Until recently, the central fact about Asian markets was that they were growing fast.
In the last few decades, millions of Asian households have become middle class, and Asia has added billions of new consumers. Most companies in Asia have been fishing in a pool of purchasing power that was not just growing each year, it was growing at a faster rate each year.
That made growing a business in the continent relatively easy; just being present in many regional markets guaranteed growth.
Adapting to an Asian slowdown
Today, Asia is still growing – but its growth is slowing compared to the rest of the world. India’s rate of growth is no longer increasing. The mainland Chinese economy seems increasingly to be reliant on stimulus spending as its slowdown in growth rate continues. Growth in Taiwan, South Korea and Indonesia is also slowing down.
And in a market with slower growth, the focus is increasingly shifting towards profitability. Shareholders who spent millions of dollars funding to drive growth in Asia are now challenging management teams to achieve greater profits.
Profitability is most often linked to a business’ level of market share and relative scale within the country in which it is operating. The top 2-3 players capture majority of the profit pool, and the laggards often struggle to show returns.
But interestingly, very few companies are able to retain market share dominance across geographies. And this gives a clear guidance to companies on where to focus – depth over width. Leadership in a country – category should be prioritized over sub-scale presence in many markets.
Considering the Asian economic slowdown and the potential variance of performance within each territory, how should you assess your business strategy?
Step 1: Review your portfolio
For a company seeking market leadership in one category, the first task will be to review their portfolios. The question to ask is: how easy it would be for your company to become the market leader in the countries and categories in which it is competing?
Companies should look at which segments of their offering are driving growth in any given market or category. They should assess the potential market size for each of those sectors. Crucially, they should assess the company’s ability to reach market leadership in each segment.
Step 2: A country strategy or a category strategy?
A category approach – the idea of seeking dominance in one category – can work well if categories are large and distribution channels are well-established. This is often the case in mature markets in Europe and North America.
Asian countries, however, are often different. Volumes within individual categories are often still small. Distribution sometimes presents challenges, so trying to achieve market leadership in many categories and many markets can be very hard.
Given this, it makes sense for companies to assess whether to try to be a market leader in one product line across multiple geographical markets, or to be a market leader in many product lines but in just one market.
This should be a key part of the internal assessment a company does before deciding how to proceed in the emerging new business environment in Asia.