A growing number of UK businesses are expanding into Asia, with Hong Kong and Southeast Asia looking like ideal entry points. While previously, this trend might have been primarily dominated by large businesses, SMEs are increasingly making the move too.
This development is backed by recent research by the Hong Kong Trade Development Council (HKTDC), which provides food for thought for many ambitious British brands considering their options.
Think Asia…
In total, 1,000 UK companies were quizzed. Of those surveyed, just 16% of businesses have traded with China or Hong Kong over the last year, while 26% said they have considered it in the same period.
One of the main reasons Asia is attracting so much attention is down to the current eCommerce boom in the region. The Asia Pacific market accounted for 40% of eCommerce sales globally in the first quarter of 2017. For the most part, that was down to the developed markets like China, Japan and South Korea.
So, why is the East doing so well?
42% of businesses cited the huge consumer base as a reason why they would consider launching in the Chinese mainland, along with the region’s growing middle class (35%) and their capability to adopt technology early on (27%).
There is also a certain prestige attached to western products. Eastern consumers are becoming more sophisticated, understanding the value of ‘premium’ western brands, especially in Japan and larger Chinese cities.
At present, confidence for business remains broadly similar for Asia (62%) and Europe (57%). However, 36% of UK SMEs feel that the ongoing Brexit situation has made trade in China or Hong Kong seem all the more attractive.
But it can’t all be great…
Of course, the East isn’t necessarily the holy grail for UK businesses. This research highlights several challenges when it comes to exporting in the East. Language and cultural issues, port constrains and government bureaucracy are just some of the hurdles that need to be considered.
China and Japan, despite being among the most established economies, aren’t the only options for expansion. Distribution costs remain relatively expensive to serve large geographies in China. These larger economies also open to a lot more competition, particularly from homegrown companies that have become well established over the past few years.
Away from the major contenders, there is also promise for Southeast Asia to move towards these mature markets. Emerging economies in South-East Asia are expected to maintain growth of around 5-7%. This is mostly down to two factors – a growing middle class and expanding internet access. ASEAN (Association of Southeast Asian Nations) is seeing a rapid growth of its middle class, set to hit 400 million by 2020 – more than double the figure of 2012.
Reacquainting with old friends
Hong Kong is another up and coming economy. 40% of businesses see the autonomous territory as a ‘gateway’ to mainland China and the rest of Asia. The same research found that 70% of businesses are attracted to Hong Kong because of its good standards of English, but 47% see law and cultural differences as a hurdle.
HKTDC’s regional director for Europe, William Chui, explains:
“[UK SMEs] are valuing Hong Kong as a hugely well positioned launch pad for businesses wanting to ‘crack’ the lucrative but notoriously challenging to penetrate Chinese mainland market. What I think a lot of UK SMEs are failing to realise however, is how many UK businesses of their size are making a real success of launching into Hong Kong.”
Away from the major contenders, there is also promise for Southeast Asia to move towards these mature markets. Emerging economies in South-East Asia are expected to maintain growth of around 5-7%. This is mostly down to two factors – a growing middle class and expanding internet access. ASEAN (Association of Southeast Asian Nations) is seeing a rapid growth of its middle class, set to hit 400 million by 2020 – more than double the figure of 2012.
Exploring logistics in the Asian market
Before launching into Asia, we strongly recommend that businesses seek advice. Too many companies try to build or expand a business in Asia and fail because of poor planning – losing a lot of money in the process. Distribution and fulfilment is complex due to the lack of connectivity and infrastructure, not to mention the varying consumer tastes. For example, many consumers will expect a cash-on-delivery system, making cash flow a priority.
Partnering with a good third-party or fourth-party logistics supplier, with scalable infrastructure as well as resources on the ground in your target countries, is of paramount importance. Some companies also operate as distributors as an alternative to logistics service providers.
Can we help?
At Bis Henderson Consulting, we are experts in UK and international Supply Chain Consulting, and Logistics Consulting. So, if you are considering Asia as a business opportunity, we can help you meet the challenges ahead and put the best foot forward. Get in touch today to discuss your requirements.
