Beyond Asia: strategies to support the quest for growth

Setting the scene: Asian companies’ expansion quest

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Rapid-growth markets from Asia represent the fastest-growing economic region in the world.

Asian business is entering a new phase. Economies in the region, including China and South Korea, have become export powerhouses and home to some of the world’s largest companies.

Three of the top ten companies on the Fortune Global 500 are Chinese, while Korea’s Samsung, Hyundai and SK Holdings all make the top 100.

Many Asian companies are following what Peter Williamson, Professor of International Management at the Judge Business School, terms an “inside out” strategy. Initially they focus on smaller, adjacent economies, then larger rapid-growth markets and finally developed markets.

“By starting from these adjacent markets, which fit their knowledge and business model better, they can learn from experience and then move on to larger rapid-growth markets, before being ready to tackle Europe and, finally, the United States.”

Companies are using a variety of strategies to move into both rapid-growth and developed markets: revising their business models and exploring growth through greater business efficiencies.

That growth path isn’t necessarily a smooth or linear one. In the April 2012 Asia- Pacific edition of our Global Capital Confidence Barometer, 48% of the respondents said they were focused on growth (vs. 52% globally), while 46% were focused on maintaining stability, consolidating gains made over recent years.

Of course, the picture is not uniform across Asia: the Global Capital Confidence Barometer shows companies in China with a relatively greater focus on maintaining stability, with those in Southeast Asia and Korea more focused on growth.

Fast facts: Asia:

  • Rapid-growth markets from Asia represent the fastest-growing economic region in the world, with annual growth forecast at more than 6% a year.
  • The IMF expects advanced economies to grow by 1.4% in 2012 and 2% in 2013. The corresponding figure for East and Southeast Asia in 2013 is 7.9%.
  • Since 2000, Asia has been the fastest-growing source of foreign direct investment (FDI). Its businesses currently produce a quarter of the world’s exports (US$3.77 trillion in 2010) and form 87 of the Fortune Global 500 largest firms.
  • FDI outflows from East and Southeast Asia recorded a compound annual growth rate of 22.9% in 2005–2011, jumping from US$70 billion to US$242 billion.
  • Investors from East and Southeast Asia are major drivers of growth in global foreign direct investment (FDI) outflows, making up 16% of the world’s total FDI (up from 7% in 2005) and driven by increased outflows from mainland China, Hong Kong (SAR), Malaysia, South Korea, Singapore and Taiwan.
  • Intra-regional trade is expanding rapidly, reflecting the shift towards higher consumption in Asia. China leads the way in terms of outflows and destination, with growth for Indonesia, South Korea, Thailand and Vietnam close behind.
  • Forecasts expect trade flows from Asia to the US and Canada, the Middle East, Latin America and Africa to increase by over 10% a year up to 2020.
  • Cross-border M&A purchases are consuming an ever-larger slice of FDI flows, with purchases from Asia reaching a record US$94 billion in 2010.
  • The China — US trade route is forecast to see the biggest increase in the world, predicted to rise by almost US$700 billion by 2020.
Sources: UNCTAD, IMF, Oxford Economics