strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: November 24, 2009
 / Winter 2009 / Issue 57

 
 

Capturing the Asian Opportunity

Other countries are following suit. In July, the Indian government announced a plan to attract up to $10 billion in foreign investment to help finance toll road construction. These and other infrastructure in­vestments create large-scale business opportunities for multinationals. Siemens AG has announced that it expects to reap orders worth $5.87 billion from the Chinese stimulus alone.

The need for “soft” infrastructure — improvements in health care, education, financial-services infrastructure, and regulatory and legal institutions — is just as compelling. One estimate suggests that India would need to build another 1,500 universities during the next six years to keep up with its ambitious population and its need for skilled human capital. Governments will increasingly turn to the private sector for these types of projects. In India, Apollo Hospitals, founded in 1983, provides an early example. A private company with government sponsorship, Apollo manages 10 major hospitals, including some that have been recognized internationally for their quality; dozens of health-care facilities throughout India; and a variety of innovative institutions, such as Asia’s first call center for information on the swine flu virus.

Asia is also likely to adopt leading-edge smart technologies as it builds new energy and transportation systems from scratch. In the U.S. and Europe, the legacy systems built decades or centuries ago are far more difficult to upgrade. For example, adding air conditioning to some lines of the London Underground subway system has proven impossible, because there is no room for ducts to disperse waste heat. In Asia, new technologies such as Cisco’s Smart+Connected Communities, which incorporate personalized security, communications, and efficiency into local energy systems, are more easily implemented than in the West.

Finally, governments are placing a high priority on driving economic gains into rural areas. The Chinese, Indian, and Indonesian governments are all encouraging private companies to serve these markets profitably and sustainably without government subsidies. China’s name for its reinvigorated focus on rural development is the New Socialist Countryside, but the plan has many capitalist elements, including incentives for consumers to purchase new appliances. Institutions such as HSBC, Bank of Beijing, and China Life are trying out new banking and insurance services in rural areas. In India, ICICI Bank, after making its name serving the consumer banking needs of the emerging Indian urban middle class, has targeted rural banking with services that include cattle loans, Internet kiosks, and funding for countryside business initiatives.

Rural consumers’ purchasing habits are different from those of their city-based counterparts; these consumers expect lower price points and are more dispersed and harder to reach. Companies such as Unilever PLC have already learned to offer products in smaller packaging for rural markets in Indonesia and India. In Malaysia, the telephone manufacturer E-Gal is supplying fixed-line devices to Telekom Malaysia as part of a package for migrant workers who can’t afford mobile phones. In China, after observing how rural residents use its products, the appliance maker Haier developed dual-use washing machines that can clean both clothes and vegetables.

Capable Companies

As the growth opportunities have become more evident, the competitive environment in Asia has intensified. This has forced many previously diversified companies to focus on particular businesses. Some Japanese and Korean companies had long maintained widespread and unrelated asset portfolios, influenced in part by government policies that promoted the growth of unwieldy conglomerates, often with interlocking directorates and management. Starting in the mid-2000s, these companies began to exit businesses in which they didn’t have a commanding lead or the prospect of developing one.

For example, the Doosan Corporation, an $18 billion Korean conglomerate, has reinvented itself as a high-margin industrial and construction equipment and technol­ogy company, minimizing its low-margin consumer business. Doosan disposed of units such as Doosan Kimchi (maker of food products) and Doosan BG (wines and liquors), while acquiring infrastructure equipment firms such as Bobcat and Daewoo Heavy Industries. Other companies have made similar moves in response to the economic crisis; in February 2009, Pioneer (based in Japan) terminated its unprofitable plasma display panel business to focus on automobile elec­tronics and home audio products.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store