Beyond Asia: strategies to support the quest for growth
How are Asian companies expanding?
Asian companies are now willing to reduce their investment stake and enter into a joint venture.
Overseas expansion typically follows three stages:
- Direct exporting - domestic companies seek new markets for their products and services overseas
- Local sales and distribution desks to help deepen the presence in overseas markets and build stronger relationships with customers, partners and suppliers
- Companies form joint ventures with local companies, or carry out acquisitions as they make the transition to becoming fully multinational.
In recent years, Asian companies have become more flexible about the deal structures that they are prepared to consider. In the past, Asian companies have been looking for a controlling stake instead of some other investment arrangement.
Now they are willing to reduce their investment stake and enter into a joint venture or minority stake.
Local sales desks, direct exports or franchises
Both the globally focused and regionally focused companies in our survey still rely largely on these methods to explore new markets, which is consistent with their desire to acquire new customers and tap gaps in the market for their products and services.
In the past several years, many Asian economies have been focusing on export-oriented growth and development. Oxford Economics estimates that trade flows from Asia to the US and Canada, the Middle East, Latin America and Africa will increase by over 10% a year up to 2020.
Given this surge in trade, many perceive direct exports and setting up local sales desks as the most efficient expansion methods in the next three years for both global and regional companies.
Partnerships and alliances
In general, Asian companies are cautious about partnerships in developed markets, because the cultural differences can be too great. Transactions can be more difficult to manage than outright mergers and acquisitions.
“Partnerships can be more agile than an M&A, but in practice they are riskier because you need so much trust,” says Raymond Woo.
M&A is a much more viable option for the globally focused companies. They have deeper resources and knowledge of markets outside the region. Around a fourth say that M&A will become more important as a mode of entry when targeting both developed markets and those in East or Southeast Asia.
Mergers and acquisitions
According to our April 2012 Global Capital Confidence Barometer , 48% of the companies surveyed in Southeast Asia said that they expect to pursue acquisitions in the next 12 months, which is a 5% reduction compared with October 2011.
However, among respondents from China, the corresponding finding is 22%. This may be because there are not sufficient numbers of attractive deals available, or potential difficulties in closing deals.
More commonly Asian companies have carried out small, bolt-on acquisitions designed to gain access to specific technology, expertise or routes to market. In some cases, many use the acquisition of smaller companies as “practice” to prepare for bigger deals at some point in the future.
They are the “quickest way to access a new growth platform for your business,” says Seah Moon Ming of Singapore Technologies Engineering. “For example, in the US, we acquired the satellite communications company iDirect. They had their own customer base, which we acquired overnight. This enabled us to hit the ground running when we entered the US market.”
Many Asian investors have strong balance sheets that will allow them to fund deals with 100% cash or equity. This strong cash position gives companies a major advantage over cash-strapped competitors in other markets that must rely on raising funds in a more constrained funding environment.