Editor’s Note: We have another excellent forecast for our 2006 trends series. This time we looked east, to the Philippines, to successful business owner Wilson Ng. Many of us who read Small Business Trends are located in North America and Europe. What little we know of Asia we get from TV and movies — and of course we all know martial arts movies paint a realistic picture, right? The following guest column is sure to open up a fascinating view of the Asia Pacific region.
By Wilson Ng
The Asian Pacific Region continues to be the growth engine in the world. While Western Europe’s growth averaged between 1 to 2 percent for 2005, and North America was said to be good at between 3 to 4 percent, Asian Pacific economies chugged along impressively averaging 5 to 6 percent, though it was slower than it was in 2004.
Korea and Taiwan grew between 3 to 4 percent, Singapore and Thailand around 4 percent, but the three fastest growing were India (6.9 percent), Vietnam (7.6%) and China (9.2%).
In view of continuing high oil prices, and probably also the strong dollar and high interest rate brought about the continuing US deficit which affects the whole world, growth is somewhat conservative for 2006. However, most economies are still expected to deliver still at least 4 percent growth, and will be led by India (6.8%), and China (8.8%).
China is expected to overtake Japan as the third largest trade economy next to US and Germany, but Japan has resurged starting in 2005, and is expected to grow in 2006 owing to growing consumer confidence as well as larger exports to China and the ASEAN region. It is expected to continue its growth of at least 2 percent.
Here are the trends to watch for:
1. Continuing growth of name brands
- Hundreds of millions have joined, and continue to join, the middle class in Asia Pacific. The main beneficiaries of this growth have been the brands. When a person starts to move up, his first goal is to show the world that he is there. He will spend a significant part of his income to get a Rolex watch, an IPoD, Nike shoes, Digital Cameras, or a new Benz or BMW car, not so much to enjoy, but to show them off, to show people he had ‘made’ it.
The initial beneficiaries will be Western brands but all over Asia, more and more companies are investing in branding their products and services to represent quality and prestige.
Companies that have invested in branding, like Acer, Haier, Huawei, and others are starting to look worldwide to establish their brands. More companies are also buying name brands, notably TCL bought Thomson (which owns the RCA Brand), BenQ bought the Siemens cell phone division, and Lenovo famously bought the IBM Personal PC division.
2. Commoditization of other Products and Services
- However, while people are increasingly willing to pay premiums for brand names, they are also fidgety to pay any extra for items which have no perceived differentiation in quality or design. While a person may be convinced of the prestige of a Motorola Razr or Apple IPod, and is willing to pay an extra two hundred dollars over similarly less known brands to get it, it does not mean that they will not go to a warehouse outlet to procure it if it means that they can get it for a few dollars less. So if you are store A selling a digital camera, and notwithstanding the person’s willingness to pay 2,000 dollars for that model, he will not hesitate to bring his business to a nearby store who may be selling it for 5 dollars less if he perceives buying from you does not justify the premium you have been asking.
3. Growth of Cultural Diversity
- Economic growth fuels pride, and makes people feel proud of where they come from. At the same time, it opens them up to other cultural practices, and encourages assimilation and experiment. For instance, there is now more willingness to learn, and experience different cultures, and in most cities, there are now varied amount sof goods and services. In Chinese cities, you see now Brazilian Barbecue, Korean Restaurants, Russian dolls and other different items being offered.
4. Appreciation for the Good Life and Small Indulgences
- Many people have become rich, while a lot of other people continue their aspirations. So while new houses, and cars are being sold to people who have made it, other people who are still aspiring want to feel that they are part of the good life. Little indulgences like expensive cell phones, massage and wellness services, and premium products like Starbucks, Mrs. Field’s Cookies, American Steak houses, Gucci Handbags, Cuban cigars, or Baskin Robbins Ice Cream will continue getting brisk sales.
People are increasingly confident of their ability to become better, but at the same time, are also experiencing lots of stress as economic change also takes its toll on families, and finances, so many services that give little indulgences to make them feel good are popular.
5. China Potentially in for a Hard Landing
- The bets are on whether China will continue the fast pace growth that it has experienced for the last 20 years where it averaged almost 10 percent. There are signs that the economy could overheat. While the bets are it will continue to experience over 8 percent, there are some economists who feel it will slow to 6 to 7 percent in 2006, and further to 3 to 5 percent in 2007. While still considered impressive by other countries’ levels, it could represent a hard landing for the Chinese economy. However, there are the 2008 Summer Olympics in Beijing, and the word is China will ‘manage’ the economy to have consistent growth till well after the Olympics.
Two reasons why this would happen: more and more industries in China are diversifying into real estate as they find it harder and harder to make money in their core business. Second is that a huge amount of the banking loan portfolios are actually for real estate investments. China can experience turbulence if the real estate bubble (which in some cities is starting to be felt) bursts.
6. The Continuing Growth of Tourism
- Most Asian airlines have continued to purchase planes, and expand their fleets notwithstanding the high oil prices. Competition has meant that travel continues to be high, while ticket prices have continued to be aggressive. Most economies are still enjoying brisk growth, and hotels continue to be constructed. The rise of ‘budget’ airlines have meant tapping new segments for travel, and the rising affluence continues to fuel such demands. Hong Kong Disneyland, the Southern China travel boom, as well as the growth of Macau as Asia’s Las Vegas will continue to fuel the travel bug.
7. Continued growth of BPO Services
- Many Asian countries are growing their business process outsourcing (BPO), as well as contact center operations focused on the American market. China and South Korea aggressively grow the same service for the Japanese market. At least four major economies are estimated to already have at least a hundred thousand seats for call center operations alone – China, India, Australian and the Philippines.
8. Growth of Medical and Retirement Tourism
- This is a remarkable new segment that is starting to garner interest throughout the region. When an American or Japanese citizen finds out that they could have laser eye surgery, heart bypass, or executive medical checkup in Singapore, Malaysia or the Philippines at a fraction of the cost that they can get back home, there seems to have garnered the rise of these new industries. At the same time, the graying of the Japanese population has also engendered huge retirement communities being constructed in SouthEast Asia where these people can spend their later years at a fraction of a cost of their home countries. Special visas and arrangements are now being passed by legislation to allow these.
9. The Resurging Importance of Agriculture
- Many farms have been leveled as Asia rapidly builds its cities. Some countries are increasingly looking at importing more and more food. While agriculture has been neglected before, the food industry will actually become a more and more important player as people get more urbanized, and supplies shrink. China, while continuing to aggressively export food, will in the long run become a net importer of food.
10. The Growing Boom of Entrepreneurship
- Where does the small businessman figure in all these? Only that while the multi-nationals aggressively transfer huge technology and money to tap new markets, they cannot tap it all. The rising water favors all businesses, and the smart entrepreneur will increasingly see more targeted markets that are not served well that they can easily create. China, South Korea, India, and most other SouthEast Asian economies offer unprecendented opportunities as entrepreneurs continue to learn, and assimilate Western business practices and the way of life into their increasing confidence in the world business stage.