Are MNCs taking the most intelligent approach in Asia?

Economic indicators point to a great future for Multi-National Companies (MNCs) in Asia. But for most global companies, the promise of Asia and what is being delivered are not the same. Today, as a region, Asia is a third of the global economy and home to half of the world’s population. For MNCs, Asia represents an average of 23% of global revenue and in four years from now, most MNCs plan for this to reach 33%.

By Mark Braithwaite

Asia is a big and fast growing market, but execution is the big challenge for MNCs, not economics.
According to the most recent IMF World Economic Outlook update:
“Asia is well positioned to meet the challenges ahead provided it stays the course on reforms. The region has strengthened its resilience to global risks and will continue as a source of global economic dynamism. Growth in Asia is projected to remain steady at 5.4% in 2014 and 5.5% in 2015.
External demand is set to pick up alongside the recovery in advanced economies, and domestic demand should remain solid across the region.” We recently met face-to-face, for off-the-record interviews with Asia based executives from 63 large European and US owned multinationals, spanning the Life Sciences, Consumer, Technology and Industrial sectors.
We asked questions about how their businesses are performing in Asia against expectations and what they see as their major challenges. Five common themes emerged - cutting across all sectors. These five themes form the main roadblocks to success in Asia for MNCs:
1. Communication, Culture & Understanding
2. Talent
3. Competition, Expectations & Economic Realities
4. Strategy & Structure
5. Corruption & Compliance

Competition, Expectations & Economic Realities


Since 2008, global companies have brought greater focus onto emerging markets to provide growth. This in turn has fuelled greater competition with other MNCs in these markets and often created a market for rising local companies. The opportunity is growing, but so is the competition.
The 2014 Asia Business Outlook Survey, published by The Economist, reports:
“In the past, when many of these firms entered the region, they enjoyed relatively uncluttered markets, with low levels of competition. Today, however, local Asian firms are rising rapidly, and many of them are enjoying domestic advantages, possibly through better cultural understanding, more appropriate business models, better relationships with government, entrenched protectionism, or perhaps less restrictions around how they win new business.“
A lot of data about Asia is misleading and this does not help global executives in supporting critical decisions. The region has unique complexities. Consider the comments from our regional executives.
“South East Asia alone has six languages, cultures, histories and labour laws. The difference between Thailand and Indonesia is as great as the difference between the US and Japan.”
“Whatever you say about Asia does not apply to all of Asia. I did not understand this until I moved here.”
“HQ has high expectations, but they underestimate the volatility of emerging markets. Political uncertainty and policy change arise overnight and we cannot predict this like we can in the west. The landscape and environment we operate in changes quickly. Every year, I have a US$100m problem in one of my markets that I can’t see at the beginning of the year.”
Let’s take a tour of the region and see what is front of mind for our Asia leaders in regard to market conditions:




China is now 13% of the global economy and will overtake the US as the world’s largest economy in seven years.
"Everyone in the west is an expert on China! After 10 years on the ground in the region, I am still learning.
There are very few people who really understand China.”
Some of the executives we interviewed say they are doing well in China. But for many, the results have been elusive over the last two years. Some blame the market.
“Margins are eroding very fast because of local competition in China.”
“China is still a great opportunity, but it has been a tough market for us over the last two years. It needs patience and a steady nerve.”
While others are quite openly critical about their ability to execute:
“Every MNC in our sector goes through the process of firing and replacing their China management team.”
“After 15 years, we have still not cracked the code on how to win in China.”




According to Asia economist Richard Martin of IMA Asia:
”Asia’s biggest political event this year is the landslide win for PM Modi in India on a promise to restore growth, as it has the potential to bring one of the world’s two mega-population markets back onto the corporate priority list.”
Most companies have found India very tough over the last two years. Atnthe one end of the spectrum:
“India only hit 20% of target revenue for us last year.”
And at the other end:
“India is providing strong double digit growth. Lots of spending in Finance and Government.”
Most see the upside potential, but there are caveats to their optimism:
“We could grow at 100% p.a. in India but cash collection is a big issue, so we have put the brakes on.”
“India is the most challenging country in the region. The customers are highly educated and demanding. They also expect to get everything for nothing.”
“I have run four different companies across APAC but India has always been the hardest to get to work.”
“Since the election, we have started to see an uptick in the market, but I expect it will be 6 to 12 months before we see the kind of growth we had before.”
Our recent paper MODIfying India offers an in-depth analysis of this market. You can download it here .




Japan seems to have turned the corner. Even through the GDP growth rates are low, most MNCs we spoke with are pleased with performance.
“Japan is good for us, but we need to get better at execution. The companies we partner with in Japan have become much more open and these relationships are really working now. This is a major shift.”
“Our business in Japan is good. I think Japan sees itself as having bottomed out and is now on the upswing at last.”
While for some, Japan is still very challenging:
“We have been in Asia for 10 years. We have 40% market share in Singapore, but only 1% in Japan.”


South East Asia


Most MNCs manage SEA as a cluster. Indonesia is widely expected to be the next China, but gaining traction there is elusive. Finding leadership talent is the number one issue:
“We want to grow fast in Indonesia and we are not patient enough to grow people. All MNCs are the same,
they want fast results and they are competing for a very small pool of management talent. Vietnam is similar.”
“We have been expecting growth in Indonesia, but this has not taken off.”
Singapore is a reliable and steady market, but it is now the most expensive city in the world and cost issues are a problem. The Singapore economy itself is small, but it is the regional hub for more MNCs than any other Asian city:
“I see a talent crunch coming in Singapore. Retention is tough because it has become highly competitive. The pull factor that others create is too much and retaining people for more than a year is challenging.”
“We are going gangbusters in all of South East Asia. We have not put a foot wrong in the last two years.”
“The potential instability in Thailand had an impact, but this is better now.”
The Philippines could be the next Indonesia, but with a stronger talent pool that speaks English.




For many MNCs, Australia was the first landing point in the Asia region. As such, it is often the most developed market for them. It is reliable and steady:
“Australia is our largest operation in the region and is a steady and predictable market.”
“When people in Europe think of Asia, they think of China. The profit for us is in Japan and Australia.”
Many global companies have expectations of Asia that link to the economic indicators, but are not aligned with their own operating models, investment and timelines. This is a symptom of evolution in companies as they react to markets. Some are further along this journey than others:
“There is a big expectation of growth. The speed of development in the company is not keeping up with the
market. What other markets take for granted, we are still building on.”
“When the EU and US were not doing well, there was a lot of focus on Asia, but now this is more balanced.”
“The hype that says you should have 25% of your global revenue from Asia has gone. It’s not that simple. There is a more mature view and experience, such that it has become just another major market.”

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