By Stephanie Jacob
As Asean becomes economically integrated, companies have to decide whether to take a regional or individual outlook in their strategies. But does the fact that Asean is diverse on so many levels hurt or help companies?
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As Asean continues to become more economically integrated, the question of how companies should strategically react to the changes comes up. Should a company take a regional view of Asean or continue to tailor their plans to the 10 economies individually?
Many factors need to be considered in reaching that decision, for instance a company that runs a business to business (B2B) outfit will have different concerns to one that has business to company (B2C) operations.
Across the board, companies have to consider the fact that Asean is so diverse at many different levels. The most obvious is the difference in affordability for a customer in say Singapore or Brunei compared to one in Myanmar or Laos. Then there are also significant differences in culture and food, among others.
While it might be assumed that such varying markets would discourage companies from taking a regional outlook a report by the Economic Intelligence Unit (EIU) titled Re-drawing the Asean Map: How companies are crafting new strategies in Southeast Asia’ suggests otherwise.
It said based on its research, despite the diversity there is evidence that companies believe that Asean customers are becoming more similar across the region. According to the EIU, companies are finding that “despite the huge diversity across Asean, their customers are becoming more similar and can be served with a more unified approach.”
The report was based on a survey of 171 companies and 11 in depth interviews with senior management of companies both headquartered in Asean and outside the region.
How does Asean’s diverse customer base affect strategies?
In its research, the EIU found that despite Asean’s diversity, the majority of business leaders think that Asean customers were becoming more alike. In fact only 8% of all respondents said the region was becoming less similar.
“This increasing uniformity of customers is feeding through into uniformity of offering. Respondents say the products and services they provide across Asean are becoming more similar,” said the report. The EIU highlighted 62.3% of companies surveyed said they are standardising their products across Asean, compared to the 18.5% to said they were doing the opposite.
The degree to which products or services can be made similar depends on various factors. Aside from the type of business, varied levels of purchasing power across the region and the different categories of goods and brands are all important factors.
In Asean the degree of purchasing power not only differs greatly from one country to the next, but also in individual countries itself. Companies therefore need to match their products to the affordability of customers.
But while incomes and spending do vary significantly across the region, it is not necessarily a deal breaker to having a pan-regional approach, said the report. It explained that companies are dealing with this issue by adopting common regional strategies for different income segments.
“The top income segment in all 10 Asean economies might be targeted with a uniformed product set and marketing plan, with a different pan-regional plan for each income group beneath that,” it explained.
Varying laws and standards a bigger barrier
The bigger issue for companies appears to be the differences in laws and standards. The report said that the lack of harmonisation in this area was a bigger hurdle to implementing a regional strategy.
In fact while Asean’s different stages of economic development are regarded as an issue, it took a back seat to concerns over regulations and business practices. Moreover the survey found that cultural differences were ranked even further down in the list of barriers.
In the survey, respondents were asked to rate different issues on the extent that it is a barrier to regionalisation. On a scale of 0 (no barrier) to 4 (significant barrier), companies said the biggest barrier was ‘different laws and business regulations’.
The ‘different levels of wealth and spending power’ came in at fourth place, behind the ‘different business practices’ and ‘different levels of sales and marketing talent’. Other forms of diversity, such as in languages and religions were only seen as minor issues.
The EIU summarised that this showed that the greatest barriers to regionalisation were structural rather than cultural. And suggested that this was positive news in the effort to the Asean Economic Community (AEC).
“For the Asean organisation this must be encouraging news. The results suggest that the greatest barriers preventing companies from treating Asean as a single market are institutional. They are barriers that can be addressed. Language, religion and culture cannot be changed. But disjointed regulations and un-harmonised standards are more easily fixed,” the report opined.
Asean needs to do better at harmonising laws and standards
But if the good news is that barriers are fixable, then surely the pace of Asean nations in coming to a consensus on solutions and their implementation is the bad news. And a good area to observe this mismatch is in the labour market, where local laws vary significantly from country to country.
Under the AEC, one of the aims is for a freer flow of skilled labour across borders. But while the Asean nations have agreed to the idea on a regional level, at the national level there is still a significant lack of standardisation between them.
To deal with this issue, Asean nations are developing mutual recognition agreements (MRAs) for professional qualifications. The idea of these MRAs is that professional qualifications which are granted in one country will be recognised in other Asean nations. While this is progress, there unfortunately remains a slew of local regulations which stand in the way.
One example would be challenges facing engineers hoping to work in Malaysia. Despite the MRA, such a person would still need to come with 10 years experience, be sponsored by a Malaysian company and it will have to be proven that no local engineer can do the job.
The EIU said survey respondents highlighted that “the lack of harmonisation for professional qualifications is still a major impediment to their business. Only 2.8% said the rules governing qualifications in their industry across Asean are highly uniform, while 38% described them as not uniform at all.”
The Asean map is being re-drawn
On a positive, the report did note that over a third of the companies surveyed felt that the situation was improving. It added that overall sentiment emerging from the the survey results and interviews conducted “is a strong sense that Asean as a region is taking on a much more distinct identity.”
And concluded that “while there is a long way to go before Asean can be considered a true economic union, the fact that it is committed to rolling out the AEC by the end of 2015 is a clear statement of intent of where the region is going…it does seem like the Asean map is being re-drawn.”
Yesterday: Strategising as Asean integrates
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