Next year, Asian consumers are projected to drive 80% of global middle-class spending growth.
To tap into this immense economic force, companies must not only act quickly, but they must also act carefully to avoid the most common pitfall: the myth of the Asian consumer.
There is no such thing as a singular “Asian consumer,” and many companies going to Asia miss this fact. There are a multitude of cultures and ethnicities across the vast Asia Pacific region, not to mention religions, political differences and various stages of economic development. Each factor shapes consumer preferences, and, as a result, there is simply no one-size-fits-all approach.
There’s even a tremendous difference in consumer preferences between cities within the same country. According to research from global consulting firm McKinsey, consumers in Guangzhou, China are more likely to buy cameras with sophisticated LCD screens, whereas buyers in Shenzhen – just 60 miles away – prefer thinner, portable models.
Therefore, to succeed globally, McKinsey concludes a company must learn to think locally.
In my experience, this usually involves three steps. First, be open to tossing traditional operating models, and be willing to rebuild business strategies towards local consumer preferences. After accepting this mindset, identify and invest the resources needed to understand how and why Asian consumers differ, and how these insights can then be incorporated into product portfolios. Finally, businesses should identify a hub from which to carry out the necessary R&D, manufacturing and marketing to local markets.
Finding the Right Operating Model:
As challenging as these steps may seem, recognizing the diversity in consumer preferences across Asia can yield tremendous potential for a company’s bottom line. Just consider this figure: Indonesia’s growing consumer class alone will yield USD$1 trillion in annual spending by 2030 – with quicker growth in industries like financial services and apparel.
Keep in mind that doesn’t mean that each company must seek the perfect strategy for each specific market – that may even be impossible, given the complexity of the region. To cope with such differing consumer preferences, a more reasonable and strategic goal is to seek simplified solutions: How can we consolidate and streamline operations when catering to customized, local preferences?
Admittedly, achieving “simplified” operations is by no means a simple task. As a start, in the spirit of streamlining, consumer businesses should consider centralizing key shared services functions such as finance, human resources and supply chain management to enhance efficiency and productivity and lower operating costs.
For example, Australian food ingredient manufacturer Goodman Fielder has integrated its baking, dairy and home ingredients businesses in New Zealand to capture efficiencies of scale, and also improve its customer relationships. Consumer goods company Reckitt Benckiser has found it more effective to reorganize its company structure according to market type, rather than geographical lines as it previously had done.
Another example is consumer products giant Kimberly-Clark. Achal Agarwal, president of Kimberly-Clark Asia-Pacific, once said: “We go where the babies are.” After Kimberly-Clark identified the Asia-Pacific region as a growth market, the company recognized that being flexible to shifting consumer preferences in complex markets – like Vietnam, where it has recently undergone massive expansion – is absolutely critical.
Recognizing that a generic strategy for Asia is not effective, Kimberly-Clark gave local general managers – the people that know the most about local consumer preferences – more autonomy. By doing so, Kimberly-Clark can better adapt to subtleties across local regions. For example, Agarwal notes that in Australia, customers engage with the Huggies brand online but are more likely to buy offline, whereas in South Korea, a lot of diaper purchases are made online.
Understanding the Differences in Consumers:
Just as Kimberly-Clark anticipated, consumer preferences and practices differ dramatically by country, and even by cities, so it is certainly unwise to blindly invest without taking this kind of insight into account. A number of notable companies are successfully researching this kind of valuable consumer insight here in Singapore, like Procter & Gamble (P&G). P&G uses its regional headquarters in Singapore as its base to identify the similarities and differences among Asian consumers and incorporate those insights into product development and marketing. One standout example of a localized product is its billion-dollar brand SK-II, which is being led out of Singapore.
P&G’s research revealed that in South Korea, men are increasingly interested in improving their appearance: the South Korean man is looking to progress in life, and he knows how others see him matters. But, he is not interested in sorting out complicated skin regimens and may not have the experience to do so. Therefore, P&G introduced an SK-II for Men, and marketing efforts were focused on a single hero product: the SK-II Facial Treatment Essence.
The company then chose a celebrity spokesperson that, according to market research, was perceived as accomplished and aspirational – actor and director Yoo Ji Tae. The campaign ultimately boosted sales over twice that of expectations, and in just four days, the product was sold out in South Korea. Following its success, the strategy was reviewed in Singapore for reapplication to other countries.
To help companies further gain these kinds of valuable insights, Singapore has invested more than USD $60 million to launch the Institute on Asian Consumer Insight (ACI), which identifies the similarities and differences among Asian consumers and aims to help brands develop growth strategies based on these insights. Recently, the ACI at Nanyang Technological University found invaluable similarities across the Asian region to help companies better cope with the diverse Asian preferences, and work towards finding simple, scalable business solutions. According to the ACI, Asians generally share a strong emphasis on family, with a high inclination towards savings, thriftiness and future planning and hard work. At the same time, behavior, fun and enjoyment, and nature are also highly regarded whereas popularity, celebrities and accumulating material wealth matter less.
The ACI also found some striking differences across Asian nations: for example, in India, celebrity culture is valued much more. Additionally, consumers in China, India, Thailand, and the Philippines show the greatest willingness to spend on self-treats and luxury, quality brands, while those in Indonesia, South Korea, Japan, and Hong Kong are less willing. Interest in foreign cultures and brands is highest in China, Hong Kong and India, and lowest in Indonesia, Japan and Malaysia.
Identifying the Right Hub
The value of ACI’s research is one that leads me to my third and final point – the importance of a hub that’s equipped with capabilities to help companies conduct consumer research, in addition to being centrally situated in the region. Singapore is a long-standing hub for companies such as P&G, Kimberly-Clark because it’s physically central in the region and multi-ethnic in nature, which provides consumer businesses with the pan-Asian perspective required for business growth in Asia.
It also boasts a strong network of professional services, like logistics firms, accounting firms, legal firms, human resource firms and business consultancies that can help consolidate consumer research. Just as it helped P&G’s SK-II for Men product line, strategic hubs like Singapore can also facilitate sharing of consumer insights across markets in order to develop and quickly adjust offerings in each country and region as they test products and approaches to marketing.
These steps are invaluable for companies for whom Asia is foreign territory, and a hand that guides them through consumer preferences is therefore even more important when developing a relevant product portfolio. Finding a regional hub that acts as this guiding hand can help, but only after a company realizes the complexity of catering to the Asian consumer and does away with the false perception of the one-dimensional Asian consumer.
To capture the immense growth of middle-class spending in Asia to come, companies that seek to succeed globally must, first and foremost, learn to think locally. This balance between centralizing certain functions into a regional hub, and yet localizing to local demand is aptly captured in P&G’s phrase, “as common as possible, as different as necessary.”
Damian Chan is the international director for the Americas at the Singapore Economic Development Board.