated with the Japanese market.

Spire E-quarterly: What will be the key changes in doing business that regional marketers should be aware of?

Leon: The most important change, and one that is already well underway, will be the increasing emphasis on services even on the part of manufacturers. Companies are using the internet and increasingly mobile services to deliver loyalty programs to existing customers. The template has been established by airline frequent flyer programs. Apart from cross-sell and up-sell to existing customers, such programs stimulate new sales through referrals. The “Sonystyle” internet club is a good example of such a program. Another is “myphilips.com”, a portal which Philips product owners can use to access internet services, buy products and more. Many digital imaging vendors have created websites where their camera owners can store and share images, print on demand and even communicate with one another. We see this trend going beyond the consumer electronics space to affect markets like automotives, financial services, office automation products and high-involvement FMCG products like skincare and cosmetics, where the trend is not yet as well developed. Connected to this is a trend towards branded vendors wanting to establish more direct relationships with their customers. Of course vendors like Dell define their business model by going direct. But even firms that have traditionally relied on channels are exploring ways to get closer to customers. Look at the growth of branded retail stores by the likes of Hewlett-Packard, Sony and Samsung. In the US, Coca-Cola is directly selling music downloads to its soft drink customers via its website. Photocopier vendors like Fuji-Xerox, Ricoh and Canon who have traditionally relied on dealers for a big chunk of their business are starting to push direct sales tied to services like consultancy, software customization and document management solutions.

Spire E-quarterly: Won’t this alienate channel partners and undermine channel sales?

Leon: It has the potential to do so if mismanaged. Which is why only the very strongest brands will lead this charge, those which are market share, brand or technology leaders and hence have a bit more bargaining power with channels. At the same time, some vendors are giving their channel partners a role in this equation. Many automotive manufactures are revamping their websites to offer a range of services and functionalities without usurping the role of the dealer as the point of contact with sales leads. Their sites would schedule sales appointments and test drives only at individual dealerships. BMW works with its Australian dealers to help each one develop their own site, though all the sites sport the same BMW brand values and have a similar look and feel.

Spire E-quarterly: What consumer industries will see the most exciting developments in 2005 and beyond?

Leon: The industries that will see the most explosive and broad-based growth across the region will be consumer electronics, automotives (both cars and motorcycles), non-essential healthcare and travel and tourism. In the consumer electronics space the watch-words will be digital content, connectedness and portability. Digital camera and phone camera sales will continue to surge, as will the business of digital imaging websites, digital photo kiosks and home photo-printers. Consumers are upgrading to flatter and larger televisions that can display high definition feed – this trend is still at an early stage in most countries and has much room to grow, especially as digital TV broadcasting takes off. Terrestrial digital TV has already been launched in Australia, Japan and Korea. China plans to migrate its entire terrestrial TV broadcasting to digital between 2005 and 2010, to make the best of the 2008 Olympics. Increasingly home devices like the TV, computer and set-top box will converge to create an integrated point of access to the internet and TV – Korea and Japan will lead the way here. Spire’s next E-quarterly will look at this interesting trend. Strong growth in digital contentrelated devices will continue – portable storage devices like micro-drives and digital video recorders for example. However consumers still want to print hard copies of some types of content – multi-function home printers in Asia will surge towards the high penet

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