Rapid expansion of Asian companies provides strong competition for developed-market organizations

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HONG KONG, 19 OCTOBER 2012 – The recent spike in overseas investment by Asian multinationals has many developed-market companies fearing increased competition and loss of their market share in their own domestic markets that they have dominated for decades.

This is according to the new EY report, Beyond Asia: developed-markets perspectives – meeting the challenge of changing global competition, which surveyed over 600 business executives from organizations based in East and Southeast Asia. The report examines how companies based in developed markets are anticipating and responding to new trends in global markets, and how they can best maximize new opportunities in an increasingly diverse competitive landscape.

Lou Pagnutti, Asia-Pacific Area Managing Partner at EY says, “As Asian companies seek to develop more sophisticated and high-value products and services, developed-market companies will face much greater competition in areas where they have historically dominated. Asian companies have deep expertise in producing price-competitive lower-end products, but they are increasingly well placed to use this knowledge and understanding to produce higher-end products too.”

The nine rapid-growth markets covered by the report are Singapore, Malaysia, Taiwan, South Korea, Thailand, Indonesia, Hong Kong, Vietnam and Mainland China. Globally focused Asian companies are defined as those with operations in two or more of the following markets: Australia and New Zealand, Brazil, Eastern Europe, India, Japan, Latin America, Middle East and North Africa, Russia, US, Canada, Western Europe, and Sub-Saharan Africa.

The report highlights how companies from rapid-growth economies have natural advantages that enable them to compete effectively in other rapid-growth markets. Their experience of operating in volatile and dynamic domestic markets is highly transferable when expanding into economics that have similar rates of growth and business environments.

The international expansion of Asian companies in some market segments has had a dramatic impact on competition. The telecoms sector is a good example of this expansion. Companies that do not consider how Asian expansion will affect their business may find themselves blindsided, and possibly see new spheres of competition erode their core markets.

Globally Asian companies have increasingly targeted the middle-market, a sector which is well established in developed economies and is rapidly expanding in size in emerging markets. Companies are achieving success by combining a low cost and innovative approach to provide clients with a compelling proposition. As a result, developed-market companies are being edged out of the middle-market as this segment becomes increasingly crowded and increasingly forced to target the lower end of the market – rather than the higher end market they are more familiar with and to which their offerings have traditionally been focused.

It is not necessarily always a battle between the two types of companies. Many Asian and developed-market organizations are opting to join forces to fill technological and innovation gaps which may exist in their individual business operations. This collaborative approach is particularly evident in the extractive industries, where technical difficulties and the cost and political sensitivities associated with extracting natural resources, have resulted in many leading oil companies combining forces.

Pagnutti concludes, “Whether minimizing threats or maximizing opportunities, developed-market companies need to think more broadly about their strategic options. This will require creative thinking, but also a willingness to overcome inertia and complacency. Asian companies are serious competitors and we can learn a lot from their business style and use of innovation.”

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