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Are You Getting the Biggest Bang for Your Asian Expansion Buck?

In June 2005 the Lianhe Zaobao, Singapore’s only Chinese language broadsheet, announced that trade volume between the Lion City and China would grow to more than US$50 billion in the next five years.  If true, bi-lateral trade volume would nearly double over the period beginning last year and ending in 2010.  Seemingly every other day there is a similar headline about the growing importance of another economy in Asia, be it India, Vietnam or even Indonesia.  Thus, many business leaders are left wondering if their regional expansion is moving forward quickly enough.  In this article we discuss two approaches to business development in emerging markets and emphasize the importance of using business resources efficiently to generate more timely returns.

Many larger firms eager to move into new markets quickly will hire a manager from within their organization and move him or her to the target market.  Not only is this expensive, the new manager faces a learning curve which can delay business results for several years.  This approach may be right if your organization is huge, the move is strategic, and there is no immediate need to generate returns.  Otherwise, most professional channel managers and emerging market business development leaders will tell you that the above method is not necessarily the quickest or most effective way to profitability.  

Bailey & Wong advocates a measured, reduced-risk approach to business development in new markets that goes something like this:  (1) identify how the product or service meets specific needs in the target market, (2) establish business networks with local alliance partners and distributors (3) generate revenue at acceptable margins from those networks and then (4) increase target market investment (i.e. local offices, local and expatriate staff, factories, etc.) only as the business grows to a level that can justify increased costs.  

As an example of the latter approach, we recently helped a client setup a nation-wide distribution network in China in only a few months’ time.  First we sat with the client to understand his products and business.  Subsequently, we (together with the client) developed a market expansion strategy (they already had one distributor in China which could not cover the whole country effectively).  After researching the market and forecasting product demand, we then identified nearly 50 potential distributors in three regions of China, interviewed ten finalist distributors in-person at their facilities, and then selected the best three firms in each of the three target geographic regions.  Finally, Bailey & Wong was engaged to provide the ongoing day-to-day business management and support for the new sales network.  Now, instead of having to deal with huge overheads from day one, our client has the opportunity to grow sales and generate profits before setting up their first representative office and before making other investments in the target market.

Bombarded by banner headlines announcing Asian trade growth on a daily basis, managers anticipating record sales and profits may be tempted to dive into a new market with serious investments in business infrastructure.  If the due diligence justifies such investment and stakeholders are prepared to wait for the returns, then by all means they should go ahead.  If not, Bailey & Wong would recommend leaders to take two steps back, determine how their products and services fit the local market, identify and build relationships with good local partners, achieve sales and profitability first, and then go for the representative office, local company or factory when the business case is more clear and the risks are thereby reduced.   

About Bailey & Wong

As a boutique business development firm we are flexible and accommodating to individual client needs.  We take the time to learn a client’s business and are selective about accepting only assignments in which we can deliver a strong value add.  If you have an interest in increasing your coverage in Asia or finding business partners in a particular part of the region, we would be happy to meet with you to identify areas in which Bailey & Wong might be able to help you achieve results more quickly and affordably.

©2005 Bailey & Wong Pte Ltd