Looking beyond China to its promising neighbours

The rise of the New East. Ben Simpfendorer. Palgrave Macmillan. €18.99

Fri, Oct 31, 2014, 16:00

   
 

Book Title:
The rise of the New East

ISBN-13:
9781137370051

Author:
Ben Simpfendorer

Publisher:
Palgrave Macmillan

Guideline Price:
€18.99

For much of the last decade, discussions of emerging markets in “The East” generally centred on China.

Indeed, the author of this wide ranging book notes that he used to take slides full of talking points on the region’s other countries – India, Malaysia and Thailand, for example – into meetings but inevitably, the discussion would return to China and stay there.

That’s changing however, and the term ‘China +1’, a buzzword in the sourcing industry, is now gaining wider traction.

It implies a prudent strategy of hedging risk, lest China experiences major turbulence.

The main problem with Ben Simpfendorer’s book, however, is that it has swung too firmly in the opposite direction. The author is trying to cover too much ground here – almost 50 countries in fact from Saudi Arabia to Vietnam. He draws his own borders on what he calls The East. Egypt is in, Japan is out.

Nonetheless, there are some interesting observations, many based on the author’s own direct experiences as a consultant helping both multinational and mid-sized companies to develop their own business strategies.

He also acknowledges that the book is not an exhaustive review of this vast region’s opportunities but rather a personally-inspired snapshot.

The key theme of the book is that The East is not alone growing but is also growing in complexity.

The web has had a profound effect on growth, with the ability of consumers to compare online and demand the range and quality of products available in the West.

Savvy local companies for their part are observing their foreign competitors’ best practices then adapting them to local conditions, thus providing a stiff challenge to other firms in the region.

In the past, senior management were able to manage on a large-scale with a good “mental map” of the region. This is no longer possible, the author suggests. Most bosses no longer have a mental map that is big enough to evaluate the opportunities between midsize Chinese and Indian towns, for example, or the risks of rising minimum wages for factories in Indonesia and Bangladesh.

Increasingly they have to rely on local managers and staff. Many leading multinational firms, we learn, have developed business councils and leadership groups to exchange ideas between countries and this builds a collective mental map of the region.

When looking at opportunities, drilling down is good.

Yes, we know about the surge in middle classes in the region but look moreover at what this means for specific products sectors.

The East’s auto market, for example, reached 24 million in 2012 – that’s twice the size of the US market in the same year. Applying 5 per cent growth – which is not unreasonable – will see this surge to 36 million by 2020. Cars are of course are a very easy category to measure.

For other products analysts derive figures based on economic data and comparisons with the percentage of budget spent on different categories.

The cosmetic and beauty products industry for example accounts for 0.5 per cent of total household consumption, worth $60 billion in 2012. Apply a more conservative figure to The East, say 0.2 per cent household consumption and a 5 per cent growth figure to 2020 and you still get a market projection of $40 billion.

That’s the theory but as the author acknowledges, it’s not as homogenous a market as the US, with different cultural tastes, customs barriers and national currencies. What sells in Jakarta, won’t necessarily sell in Beijing.

The rise of Asia’s consumers will both excite and disappoint as companies discover the challenges of selling to the region’s shoppers.

Trying to push into second and third tier cities will force foreign companies to invest in larger operations. Tying up with local partners is an option but once that comes with its own set of challenges.