John Smurthwaite
Asia’s Arab spring has been so long and peaceful that we hardly noticed it. It has been spring in Asia for about 25 years now – and it is still not quite summer yet.
The Asian spring still has some way to run – and it will be peaceful, which is a marked contrast to the Arab spring of recent years. The recent election of the first female President of South Korea is a telling sign. Ms. Park Geun-hye represents, in a way, the completion of a cycle of great changes that have occurred in the heartland of Asia. Park’s father, General Park Chung-hee, the assassinated dictator, represented the old Asian order of 25-30 years ago, when strongmen (often military leaders) ruled from Korea to Indonesia, the Philippines, Taiwan, Thailand and, of course, China.
His daughter’s rise to power represents the completion of a relatively smooth transition towards democracy, free business and changes in the social order, not only in Korea but in other Asian countries as well.
Korea, the Philippines, Thailand, India and Pakistan have all now seen women at the helm of the country. And there have been more women taking up prominent roles in business, an indication not only of the maturation of the Asian business environment but, more importantly, the maturation of Asian society in general. (I use the role of women here as an example of social change, but similar changes can be seen in other areas of society as well – old barriers are breaking down, even in caste-conscious India.)
And the politics?
On the political side, there were only a handful of democratic countries in Asia 25 years ago, but now fewer than a handful are not democracies. Asia is at peace, and this is having a massive impact on business.
The changing social order (not just female heads of state), the increasing freedom of expression (with some obvious exceptions) and the massive move out of poverty (also with some obvious exceptions) have changed the landscape as the moderately wealthy countries move towards the elite, joining the likes of Japan, while the previously poor countries are seeing a dramatic shift towards middle-class society.
The Millennium Development Goals set by UNESCO have been aimed mainly at the less developed countries of Africa, Latin America and Asia. The goals have not been achieved in many of the target nations, but heartland Asia has achieved more than most.
In particular, two major economies, India and China, have been very successful in achieving many of the goals. Only one other major economy, Brazil, has done better. Eastern Asia has probably been the most successful region, reducing the proportion of people living on US $1.25 a day from 60% to 16% over 15 years. Another significant factor is that Asia has achieved penetration of over 30% in internet usage – a major contributor to growth.
Show me the money
This sets the scene for further significant change over the next ten years in the form of strong growth in GDP.
Asia-Pacific, currently boasting 30% of world GDP, will soon achieve a 35% share (though, of course, this is still well below its population share of over 60%). This will lead to further urbanisation and further demand for consumer goods as the middle-class appetite grows. The “base of the pyramid” is indeed mouthwatering to many global companies, but just as exciting is the growth of the middle class, as they will soon be seeking out global brands, whether it be Rolex, BMW, Hennessy or Apple.
I believe that it will be the middle class, rather than the so-called ‘base of the pyramid,” that will drive the most interesting growth. Fareed Zakaria, the noted Washington Post columnist, has been pushing this idea, arguing that, for example, the middle class in India is on the verge of demanding more, bringing sweeping changes to the Indian economy that many believe is moribund. And all of this change is leading us to the so-called Asian Century.
So beyond political and broad social change, how else is Asia changing – and what will the Asian Century be like?
There is little doubt about Asia’s appetite for European luxury brands, and no doubt this will continue, but we are also seeing a reversion to (local) type. The immense popularity of Korean film and K-pop music is not that new. Witness the international phenomenon of Gangnam style. Japanese anime, Chinese kung fu and Indian Bollywood are no longer just local but are appreciated and absorbed globally. With Europe struggling economically, Asia (probably more so than Latin America and Africa) remains a great hope for global companies’ salvation.
However, at home, this local culture supports local (Chinese, Thai, Indian, etc.) brands and will challenge global brands for market share.
Moreover, Asian countries are using their so-called new culture to brand their own country – not just their own brands.
Asia will become more of a magnet
Magnets attract and can also repel. On the attract side, according to The Economist, only 35% of Western companies include an Asia representative on their board. But the forecast is that this will move up to 50% over the next few years. More importantly, global companies will move some of their global operations to Asia. (Unilever has already moved some key global brands to be developed and managed out of Singapore.) But will this be enough to counterbalance the Asian corporate growth? Probably not. Again, The Economist‘s reporting shows that Western companies, though espousing their desire to be in Asia, are underinvesting, and almost half of those surveyed admit that they are underinvesting.
Asian companies will buy more and more European and American major companies and brands. We have already seen Lenovo acquire IBM computers, and we now see that BlackBerry may be acquired as well.
It is not going to be all one way – as with the magnet, companies will move in the opposite direction. Asian companies will be fighting for brand supremacy not just in Asia but in Europe and elsewhere. Japanese automobile and electronic goods companies have already made that step, but now LG and Samsung are not only leaders in white goods and television products but are challenging Apple in the smart phone/tablet arena.
Speaking in Davos recently, Boston Consulting Group CEO Hans-Paul Bürkner confidently stated that emerging-market global companies will be the ones to lead the world out of the current economic mess. In particular, he focused on Asian global companies like IT giants Huawei and ZTE from China. Burkner postulates that these types of companies will move some of their production beyond Asia into Europe and elsewhere, consequently creating employment and growth in the West rather than just in Asia. The auto and IT industries will be the key drivers of this new direction.
What about Australia?
How will Australia fit into the Asian century? Australia in particular has bounced around the perimeter. Two prime ministers, Keating and Rudd, have done their best to identify Australia as part of Asia, but the Asian countries have been reluctant to wholeheartedly consider Australia “one of us.” China’s massive appetite for raw materials is one factor drawing Australia into Asia, as is Australia’s signing more free-trade agreements with Asian countries. Some have even taken to calling Australia China’s southernmost province.
There are a number of reasons for looking on the bright side, and one of the main reasons is that APAC is at peace and shows relatively good governance. Nearly all major conflicts have been resolved – only a little sabre rattling remains here and there.
These developments have spurred demand for market research and, consequently, we have witnessed fast growth in our industry. But the investment is not sufficient. Heartland Asia is vastly underinvesting in market research. Some sectors, including the advertising industry, have achieved a market penetration of 25% (according to WARC). By contrast, the market research industry has only achieved 16%. In other words, managers in APAC still need to be convinced about the value of market research.
John Smurthwaite is Chairman at TNS in Malaysia and ESOMAR APAC Ambassador
