Series: ASEAN Economic Integration and Japanese Companies (Final Part)
Emerging Mega-Competition in ASEAN
Emerging Mega-Competition in ASEAN
Executive Research Fellow and General Manager for Asia
NLI Research Institute
As a more objective way of exploring changing corporate trends in the ASEAN region, here I examine the era of mega-competition emerging in ASEAN as leading non-Japanese companies step up their efforts with an eye to the region's growing importance as both a production base and consumer market as economic integration edges closer. I look specifically at trends in direct investment in ASEAN by Korea and China, both of which have great influence in the region.
In the previous three articles in this series, I have examined the growing presence of Japanese and other companies in ASEAN; the development of supply chains and increasing international specialization; and the establishment of regional headquarters. Here, as a more objective way of exploring changing corporate trends in the ASEAN region, I focus on the era of mega-competition emerging in ASEAN as leading non-Japanese companies step up their efforts with an eye to the region's growing importance as both a production base and consumer market as economic integration edges closer. I look specifically at trends in direct investment in ASEAN by Korea and China, both of which have great influence in the region.
1. Era of mega-competition in ASEAN markets
First let us overview corporate trends reported in key industrial areas in the main ASEAN nations.
In the automobile industry, Japanese companies hold a massive share-around 80 percent of the ASEAN market, with particular dominance in Thailand and Indonesia. European and American companies, as well as Korea's Hyundai Motor, which stands in fifth place in the world market, have a relatively limited presence by contrast, but appear to be stepping up their efforts. For example, General Motors and Ford from the US have begun working to expand their share in Thailand and Indonesia in particular, typified by General Motors' re-establishing production in Indonesia and building a massive new dealership. Hyundai too has traditionally focused on the Philippines, Vietnam and Cambodia, but now appears to be moving more aggressively on markets in Thailand and Indonesia. Other examples include German car parts major Bosch opening a new plant in Indonesia-its sixth ASEAN base-before the end of the year; French tire manufacturing major Michelin setting up a joint venture in Indonesia; and China's Dongfeng Motor Corporation establishing a joint venture in Thailand with the Thai Charoen Pokphand (CP) Group to manufacture vehicles for export. In this market environment, the strategies which Japanese companies devise to maintain and expand their large share will be critical. As German brands become more popular than Japanese companies in high-income Singapore, one key issue will be developing an effective response to the shift toward more luxury car sales that accompanies rising income levels.
In the television and consumer electronics markets, the competition between Japanese and Korean majors has now been joined by Chinese companies such as TCL and Haier (the latter buying up a number of Sanyo's Southeast Asian plants), European companies including Philips (Netherlands) and Electrolux (Sweden), and also local companies. In addition to maintaining and enhancing their technological superiority, brand strength and credibility, Japanese companies need to carefully research their markets, including stage of development, needs and tastes; work out their product lineups, and bolster and extend their sales and marketing base and after-sales service networks. In the case of mobile phones, Samsung Electronics, Finland's Nokia and Apple from the US have the lead in many markets, with Chinese, Taiwanese, Japanese and local companies also joining the fray.
When it comes to daily commodities, Japanese companies dominate specific product markets-Unicharm, for example, has more than 60 percent of the baby diaper market in Indonesia-but big Western firms such as P&G (US), Unilever (Netherlands), L'Oréal (France) and Beiersdorf (Germany) not only have a major presence across a range of products but are working to extend and enhance their business. SC Johnson (US) holds the top share in Insecticide in many ASEAN countries. Nestlé (Switzerland) has been extending its strong position in food products by building new factories in Malaysia and Vietnam while expanding its Philippines plant. European and American manufacturers GE (US) and Siemens (Germany) have a substantial presence, as do major pharmaceutical and chemical product companies.
Turning to services, in the retail industry local companies are competing with Japanese firms including Aeon (Malaysia) and various convenience stores, the Lotte Group (Korea), and European companies such as Tesco (UK) and Big C (Casino Group, France). In addition to the these, major American and European companies in areas such as beverages (Coca Cola, for example) and finance are also showing a strong interest in the emerging Mekong region countries, namely Myanmar, Cambodia and Laos.
2. ASEAN investment by Korean and Chinese firms
(1) Foreign direct investment (FDI) by Korean companies in Asia formerly focused on China, but recent years have seen more investment directed into ASEAN. Where Japanese firms concentrate their investment in countries such as Thailand, Vietnam is the recipient of most Korean investment, with Korea standing in fourth place behind the US, China and Hong Kong in terms of cumulative investment. The small and medium apparel and shoe manufacturers that once comprised the bulk of Korea's presence in Vietnam are now being joined by big electrical and electronics manufacturers and parts companies, Samsung Electronics being the prime example. Investing in Vietnam via its Singapore entity, Samsung Electronics' recently-opened factory has taken mobile phones to the top of Vietnam's export product list, changing the country's export structure and helping to create a trade surplus. Samsung also has a major presence in the television and consumer appliance markets alongside LG Electronics, with the two companies together accounting for more than 60 percent of the market for televisions in particular. Samsung is now planning to build a second mobile phone factory, while LG has a new consumer electronics plant in the pipeline. Vietnam has also been enjoying a Lotte Group-led influx of investment in retail, restaurants, hotels, real estate and construction. The second biggest recipient of Korean investment in ASEAN is Indonesia. In addition to the large-scale Posco steelworks and the Hankook Tire plant, the Lotte Group and CJ Group are targeting the retail and restaurant industries with an eye to the massive Indonesian consumer market, and finance, securities and insurance companies are now moving in as well. Many Korean firms are also setting up in the Philippines and Cambodia with the aim of getting in ahead of Japanese companies.
(2) Chinese firms traditionally viewed ASEAN primarily as an export market for Chinese products, but direct investment too has boomed in recent years. The biggest recipient is Singapore, where many large firms have their regional headquarters, but interestingly, Myanmar and Cambodia are next on the list (followed by Indonesia, Thailand and Vietnam).
Most Chinese investment in Myanmar is in energy (oil and gas) and infrastructure development. In the case of Cambodia, the bulk of Chinese investment is in resources, energy and real estate, positioning China as Cambodia's largest investor. More labor-intensive companies such as textile, shoe and furniture manufacturers are also moving into these countries in response to rising costs back home. Indonesia is attracting investment from some Chinese mining and auto companies, while production bases are being acquired or newly established in Thailand. In Vietnam, Chinese companies have been investing in hotels and real estate development, as well as consumer electronics, telecommunications and textiles.
Also worth noting is the increasing amount of investment by ASEAN companies in other countries in and beyond the region. Leading local companies which have muscled up in the course of their countries' economic development are now expanding not only into other ASEAN countries but also Japan, China, India and other parts of Asia, as well as the US and Europe. Where a picture of corporate activities in ASEAN could previously be formed by tracking developments among companies from Europe, the US, Japan, Korea and China, it is now becoming increasingly necessary to factor in the moves of leading ASEAN companies as well.
In this article we have overviewed the emerging era of mega-competition in ASEAN. For Japanese companies, that increasingly fierce competition is certainly a threat, but the more important point will be to develop strategies for seizing business opportunities in ASEAN's expanding markets and linking these to results.
Multinational companies-especially the larger ones-need to take advantage of their strengths in areas such as organizational capabilities, personnel, knowledge networks, capital and IT and use local human resources to help tailor their products and services to local needs and tastes, balancing the twin major proposition of global standardization and local adaptation. For small and medium enterprises (SMEs), as already proved in many cases, the ASEAN region offers a chance to shake off domestic constraints on business expansion, such as slowing market growth and the presence of rivals, and stretch and grow their wings.
(This article draws on Asian government materials, materials publicly disclosed by companies, JETRO materials, and newspaper and magazine reports and articles.)
(original article : Japanese)