Articles

How to find growth in Southeast Asia

Future markets

Lynxeye co-founder and CEO Christian Ihre sharing his perspective.

Southeast Asia is one of the world’s strongest growth regions, with over 650 million inhabitants and a rapidly growing middle class. The region is becoming an economic force in the world economy and a major destination for foreign investment. Brands and investors hope to find growth in Southeast Asia. In fact, direct investment in the region is nowadays greater than in China.

The growing region has great appeal for many global brands, but many decision makers that I meet are puzzled with the complexity and diversity. Even business leaders who are from this region struggle. While they might have a local brand that resonates, how do they scale? The area spans a wide array of religions, cultures and languages, multiple political systems, and extremely varying levels of economic and digital development.

A one-size-fits-all approach?

It’s difficult to work the market from a one-size-fits-all approach and the potential is therefore often seen as elusive. However, there are some strategies that you can stick to that efficiently simplifies an expansion to find growth in Southeast Asia.

The area is expected to continuously have the largest regional potential for growth in the world. Whatever the short-term GDP growth is at the moment, the consumer market will explode of purely demographic reasons. 1 billion new consumers are entering the consuming middle class globally. A clear majority of these are in Asia, and specifically in this region. I believe that this is something that few companies have understood the magnitude of.

Some essentials for success

We have for several years worked with international companies such as IKEA, Pernod Ricard, Volvo and Volkswagen to find growth in Southeast Asia. We’ve seen how imperative it is to find effective ways to be relevant. Therefore, brands have to recognize and embrace diversity. At the same time, cultural symbols and values that unite consumers across the region need to be identified. From my experience, there are three essentials for international brands to capitalize on the market growth.

Establish presence in selected urban corridors

By 2030, Southeast Asian cities will grow by 90 million people. This brings the urban share to almost 45 percent of the population and 76 percent of GDP. However, the megacities in the region are suffering from growing-pains.

Instead, the smaller cities and urban satellite communities between the mega-cities are expected to have the highest growth. Therefore, the first key to success is to focus on specific urban corridors between the mega cities, such as the Johor-Singapore or Jakarta’s satellite cities. Brands need to map the movements between these cities, understand what characterizes the consumers here and begin to establish a presence in carefully selected corridors. A local example is Grab Taxi, which has been more successful than Uber in the Johor-Singapore corridor. By focusing on a few urban corridors, we see that it’s possible to capture more than 50% of the potential in Southeast Asia.

Use connectivity as a catalyst for growth

Mobile penetration in Vietnam, Laos and Cambodia went from under 5% to over 70% in less than a decade. Technological development is leap frogging and is increasingly becoming an integral part of everyday life for consumers in the region. In the Western world, we use mobile technology as a complement to traditional options. However, in Southeast Asia, it’s increasingly becoming a way of life. For example, consumers in parts of the Philippines don’t have access to physical bank branches. The mobile solution then becomes the difference between being in the market or not. Mobile solutions are increasingly used to solve daily needs, such as selling goods, performing errands or accessing public services. Therefore there’s an opportunity for Western brands to develop their new generations of digital business models in this region. As I see it, global brands should test and iterate the new digital business model with consumers in urban corridors. Then you can re-apply the business model at home, where it’s riskier to go wrong with your established customers.

Take advantage of new cultural needs

As these emerging markets mature, it becomes less interesting with purely Western brands. In our own research, we can see that there is a new burgeoning interest in the cultural roots. Today, consumers in the region want their own identity, rather than an identity copied from the West. Consumers increasingly buy into brands with local cultural expressions, but which also have an international recognition. As I see it, the key is therefore to understand and appreciate the local cultural expressions and adapt the global brand development to the shifting values and identities of the modern Southeast Asian consumers. However, because the area is so diversified, brands need to limit the complexity by focusing on consumers in those specific, and carefully selected urban corridors.

So, for a brand that hopes to find growth in Southeast Asia, a one-size-fits-all-approach is unlikely to lead to long term success. Instead, it’s crucial to understand the modern Asian identities in the growing urban corridors. Then, efficiently use the consumers’ increasingly digital behaviors and re-apply the working business model in your home market to shape tomorrow’s consumers.

 

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