I’ve just returned from a two-week trip to visit FSG’s Asia-Pacific clients. During the course of my trip, I met with nearly two dozen Heads of APAC across the consumer goods, healthcare, and industrials sectors, as well as with officials from two government ministries. In summary, the overall sentiment was cautiously optimistic about the region’s growth prospects for 2017. Here are 5 key takeaways:
- The Trump Volume Is More Muted. It was quite refreshing to travel 15,500 kilometers to escape the volume of noise occurring these days in Washington. Our APAC client executives were definitely interested in understanding our views regarding President Trump’s policies — especially around trade. However, it’s worth noting that there was not the same level of concern or sense of urgency regarding the potential impact of these policies that we see in other markets closer to the US shores. Case in point: not one of the executives or officials that I met were actively engaging in contingency planning tied to Trump’s trade policies.
- Disruption, Channel Optimization and M&A Are Top of Mind Topics. Nearly every meeting turned quickly from President Trump to the broader topic of understanding and planning for “disruptors.” The topic of disruption has become a key priority on the APAC management agenda driven not only by shifting macro conditions, but also by the pressure to respond aggressively to local competition. Specifically, in addition to economic and political disruptors, our clients were very interested in understanding the disruptive impact of emerging technologies — especially digital models — and new business models that could create both opportunities if adopted and threats if ignored. On a somewhat related note, nearly every client has prioritized M&A as a key management imperative. While the interest in M&A isn’t new, I noted an increased sense of urgency. One area of M&A that is garnering greater interest relates to our clients’ channel partners. Every client is seeking to step-change the performance of their channel partners in order to secure growth targets, improve margins and drive market share gains. Acquiring partners in strategic markets is one strategy to achieve this step change. But recognizing that many factors must align for an M&A strategy to work, our clients are also interested in implementing structured channel optimization programs. FSG has written over 50 management excellence reports on Channel Optimization. Our most recent “Capability-Based Channel Management” benchmarking report is a must read for any executive looking to deploy a channel optimization strategy.
- View on China: Still Growing, But Tougher Conditions. Most of our clients are still experiencing and expecting solid growth — ranging from 2 to 3x market growth — from their China businesses with rates varying by industry — higher for consumer and healthcare, lower for industrials (although improving slightly). Nearly all of the executives indicated that they are facing much more challenging conditions for growth specifically around pricing, regulatory hurdles, and the increasing threat from local competitors. These challenges are forcing a strategic re-think with regards to pricing strategy, production operations, go-to market strategy, and positioning. Longer term, nearly all executives agree that the storm clouds on the horizon — likelihood of a smooth soft-landing, risk of a financial crisis event, security concerns — appear to be getting larger and darker. For more information on pricing strategies or these disruptors, please see FSG’s recent research on Adapting Pricing for Emerging Markets, Events To Watch for 2017 and Asia Pacific Regional Outlook.
- India: The Majestic Tiger Roars Again. Ironically, India’s recent de-monetization, which negatively impacted nearly every one of our client’s businesses during 4Q16/1Q17, has actually drawn more interest to the broader India opportunity in the regional and global portfolio. FSG expects India’s economy to snap back rather quickly from the short-term impact of demonetization with growth of 7.2% in 2017 — up from 6.7% in 2016 — and 7.4% in 2018. The growth, size of the market, favorable demographics, relative insulation from a slowdown in China, and impact of Prime Minister Modi’s reform agenda are too compelling for MNC executives to ignore. At FSG, we believe now is the time for APAC and global executives to take a fresh look at India and re-prioritize its prominence in the global portfolio. We have published 3 recent reports that are worth reading to dig deeper into the increasingly attractive India opportunity: India Sub-National Prioritization, India GST, and India Q1 Quarterly Market Review.
- SE Asia Markets: Remain Highly Attractive. Today there is broad acceptance among APAC executives of the importance of the SE Asia markets within their regional portfolios. This recognition has been backed up with increasing levels of investment and across the ASEAN markets. Despite some market specific issues — such as the impact of the death of King Bhumibol Adulyadej to business in Thailand — executives remain bullish on the growth opportunities in SE Asia. Vietnam, the Philippines, and Indonesia remain the highest priority markets for expansion of sales and local production. It bears noting that over the longer term, the ASEAN countries will find themselves increasingly caught between the two titans of global trade — the US and China — especially with the death of TPP in the US. This will require a “thread the needle” approach to trade. See related FSG research: Vietnam Market Spotlight, APAC Regional Outlook