This is part two of our two-part series on our outlook for the emerging Southeast Asian region. Refer to our previous blog for the key drivers that we expect to drive the emerging ASEAN economies.
We expect the ASEAN region to continue experiencing robust economic growth and present immense opportunities for multinationals. But, despite our positive outlook for the region, MNCs are likely to face challenges due to changes in business dynamics and the external environment. Consumers are becoming price sensitive, competition is rising, and tax policies are impacting cost structures across countries.
In addition, events such as disputes in the South China Sea, a US-China trade war, or a major financial disruption in China will impact multinationals’ distribution channels and investment plans for the region. Thus, companies need to put in place appropriate strategies to reduce exposure to market risk, while taking advantage of the opportunities present in the region.
Here are some steps that executives can take to outperform in the region:
- Incorporate subnational portfolio allocation: MNC executives should adopt a subnational evaluation strategy since market growth and profitability in Southeast Asia are concentrated in few major provinces/states. This will allow executives to focus investment in the most competitive subnational markets based on their assessment of the market opportunity and the business environment in each province/state (Read FSG’s report on subnational prioritization in Southeast Asia)
- Evaluate potential value-added services: Multinationals are under pressure due to a growing services market, rising competition, and better-informed customers. Thus, executives will gain from using value-added services to penetrate existing customer segments, add new customers, and retain value-conscious accounts (Look out for FSG’s upcoming report on value-added services)
- Refine pricing processes: Many businesses replicate pre-existing pricing processes as they expand into emerging markets. But, executives need to consider local conditions, competition, and demand dynamics when setting prices while ensuring consistency with global teams to prevent undermining global brand equity (Read FSG’s report on developing the best best-in-class pricing strategies)
- Strengthen distribution management: Multinationals should put capability development at the forefront of their distribution relationship management. This will put companies in a better position to gain more market share, increase margins, and become more resilient to changing business dynamics in the long-term (Read FSG’s report on benchmarking data and best practices for improving distribution management)
- Prepare for disruptions in your strategy: Several events such as a potential conflict in the Korean Peninsula, disputes in the South China Sea, or a financial disruption in China may impact business operations in ASEAN. Companies should hence develop an effective market-monitoring capability and the ability to course-correct if required (Read FSG’s report for frameworks that will help you build resilient strategic plans)
For an in-depth report on the appropriate strategies that MNCs should implement given the opportunities and risks present in the region read the ASEAN Regional Outlook for 2018.