The document discusses opportunities and challenges of doing business in Asia-Pacific. It outlines several key opportunities, including a growing consumer market driven by an emerging middle class, and increasing digitalization and e-commerce. However, it also notes challenges such as differing regulations across countries, competition from state-owned enterprises, information deficiencies, and needing to understand and adapt to different business systems in each market. Overall, it emphasizes that international businesses must develop flexible, localized strategies to navigate the region's diverse opportunities and institutional differences.

1. Module 2 (part A)
Opportunities and challenges of doing
business in Asia-Pacific
International Business Division
School of International Business and Marketing
UEH University

2. Learning objectives
1. Understand the opportunities of international business in the Asia –
Pacific region
2. Understand major challenges of international business in the Asia –
Pacific region

3. 1. Growing consumer market
• Growth and the continuing emergence of the Asian middle class
• Growth results from increasing purchasing power, rather than population
growth
• Emergence of large, wealthy middle class across the region
• The ‘golden triangle’: Japan, South Korea, China
• India and South East Asia
• Shift in demand
• from limiting purchases to staple commodities to high value and quality products and
services
• Increase in urbanization offers business opportunities in infrastructure, smart cities
development and more

4. 1. Growing consumer market
• Growth and the continuing emergence of the Asian middle class
Fig 1: Estimated share of the personal luxury goods consumption
worldwide by consumer nationality in 2018 and 2025

5. 1. Growing consumer market
• Growth and the continuing emergence of the Asian middle class
Fig.2 Share of global urban consumption growth, 2015–30, by country/region.
only 7.2% of Japanese irms operating in China were ceasing or
planning to cease production in China.
“I don’t think that the Japanese manufacturing industry could
survive globally without being present in a market as big as
China’s,”
Homma Tetsuro,
CEO of Panasonic's In-house China & Northeast Asia Company

6. 2. Increasing Consumer Market Digitalization
• Growth or e-commerce
• the region makes up 62.6% of the total global revenue in e-commerce
• In 2021, China’s e-commerce sales of nearly US$2.8 trillion accounts for over half of
all e-commerce sales worldwide and more than 50% of the country’s total retail
sales
• Japan and South Korea’s e-commerce sales at US$144 billion and US$120 billion,
respectively, rank fourth and fifth worldwide after China, the United States, and the
United Kingdom.
• Practices: mobile payments, AI-driven logistic and delivery services, and
livestreaming-enabled social commerce (China), mobile payment, inluencer
marketing, eficient product delivery, and special-holiday shopping events (South
Korea)
• The growth in the region is attributed to
• good-to-outstanding, and rapidly improving, mobile internet connectivity
• declining costs of mobile phones
• mobile internet subscriptions across the region

7. 2. Increasing Consumer Market Digitalization
Fig 3: Retail e-commerce market in Southeast Asia, 2019 and 2025 (forecast), by country
(in billion US$).

8. 2. Increasing Consumer Market Digitalization
• Growth or ride-hailing
• Online transport and food delivery
• US$11 billion in 2020 and expected to reach US$42 billion by 2025
• Needs for digital payment
• 2019: US$600 billion in gross transaction value
• 2025: expected to exceed USD1 trillion
• Fintech is expected to rise sharply in the ASEAN region
• Over 70% of adults are currently unbanked or underbanked
• The industry is worth US$11 billion and could rech US$60 billion by 2025

9. 2. Asia as a leading hub for Innovation
• The region is home to world-class firms
• Over 40% of 2020 Fortune Global 500 originate from the region
Fig 4: Fortune global 500 by country/region, 2020

10. 2. Asia as a leading hub for Innovation
• Iliminating the “all brawn and no brain” image
• Change in the type of firms
• contract manufacturing firms, who are now pivotal in global supply chain
• Firms with regional and international reputation
• Most prominently are digital technology firms: Alibaba, JD.com, Didi, Meituan, Ele.me,
Tujia, Ctrip, eLong.com, Ant Financial, Weibo, WeChat, Tiktok, Grab
• Groups of startups: GoJek and Tokopedia jointly form GoTo, SEA, Shoppe is backed by
Tencent
• Leading manufacturers in semiconductor chips (TSMC), smart phone display panel
(Samsung), image sensor technology (Sony)
• Becoming a leading hub for innovation
• 2021, more than 25% of all unicorns have been incubated in the Asia-Pacific
• Attract tech investments

11. 3. Regulatory reviews and change in many countries
• Improvement for accountability and information security
• While domestic protentionism remains significant, more regulations
apply to the private sector to drive growth
• Deregulation provides opportunities for competition and innovation

12. 5. Human Capital
• Asia has been a manufacturing centre for labor-intensive products
and services
• Over 30 million guest workers in the region
• Aging population trend creates potential for web-based technologies
to support older workers and improve engagement
• Competition for talent and leadership, requiring a company culture
and core values that inspire employees to stay

13. 6. Vastly differing rules across countries
• Most governments have a favorable view on FDI
• Level of political risks in Asia-Pacific context remains high
• Protectionism reflected through over-regulated markets, unfair competition
from highly protected state-owned enterprises, and market protectionist
policies
• Corruption: abscence of appropriate regulations can lead to higher costs of
doing business and damage of firm’s reputation
• Bureacracy remains an inherent feature of many markets in the region
• Intellectual property: threat of piracy and the lack of protection of IP are well-
known

14. 6. Vastly differing rules across countries
• Variation of institutional environment in the region creates different
level of risks across countries
• Common law: Hong Kong, India, New Zealand
• Civil law: China, Taiwan, South Korea, Vietnam
• Implementation of law
• Contracts are only viewed as a formal document that is subject to change
• Verbal contracts and interpersonal trustworthiness are more important thatn
written contracts
• Lack of formal rules and regulations to dictate the legalities of doing business
• Fragmented judicial systems make it difficult to claim damages or enforce
action to protect MNE inteleectual or commercial interest.

15. 6. Vastly differing rules across countries
• Legal risks dictates the level of foreign investments in the host
country. MNEs must deelop capabilities and willingness to engage
with the governments to better manage risks that may arise
• Constraints on foreign equity ownership
• Profit remittance
• Marketing and distribution
• MNEs face complexities and challenges in maintaining good corporate
governance and disculusre practices due to the diversity of rules,
regulations and stakeholder expectations between the home and host
country
• Internatioal accounting standards are not recognized by all countries

16. 7. Overcoming informationa deficiencies
• Problems with information in the Asia-Pacific
• Lack of availability
• Poor quality information
• Commercial information may be difficult to obtain
• Remedies add to cost of doing business in the region
• Private collection
• Develop local partnership
• Imitative behaviors when firms tend to follow similar strategies

17. 8. Inequality
• Uneven historic development progress leads to significant variation of
attractive business opportunities, which are likely to be found in
prosperous cities or regions
• Dangers of relying on agreegated data measuring factors
• Commercial conditions vary greatly across regions within and across
countries
• Laws, infrastructure, poor administration in less-developed areas.

18. 9. Levels and forms of competition
• High levels of competition as domestic firms have moved aggressively to
take advantage of strongly growing markets
• Large investments in R&D and marketing skills
• Foreigned firms have moved into the region to establish a distinct market
position
• Widespread of powerful business groups in the regions
• State-owned enterprises
• Large, diversified family firms under the control of favoured elites
• Enjoy advantages not available to foreign firms
• Have access to low-cost funds, receive national strategic information, protection from the
government
• Familiar with the host country conditions and have established business networks

19. 10. Understanding institutional and market weaknesses
• Market failure is prevalent in the region
• Market failure refers to situations where markets do not operate efficiently of
effectively
• Market failure adds to transaction costs and uncertainty, and requires
innovative business reponses
• Failures can occur in labor, products, technology markets.
• Government intervention is needed as a remedy
• When formal institutions are weak or absence, informal institutions
play a greater role.

20. 11. Managing in distinctive business systems
• Challenging to learn how to do business in different markets
• Using social relationships to facilitate the exchange of ideas and knowledge
by increasing levels of trust and information sharing
• Managers rely on personal relationships to compensate for a lack of trust,
or the absence of market processes
• Social relationships persist and often extend beyone commercial into
political and social links
• The creation of such networks often develop through school gives locals
advantages over outsider.
• Doing business in Asia requires requisite period of establishing trust and
relationship building

21. 13. Strategies of doing business in Asia-Pacific
1. Strategic flexibility to address rapid growth and change
• Market dynamism requires continuous and effective environmental
scanning to identify and anticipate market opportunities.
• Resource management is critical as they need to be swiftly
redeployed across locations
• Firms need to work closely with suppliers and partners
• Necesity for flexibility is strong
• Location and sourcing decisions can change quickly

22. 13. Strategies of doing business in Asia-Pacific
2. Needs for market knowledge to overcome institutional differences
• Managers need to understand how institutional weaknesses or voids
manifest themselves, and how they influence an operating strategy
• Lack of consumer protection offers an opportunities to trusted
international brands
• Strategies to deal with weak IP laws:
• Modifying products to eliminate leading edge technologies
• fragmenting supply relationships to ensure that no single partner has access
to the entire technology
• Accelerating technological change and product updates

23. 13. Strategies of doing business in Asia-Pacific
3. Managing government involvement
• Use of local partner organizations
• Make substantial investment to indicate strategic commitment to the
country
• Willing to share technology and to continually upgrade
• Avoiding direct competition with a state-owned business or challenge
government policy
• Providing differentiated products and services that offer value to
buyers reflected in premium prices and returns

24. 13. Strategies of doing business in Asia-Pacific
4. A need for strategic adaptation
• Single business strategy or model is unlikely to bring success
• Technological knowledge and premium product features can be of little value
• Needs for different strategies for different segments
• Needs for different competencies across countries