What you should know when buying or starting a business in Asia

What you should know when buying or starting a business in Asia

If you’re looking to expand into the Asian market, you’re not alone. The reasons to consider Asia as your next business destination are numerous. Not least, the continent’s vast consumer market, home to over 4.4 billion people, and a good track record of stability and accelerated economic growth.

Add to that a friendly, technologically-advanced business environment and generally favourable corporate tax regimes, and the advantages quickly become apparent.

If you’ve started a business in your home country, you’ll know just how much effort and planning it takes. Similarly, in a new country the more time you spend preparing, the more smoothly your new venture will proceed.

That’s why these tips are designed to put your Asian growth plans on a solid footing.

Knowledge is power

Starting a business abroad can be extremely costly if things do not go to plan and while some risk is unavoidable, knowing what to expect is the best way to minimise it.

Some of the biggest risks companies should prepare for include compliance, cultural challenges, financial resources, exchange rate movements, political instability and local competition and demands.

Being aware of all the risks and potential obstacles will help you make informed decisions. It also helps to look at the mistakes other businesses have made and learn from them.

Some common mistakes companies make when expanding into the Asian market are:

Not having a clear strategy - Recognising the strengths and weaknesses of your strategy is important. Consider your financial, operation, managerial and organisational capabilities and assess whether these will need to be sourced or not.

Not looking at the whole picture - Taking a holistic approach is incredibly valuable. Often, a simple financial plan alone isn’t going to cut it. Look at the market-share increase and level of penetration and coverage achieved to ensure your bottom line is connected to top-line growth.

Not understanding your new market - A well-rounded understanding of your target market and economic drivers is the cornerstone of success overseas. Building the right sales channels, infrastructure, and relationships can help give your business the best possible chance.

Not boosting manpower - You may need to improve your supply chain and value-chain journey. Consider how new hires may fit into your established company culture, and ensure your current team is prepared to be flexible and adapt to change.

Not considering logistics - A strategy encompassing optimal distribution channels, such as marketing and product deliverables, should be put in place alongside a robust go-to-market plan.

Marketing tactics may have to change depending on the new market you’re targeting. For example, in south-east Asia, integrated digital marketing is commonplace, so your brand messaging will need to have an attractive hook to engage prospective customers.

Business owners need to have a solid understanding of the environment and industry to place safe bets and minimise risk. You may choose to partner with a Professional Employer Organisation (PEO) to expand without having to set up a subsidiary or local company presence.

PEOs can help you manage overseas talent and infrastructure offering services like HR operations and compliance, payroll and tax management, employee benefits, training and development and temporary or contract staffing.

Let the buyer beware

In any purchase of a business, the onus is on the buyer to check and verify the seller’s claims. When the company you’re buying is overseas, it becomes even more important.

You’ll need to perform due diligence, the first step is to analyse the financial reports of the business in question. You can usually obtain some of these documents from local government offices.

You’ll also need to understand the buying process itself; processes and negotiations can be very different depending on the country. Seek expert advice and inquire about the processes involved.

The process may include taking on existing staff as employees or retaining the current owner as manager. Even if you don’t relocate, you should plan to spend a fair amount of time there initially. Just make sure you have a plan before entering the negotiation phase of the sale.

In 2018 CurrencyFair completed the purchase of Hong-Kong-based Convoy Payments as part of its expansion into Asia. Chief Executive Officer Paul Byrne said:

“When we went to Asia our CFO, Ruth Fletcher, moved over to Hong Kong for a year in order to place ourselves on the ground and make all the local connections. I am a firm believer that you have to go into a market to really understand the market, meet the people, but most importantly, convince your customers and partners that you're committed.’’

 

‘’Flying in and flying out for a couple of days doesn't really work. You need to show commitment to your customers. They need to be able to trust that you'll be around to support them.’’ 

The advantages of a franchise

If there’s a franchise in your country of choice that is doing well, and the market isn’t saturated, it may be worth considering. This is especially true if the franchise has multiple international locations and is able to help you with the logistics of getting up and running. Some points to think about if you are looking at opening a franchise are:

  • With an expat customer base, local language fluency isn’t an absolute necessity.
  • If it’s a business that operates with a small staff, your overhead will remain relatively low.
  • Most franchises offer initial training with ongoing operational support.

Although there are huge benefits to franchising in Asia, one size does not fit all. Franchisees in advanced economies, such as Singapore and Hong Kong, will face different issues compared to developing economies such as Indonesia, the Philippines, and Thailand.

Rent and labour can eat up large proportions of your overall turnover in places such as Singapore. Furthermore, you should consider the individual franchising laws in ASEAN Economic Community (AEC) member states.

Don’t assume anything

Asking direct questions is necessary when setting up abroad. The problem is you often don’t know what you don’t know. Even ownership of the business you start can come into question, so you need to examine the legality of starting a company. Consider the following:

  • Does your visa allow you to run a business?
  • Are there limitations as to the percentage of ownership by foreigners?
  • Are you required to have a local co-owner or partner?

Don’t even make the assumption that being able to live in a country will allow you to start a business and own it outright. 

Legal, HR, and tax compliance challenges were three of the biggest barriers Chief Financial Officers (CFOs) faced when it came to expanding internationally - 79% agreed they were a “substantial” barrier, according to a report from Globalization Partners.

Conclusion

While this is not an exhaustive list and location-based nuances do exist, these extensive tips offer a solid foundation to begin your Asian growth story. For more on the topic, check out our Business Culture in Asia webinar.

The webinar brings together three remarkable executives from a diverse selection of industries across the region who share their stories of expanding into the dynamic Asian market while revealing how their companies have adapted and flourished.

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.

For more insights, read CurrencyFair's Guide to Business in Asia: Essential Etiquette

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Sources: 

https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf

https://www.acclime.com/insights/ease-of-doing-business-in-asia-what-you-need-to-know-for-2020/

https://4cdnik36lg2h29hfmo31l9qs-wpengine.netdna-ssl.com/wp-content/uploads/2020/09/cfos-push-forward-with-global-expansion-report.pdf

https://www.eu-gateway.eu/news/10-new-eu-funded-business-missions-help-european-companies-expand-asia-2020