For those looking to expand their business or start a new venture, Asia is an attractive destination. With a 4.4 billion population and huge consumer market, the region has an enviable record of economic growth, a large tech-savvy talent pool and a business-friendly ecosystem that is constantly evolving.
If you’re thinking about doing business in Asia, you’ll need to carefully consider the costs involved and how you plan to manage them. You’ll have to know the factors that contribute to operational overheads such as set-up, premises and recruitment costs.
Taking some of the main considerations into account, this article will give you a solid understanding of the real costs of expansion into Asia and how best to control them.
Incorporation and permits
Incorporating a company in another country or region requires a lot of thought and planning. The main factors to consider when registering a business in an Asian country include understanding the business opportunities available there, the country’s registration process and how to go about setting up.
The costs and conditions attached to incorporation, registration, licensing and permits vary by country. Certain types of businesses require a special license before they can operate in Singapore, for example, where a permit is issued by a government agency to allow you to conduct specific types of business.
To apply for a business license in Singapore, you must first register your business name and entity with the Accounting and Corporate Regulatory Authority (ACRA) which costs just under €200. Self-registration is a lower costs option if you want to handle the paperwork yourself; agency services will do the heavy lifting for you, but the cost is considerably greater. In Singapore, you can expect to pay between €250 and €900 for corporate registration services.
Starting a business in Hong Kong is also relatively simple and cost-effective. You can own your business outright as a foreigner and be the sole director and shareholder. Hong Kong is also an excellent location for expanding your business footprint in China and other Asian countries. Business registration costs include a €170 fee payable on electronic application, it costs more to deliver the documents in person.
There are two types of business registration certificate, namely a 1-year certificate costing €26 and 3-year certificate, with an additional levy, for €423.
In China, incorporation costs amount to about €5,320 in year one. The average fees including company incorporation, resident director, virtual office address and corporate bank account amount to €14,660.
It’s clear that the cost of setting up a business varies across the region, so it pays well to choose your location carefully and understand the expense involved.
Feasibility studies, market and product analysis and surveying the competition are key steps in any business planning journey. They become even more important in a new country. Market research is crucial to understand your new target market and get to grips with local consumer preferences.
Both online panels and mobile research offer a lower cost entry point, compared to traditional practices. Though more accessible in developed economies like Singapore and Hong Kong, as smartphone penetration increases in south-east Asia, mobile research is a good option for gaining competitive intelligence and informing marketing strategies throughout the region.
Wherever you plan to locate, having the information you need to succeed is critical. In China, government census data and secondary sources are challenging for foreigners to obtain, you may need to enlist the services of a market research company with a physical presence there.
Premises and office space
As more international companies see the potential of Asia and the region’s economic growth continues, the demand for office space rises. That said, there is a high degree of diversity with both high and lower cost locations. Beijing, Shanghai, Hong Kong and Shenzhen are home to some of the world’s most expensive office spaces, with rates comparable and even higher than Europe and the US. Whereas Bangkok, Kuala Lumpur and Manilla offer some of the globe’s most affordable commercial property locations.
Prior to the pandemic, offices in Shenzhen and Shanghai on average cost US$44 and US$37 per square meter per month respectively. In 2019 the main business district in Hong Kong saw average annual rents rise to US$107 per square meter per month, more expensive than office space in London and New York. By comparison, office space in Manilla on average costs as little as US$19 per square meter per month, according to data from Savills.
Of course, Covid-19 has had a massive impact on Asia’s real estate market. Research indicates that office rents in Asia-Pacific have fallen by 4% year-on-year as vacancy rates soar. Despite the downturn, analysts predict that in prime locations, office rents are likely to rise in 2021 as a result of strong demand, limited construction and an influx of investors looking for bargains.
For those intent on reducing the costs and hassle of locating to Asia, co-working and open offices are an attractive and increasingly viable option. The opportunities for flexible workspaces, including co-working and serviced offices that offer short-term leases have grown exponentially.
The flexibility of short-term lease agreements, and the reduced capital outlay, make flexible working spaces an option well worth exploring as typically, the agreement is settled and renewed each month.
Staffing and employee expenses
Hiring is a complex business in your home country, and similarly, finding and hiring new staff in a new location can be time consuming and expensive, if you don’t approach it carefully. The challenges you will face range from immigration issues, compliance rules and high rates of turnover. Again, the key consideration is understanding all the costs, both upfront and over the course of the employment.
Generally speaking, hiring ex-pat and local workers is a more cost-effective option than relocating people from your home country. With diverse languages, cultures and business practices, having local representation removes the cost of relocation, helps build vital stakeholders relationships and reduces the risk of inadvertently causing offence.
It makes economic sense as locals and expats have lower employer contribution rates, fewer compliance and tax equalisation issues and do not require work visas. Hiring an Employer of Record can help navigate many of the challenges of dealing with human resource operations.
In our recent Business Culture in Asia Podcast, Emma Gregory, MD and founder of Spokes Jewelry Services in Bangkok, explained her approach to staffing:
“We consider our staff to be part of the intellectual property. So how do we keep them? We definitely make salaries a big part of this. We do pay an above average wage here compared to our competitors who are literally right next door.
And one thing that people have been employing people here in Thailand will know is somebody will leave you for even the tiniest pay increase. So you do need to pay very well. We find the benefits are a big part of it. We want the family to feel like their husband or wife is looked after. And that they wouldn't want their partner to leave our business. So we provide medical insurance health benefits that go and extend to the entire family. We don't have to do that. But we feel like that's important to do. We want everyone in their family to feel like you have a good job there.”
Outsourcing and BPO
Hiring an outside party to perform traditional in-house services is increasingly becoming an integral cost-management measure for many businesses. Outsourcing has the advantage of reducing the cost of doing business by removing more mundane tasks, allowing you to concentrate on profitable activities, while retaining operational control.
The multilingual and relatively low-cost workforce of many Asian countries makes it an unrivalled destination for collaboration hubs, technical support, helpdesks and other value creation activities.
Outsourcing can lower the cost of hiring and onboarding workers and reduce the expense of wages, employee benefits, payroll and accounting services, purchasing equipment and the need for office space. Likewise, business process outsourcing (BPO), hiring third-party providers to execute standard business functions, is one of main drivers of economic activity in the Philippines, with its lower cost, skilled, English-speaking talent pool.
Local currencies and foreign exchange
If you’re an international business, regularly paying people overseas or taking payments from customers in a different currency to your base, FX providers like CurrencyFair offer smarter ways to transfer money, as well as a real customer-focused approach, which helps your business get a handle on costs.
At CurrencyFair, we help businesses of all sizes save money, save time, and stay in control of their payments to overseas suppliers, contractors and staff in their local currency.
Businesses can send money into their CurrencyFair account in 17 currencies and exchange into 22 currencies including Thai Baht, Indonesian Rupiah, Indian Rupee, Singapore Dollar, Hong Kong Dollar, and Philippine Peso.
Businesses can securely send money to over 150 countries. CurrencyFair is fully licensed and regulated, with a 10-year track record of best-in-class service.
CurrencyFair’s Business Team works with business customers who are exposed to currency fluctuations, offering highly competitive rates so when you start a business in Asia, you can start saving on costs immediately.
For more insights, read CurrencyFair's Guide to Business in Asia: Essential Etiquette.