The document discusses 10 trends in corporate strategic planning for the Asian region. It summarizes that companies are organizing for regional integration through agreements like the ASEAN Economic Community, continuing a "China Plus One" strategy of diversifying investments beyond China into other Asian markets to manage risks, and leveraging Asia as a source of innovation by establishing research and development centers in the region.

1. Asia Corporate Strategy Assessment
10 Trends in Corporate Strategic Planning for the Asian Region

2. Contact information
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managing and establishing operations in the Asia/Pacific region. The primary mission of Intercedent’s
Consulting & Research Group is to provide action-orientated information and advice to companies and
organisations transacting business across borders. We offer our clients value-added recommendations
on cross-border strategy and implementation, based on an integration of geographic, functional and
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Email: peter@intercedent-asia.com

3. 1
Asia is becoming the preeminent
global market and global source of
competition. Multinational companies
(MNCs) have a 5-year window in
which to devise new corporate
strategies—including product
portfolios, cost structures, business
models, speed of decision making and
capabilities—in order to achieve
sustainable growth and profitability in
the Asian market.
Regional corporate strategy is subject
to a myriad of company-specific
issues such as current performance,
organisational capabilities and
strength of financial resources.
However, there are some defining
characteristics that highlight a number
of future themes in strategic market
management for Asia.
Asia’s high-growth markets face rising
competition from low-cost local
players for customers with modest
incomes, disparate preferences, and
limited brand loyalty. Markets and
distribution channels are fragmented
and the dominance of China and rise
of India is complicating risk
management.
Future and ongoing corporate
strategies to meet the Asian challenge
will include the following:
 Organising for Regional
Integration (and other FTAs)
The establishment of the ASEAN
Economic Community promises a
single market and production base,
with free flow of goods, services,
skilled labour, investments and capital.
While sceptical of the timetable and
implementation, and wary of
countervailing non-tariff barriers (e.g.
standards and domestic taxes),
corporates are already organising and
planning for an integrated market
nonetheless. TTP negotiations may be
concluded by March 2015 (or delayed
due to US elections).
 China Plus1 Continued
The increasing territorial assertiveness
of Beijing has reminded investors that
doing business in China comes with
risks. Labour and other business costs
continue to rise, weakening the
comparative advantage of China as an
export platform. Although few are
abandoning China altogether, surveys
reveal a continued strategic intent to
rebalance regional investment
portfolios.
 Regional Supply Chain
Management
As MNCs turn their attention to the so-
called ‘middle of the pyramid’—Asia’s
next one billion consumers—there is a
growing impetus to adopt lower price
points or differential pricing.
Competition is intensifying also.
Hence, there will be a greater need to
secure competitive advantage via
more efficient regionalised supply
chains.
 Senior MNC Leadership to Asia
To better capture the high growth
market opportunity, MNCs are moving
more of their senior management
teams to Asia. They are sourcing
more global management from Asia
also. Across many different industries,
there is growing awareness of Asia’s
potential as a source of learning.
 Lifting the Local Relevance of
Products
HQ will demand 30% growth from
Asian operations and then provide
‘world-beating’ products from the
home market (yes, it’s a trap). As
premium market segments mature
and local competitors start to emerge,
MNCs will develop more relevant,
second tier ‘good enough’ product
offerings for Asia’s emerging markets.
 Productivity Prioritisation
Executive
Summary

4. 2
As the demographic dividend winds
down and some Asian markets
mature, growth rates will start to taper
off. In response, and to sustain
competitive advantage, MNCs and
policymakers are prioritising
productivity growth.
 South-South Strategies
The rise of emerging markets, the
deepening business links between
them, and the importance of Asia to
the new South-South axis (emerging
markets are mostly located in the
Southern hemisphere) have important
implications for corporate strategy.
The tilt in economic power from North-
South to South-South is creating new
trade and investment flows, to which
corporate leaders must respond.
 New Corporate Strategy for
China
China is still the next ‘big China’ (the
BRICs are a con job—there is only
one China). How companies respond
to the China challenge is no longer a
key element of Asian strategy—some
MNCs have removed China from
Asian regional management). China is
central to global strategy—70% of
MNCs, according to IMA Asia, expect
to have more sales in China than their
home market within a decade.
Key issues to manage: (a) how best to
manage the internationalisation of
Chinese business; (b) resource should
allocation given the expectation of
slower growth, over capacity and
competition; (c) how to deal with the
risks associated with a more assertive
China at home, and abroad; and (d)
how to organise for China given its
growing role importance both within
the region and as a rising contributor
to companies’ global sales.
 Competing Against Emerging
Asia
Corporations from emerging
economies are becoming important
players in the world economy. The
best of them have embarked upon
rapid globalisation targeting the
industrialized economies, particularly
North America, Australia and Europe,
as well resource-rich Africa and the
Americas. Internationalising Asian
companies have a better
understanding of their local markets.
They are also more nimble in terms of
resource allocation and decision
making.
 Leveraging Asia as a Source of
Innovation
Asia is emerging as a global
innovation powerhouse; the region’s
growth in purchasing power, its tech-
savvy skilled workforce and high-tech
production capabilities are attracting
corporate R&D as innovative vitality
shifts eastward. Increasingly Asia will
be used as an innovation incubator for
other emerging markets.

5. 2
 Organising for
ASEAN Economic
Integration
(& other FTAs)
The ASEAN Economic Blueprint (AEB)
outlines a wide-ranging series of goals
for a single market and production base,
including the reduction/elimination of
barriers to trade in goods and services
and investment. The large majority of
companies in a recent survey of
business executives based in the 10
ASEAN markets believe that ASEAN
integration is important in helping them
do business in the region. More than
half of the companies surveyed claimed
to have an ASEAN regional strategy
based on the objectives of the ASEAN
Economic Blueprint. The companies
that have yet to develop an ASEAN
strategy, said that they were following a
global corporate strategy or they were
unsure about the timeline and/or
feasibility of the ASEAN Economic
Community (AEC) scheduled for
implementation at the end of 2015.
Intra-ASEAN import tariffs on most
product lines have already been
eliminated, at least for the founding
ASEAN-6 members (Brunei, Indonesia,
Malaysia, Philippines, Thailand and
Singapore). The tariffs that remain
mainly relate to agricultural products
such as rice and sugar. However, the
dismantling of non-tariff barriers (NTBs)
remains a major hindrance, and many
regional businesses are sceptical about
the integration timetable (see table on
following page).
Longer term, corporate confidence in
the regional grouping process is high
says Deloitte. Based on its recent
survey of companies doing business in
Southeast Asia, a large majority of
business leaders believe the AEC will
be implemented; certainly late, and
possibly not in its entirety—but it will
happen. Another survey commissioned
by Boston Consulting Group in April
2014 concluded that integration will now
occur whether or not governments are
fully supportive. The AEC is not an "if" –
it’s a "when" and corporates must
assess if they are ready.
Beyond the AEC
Manufacturers are also using ASEAN’s
FTA to export products to ASEAN
partner countries under the various
ASEAN FTAs with Australia and New
Zealand (notably consumer goods),
China (consumer goods and
electronics), India (machinery and
electronics), Japan and South Korea.
The Regional Comprehensive
Economic Partnership (RCEP), which
was announced in 2012, aims to
consolidate various ASEAN + FTAs (as
well as bilateral agreements, such as
TAFTA) into a broader regional free
trade network that includes China, but
excludes the US.

6. 3
Companies are also looking forward to
the completion of the Trans-Pacific
Partnership (TPP) agreement (including
ANZ, Brunei, Canada, Chile, Japan,
Malaysia, Mexico, Peru, Singapore, the
US and Vietnam). A ministerial meeting
in Singapore in December 2014 claimed
to have made substantial progress. The
TPP promises a gold standard
agreement covering previously
unaddressed issues of intellectual
property (IP) protection, competition
with state-owned enterprises, regulatory
coherence, investment rules, etc.
The so-called ‘Noodle Bowl’ proliferation
of bilateral and multilateral agreements
in recent years—over 100 are in effect,
150 under negotiation in Asia—presents
both opportunities and confusion,
especially for manufacturing MNCs with
assembly lines in multiple countries and
complex supply chains.
ASEAN management implications
• ASEAN will gain prominence with
Corporate HQ. A decade of strong
growth, political stability and declining
country risk has seen ASEAN gain

7. 4
attention (coincidently, this has
happened as India has slowed, and for
some foreign firms, operating in China
has become more problematic).
Companies operating in ASEAN may
experience growing expectations for
ASEAN to make up for slower growth in
India and China.
• Competition from MNCs that have
successfully leveraged ASEAN will
grow. While few expect a full economic
community to be realised anytime soon,
firms are planning for a gradual
evolution into a more uniform operating
environment. Perhaps 50 or so major
MNCs (led by Japanese auto firms and
Western FMCG companies) have
already exploited ASEAN integration for
ASEAN production and sourcing
operations to underpin competitiveness.
• Singapore’s global city advantages.
Singapore stands at the geographic
centre of ASEAN. It is rated one of the
world’s most competitive business
environment with outstanding services
and an environment that is attractive to
global managers. It has formal ties to its
ASEAN partners and even stronger
informal ties as a regional haven and
hub for safe business transactions. The
city’s excellence provides a compelling
logic for an ASEAN management
structure although most firms
acknowledge that a Singapore RHQ
should not undermine country growth
plans.
• Regional product solutions. Nearly all
emerging market regions that reach
globally significant scale will need local
product and marketing solutions. Most
MNCs are learning how to balance
these requirements within a competitive
and efficient global portfolio. The
emergence of large ASEAN customers
with big orders will signal that ASEAN
has reached a tipping point for regional
product solutions.
• Key ASEAN issues to manage: (a) the
risk of overcapacity in some industries
in some countries, especially if NTBs
are not dismantled; (b) servicing global
clients who organize on an ASEAN
basis; (c) dealing with client demands in
remote ASEAN locations, as relevant;
(d) delivering a localised value solution
that has traction with customers in most
ASEAN states; (e) responding to
competitors who have gained an
advantage via an ASEAN level strategy
(such as Japanese auto firms); (f)
finding, developing, and retaining talent
in each country (strengthened by an
ASEAN game plan for HR); (g)
rationalising acquisitions—a challenge
as operating licenses often reflect local
government aims to retaining
operations.

8. 5
 China Plus 1
Strategy …
Continued
The concept of ‘China plus one’,
diversifying some investments or
businesses away from China into
ASEAN or other Asian markets such as
Vietnam, Thailand, Indonesia and India,
is not a new one. The strategy first
came to prominence in 2010, since
when China’s cost advantage has
further diminished and other business
challenges have emerged. As a result,
many companies are looking to invest
more in other emerging Asian markets
with the dual aims of containing
production costs and reducing
overdependence on China as source of
supply. A recent annual survey of
mainly US MNCs in ASEAN revealed
continued interest in diversifying away
from China (see below).
Manufacturers that heavily depend on
production based in China are likely to
accelerate plans to shift some
production lines to regional neighbours
or at least reallocate investment
budgets for one or more of the following
reasons:
(1) Risk diversification — spreading
production across regional markets
hedges investment in China by making
producers less vulnerable to supply
chain disruptions, currency fluctuations
and in particular disruptions due to
political risk.
The increasing assertiveness of Beijing
in the East and South China seas,
exemplified by the row with Tokyo over
disputed islands which subsequently
sparked a consumer boycott of
Japanese brands in 2013 and the more
recent confrontation with Vietnam over
the Spratly Islands, has reminded
investors that doing business in China
comes with geopolitical risk.
(2) New market access — frontier
economies such as Myanmar, are
poised for rapid growth with early entry
seen as providing a competitive
advantage; deepening ASEAN
economic integration also promises a
larger alternative market to China.
(3) Cost containment — workers in
emerging Asian countries are generally
less expensive than Chinese workers.
(Although productivity is much higher in
part due to the countries deep and
elaborate supply chains.)
In particular, toy, footwear and apparel,
electronics assembly and similar
businesses requiring less skilled labour

9. 6
will increasingly seek out alternative
production sites.
An ongoing strategy
The “China Plus One” strategy is not
just a theory, it is already being put into
practice.
• Foxconn, which has roughly one
million employees in China, is
negotiating to relocate a large part of its
assembly operations to Indonesia.
• Volkswagen has decided to base its
new Asian production facility in
Thailand; their existing China operations
will continue to focus on the Chinese
domestic market.
• Amid the restructuring of its Nokia unit,
Microsoft is also joining many
technology companies moving
manufacturing from China to Vietnam
(also to Brazil and Mexico).
In 2013, the value of Japanese FDI into
ASEAN exceeded investment in China
for the first time. The top Asian
destination is now Indonesia — followed
by India, Thailand, China and Vietnam.
But this does not mean that Japanese
firms are leaving en masse: they are
simply seeking out alternative
1
investment destinations.
Many thousands of factories have
already slipped away from China, or
moved to inland provinces, a production
line migration that has largely gone
unreported. The trend has involved
Taiwanese and Korean companies
more than Western investors. But the
latter are also changing their China
business models, moving away from
export-driven manufacturing to focus on
servicing Chinese domestic demand.
Staying in China
Despite greater caution about China
investment, companies are unlikely to
shift huge amounts of production out of

10. 7
China any time soon (see below for the
Japanese experience according to
JETRO).
Most factories are staying put to cash in
on China’s private consumption growth,
using new products lines developed
specifically for the Chinese market.
Many MNCs also derive a large and
growing proportion of their worldwide
profits from the China market.
Recent Foreign Direct Investment
(FDI) Trends in Asia (UNCTAD)
 With total FDI inflows of US$426bn
in 2013, developing Asia
accounted for nearly 30% of the
global total and remained the
world's number one recipient
region.
 Inflows to South East Asia grew
6.7% to US$125bn, with Singapore
– another RHQ economy –
attracting half of this total. FDI into
India was up 16.5%.
 This compares with China inward
FDI up 2.3% in 2013. (China’s
Ministry of Commerce puts the
2014 growth rate at a meagre
1.7%). With inflows of US$124bn
in 2013, China again ranked
second in the world. Additionally
Hong Kong saw its inflows rising
slightly to US$77bn, much of it
related to new regional
headquarters (RHQs) of MNCs,
the number of which reached
nearly 1,400.
Quitting China is not easy. MNCs can
find it expensive to retrench workers
and rumours of production line closures
have been known to trigger onerous tax
audits by local authorities.
 Case study
Nissei Plastic Industrial
China + 1 Strategy
In April 2013, Nissei Plastic Industrial
(Nissei), a Japanese manufacturer of
injection molding machines, completed
its second offshore manufacturing
plant—in Thailand. The main reasons
behind this initiative, according to
company president Hozumi Yoda, were
to have a “China plus one” strategy and
to take advantage of a tariff-free
agreement between the ASEAN region
and India. India applies punitive tariffs of
25-40% on imports of injection moulding
machines to protect locally-based
suppliers that include Japanese- and
US-owned competitors. The Thai
factory also exports to the US and
Mexico, and Vietnam and Indonesia.

11. 8
 More Regional
Supply Chain
Management
Throughout most of Asia’s economic
modernisation, the region’s supply chain
flowed largely East to West. Asia’s low-
cost labour manufactured low-cost
products for export to the developed
markets of Europe and North America.
More recently, however, Asian cities
with their emerging middle classes have
become centres of demand, prompting
a flow of imports from the West.
Moreover, as these Asian export
platforms developed, more companies
based in Asia (including MNCs with
Asian subsidiaries) began making
products for sale in their home market
or other Asian markets. This important
shift in demand dynamics will drive the
future organisation of global and
regional supply chains.
Sub-regional supply chains
Worldwide, large MNCs follow a similar
pattern of regional standardisation of
functions. However, the sheer
complexity of the Asian market—
including its sprawling geography,
distinct cultures, divergent levels of
economic development and very
different regulatory and infrastructure
environments—has inhibited the
development of regional supply chains,
and all that implies for sourcing and
procurement practices.
The supply chain management function,
along with IT, R&D and product design,
is now migrating to a more regionalised
model. (Other functions, such as sales
and support will stay at the country
level.) Asian-based businesses are
reorganising from matrix management
accenting country-based models to a
more integrated structure with shared
and sometimes outsourced regional
functions. The benefits of such an
approach include deduplication, better
coordination, economies of scale,
broader application of standards and
the ability to locate functions in the best
country to access external services or
minimise the corporate tax burden.
Regional approaches to supply chain
planning and sourcing/procurement
provide attractive benefits for
companies that manufacture or
purchase in a few locations for supply to
customers in multiple countries. For
example a company with factories in
China, Thailand and India and
customers across most of Asia may
usefully adopt a sub-regional or even a
fully regional supply chain model. The
latter is less practical given Asia’s size,
diversity rate of flux.
The beneficial roles of sub-regional
supply chain management hubs:
2
• Strategic sourcing and regional
procurement;
• Consolidation of country demand
forecasts into a regional demand
perspective;
• Regional-in-scope sales, operations
and inventory planning;
• Delivery/shipment plans for
manufacturing sites (incl. contract
manufacturers) to meet country
requirements;
• Greater standardised supply chain
practices, processes, systems and
compliance across the region;
• Increased use of supply chain
intelligence tools (SCM analytics, KPI
metrics, reporting, alerts, etc.);
• Coordination and sharing of leading
practices, performance reporting and
supply chain skills development.

12. 9
The sub-regional supply chain
management centre may also be well
placed to have a stronger voice on
issues such as product harmonization,
route-to-market, cost-to-serve, and
corporate social responsibility.
 Case study
3
Canadian Pharma Company re-aligns
Supply Chain to focus on APAC
A Canadian MNC specialty
pharmaceutical company with an Asia
Pacific beachhead in the Australia and
New Zealand markets had its regional
headquarters in Sydney. It had enjoyed
good growth in these ANZ markets, but
the next phase of growth was expected
in Asia proper, specifically the emerging
ASEAN markets of Indonesia,
Philippines and Thailand.
In order to achieve its new growth
objectives, the company’s supply chain
organisation was relocated to the
region. ASEAN was rightly recognised
to be a complex opportunity with each
country having its own regulatory
requirements. Managing these multiple
country jurisdictions needed
management resources to be located
within the region. The company
embarked on a transformation program
to change its operating model in the
region and move its regional supply
chain headquarters from Sydney to
Singapore. This achieved two goals:
increased supply chain agility and better
alignment with corporate tax objectives.
The revamped supply chain
organisation included the establishment
of a Singapore-based operating
company with several ‘limited risk’
distribution companies in individual
ASEAN markets. The company put in
place a revised ERP to support its new
operating model in the region and
provide the required financial reporting
to HQ in Canada. It facilitated tax
efficiency and provided the platform for
more competitive cost structures.

13. 10
Regional SCM agility required
Demand in high-growth Asian markets
will, initially at least, be difficult to
predict and lead times and revenue
flows will be hard to forecast. Agility will
be a key factor. Versatile and lean
supply chains will need to switch
sourcing to match demand. As market
conditions become more volatile and
difficult to predict, the key to flexibility in
longer supply chains originating in Asia
will lie not in improving the ability to
plan, but rather in mastering the
capability to adapt quickly to fluctuations
in demand and supply.
The Asia-Pacific region’s growth
potential, as a centre of manufacturing
and source of supply, and as a market
for locally and internationally-
manufactured goods is extraordinary.
But, for the foreseeable future, the
region is likely to remain highly diverse.
Asia’s unique challenges may require
the deployment of multiple supply
chains, each tailored to the
requirements of specific sub-regions
and communities. These will need to be
supported by locally-developed
capabilities, nimble enough to
accommodate the region’s rapid
change.
4
In Asia Pacific, MNCs will no longer
simply use supply chains as a means of
supporting growth. They will look to
supply chains as a source of
sustainable competitive advantage.

14. 11
 Senior MNC
Leadership
Moves to Asia
The distance of several thousand miles
between many MNCs’ corporate
headquarters and the locus of
opportunity is becoming more evident
as Asia’s economic growth continues to
outpace that of the developed world.
Business leaders who spend most of
their time in London, New York or
Helsinki will inevitably view the world
through British, American or Finnish
eyes. Corporate leaders in far flung
capitals are far removed
psychologically, cognitively as well as
physically from the new commercial
epicentre of the global stage. Fed out-
of-date, filtered and processed
information, it is perhaps not surprising
that corporate leadership is not the most
effective.
Given the vastness, complexity,
dynamism and importance of Asia’s
markets, there can be no substitute for
gut-level judgement based on direct
observation and deep immersion within
these societies
5
. In 2009, trendsetter
John Rice, Vice Chairman of GE and
president and Chief Executive of Global
Growth and Operations relocated from
corporate HQ to Hong Kong. He
captured the issue succinctly: “I’ve
come to China close to 100 times,” he
said, “but I’ve learned more about China
in the last 18 months than I did in the
preceding 20 years.”
Not so long ago, corporate
management was focused on
globalising the supply chain and
relocating manufacturing to Asia. Now it
is also concerned with globalising
corporate thinking. The issue is more
than one of differing cultures: it is harder
to make decisions to invest in growth-
oriented markets when based in a
region where austerity and belt-
tightening is the order of the day.
Placing global corporate functions in
Asia will help attune a company to the
region’s potential.
Many MNCs have already moved some
of their global corporate functions to
Asia citing the rationale that Asia is too
important to have a managerial layer
between the region and corporate HQ.
Such reorganisation also ensures that
sufficient attention is being paid to Asia
at the highest levels in the company.
Others MNCs have parachuted
representatives of global business units
(BUs) into Asia, the reasoning being
that some BUs now have most of their
sales and/ or highest growth potential in
Asia and therefore should have decision
making situated closer to customers.
This can be a difficult organisational
structure for the BU manager if the key
decisions concerning the BU remain
with corporate HQ or if distance from
the “mothership” affects voice and
resource allocation.
Companies that have relocated some of
their most powerful executives to Asia:
• GE - In Sept 2014, General Electric
Co (GE) opened a Global Operations
Center (GOC) in Shanghai to serve the
Asia-Pacific region. The GOC, one of
five such GE facilities, aims to simplify
the company's business by integrating
services for 16 countries, including
Japan, Korea and ANZ in one location.
• Cargill - the global model of Cargill is
very business unit-led. Singapore is the
regional hub of Cargill in Asia-Pacific
and four of Cargill’s business units are
headquartered in the same city.
• Cisco – the tech giant has developed
four innovation hubs in Songdo, South
Korea, Rio de Janeiro, Brazil, Toronto
and Germany.
• Nissan opened the its new global
headquarters for the Infiniti brand in
Hong Kong in May 2012.
• IBM – selected Singapore as its
Global-Asia hub.

15. 12
• Procter & Gamble – in 2012 P&G
moved its global HQ for Personal Care
from Cincinnati to Singapore.
Surveys conducted by the Economist
Corporate Network reveal how the trend
toward more Asia-based management
has accelerated in recent years (see
chart below). In 2008, just 19% of non-
Asian MNCs surveyed had one or more
board members living and working in
Asia; by last year (2014), the
percentage had passed 40%. What is
more, 45.3% of the respondents
expected to have board members
placed in the region by 2016.
Sourcing global management from
Asia
Other MNCs have upped the seniority of
people with Asia or Asia- Pacific or
China roles leading to ‘more senior
people from Asia’
6
and/ or ‘more senior
people in Asia’. The rationale is twofold:
Asia needs more experienced people;
and senior Asia managers deserve a
greater voice at corporate HQ.
The CEOs of several global MNCs had
their immediate past position or position
just prior to that in Asia, or had
extensive Asia experience under their
belts. Asia’s growing importance means
it must be understood at the highest
levels within the company. But this
situation can result in conflict, not
between the CEO and the Asia-Pacific
regional management which are usually
alignment, but between bureaucratic
management layers who “do not get it”
when it comes to Asia.
City implications
The above shifts imply a change in city
roles. The choice of city to manage the
Asian region (or sub-regions therein)
will often depend on the nature of the
business, but in general global
corporate functions have tended to
locate in a few cities only. Singapore
has attracted an expanding number of
top-flight managers and divisional
headquarters as companies seek to
capitalize on the city-state’s flexible
OHQ (operational HQ) incentives and
highly educated work force. Hong Kong
is seen as the gateway to mainland
China, but Shanghai is rising too,
supported by new inducements and the
gradual internationalising of the
Renminbi. By the end of 2013, 445

16. 13
MNCs (three times the number in
Beijing) had set up their regional HQs in
Shanghai.
7
Multiple global hubs
Firms are moving away from the old
paradigm of a global HQ to one of a
network of global hubs, underpinned by
the new need to connect and coordinate
rather than command and control.

17. 14
 Lifting the
Local Relevance
of Products
As premium market segments mature
and local competitors start to emerge,
MNCs will develop more relevant,
second tier ‘good enough’ product
offerings for Asia’s emerging markets.
A new battleground is emerging for
companies seeking to establish,
sustain, or expand their presence in
Asia’s emerging markets: the so-called
“good-enough” market segment: reliable
products of reasonable quality, at low-
enough prices to attract the cream of
Asia fast-growing cohort of mid-level
consumers.
Competition for the ‘good enough’
segment is heating up. Competitors are
both home grown and other MNCs.
Home-grown low cost carriers (LCCs)
such as AirAsia and Lion Air have been
growing very fast by both gaining share
and expanding the market. Indonesia’s
Astra is expecting a breakthrough in the
Low-Cost Green Car category targeting
buyers in Indonesia with US$5,000-
10,000 annual disposable income,
equivalent to 60m potential customers.
Another Indonesia success story in the
FMCG sector is Wingsfood, which has
stolen market share from the incumbent
using a focused strategy of mainstream
pricing, smaller pack size and a
concentration on small retail outlets
(local warungs/kiosks).
Big Cola, owned by obscure Peruvian-
owned AJE Group, has used a low-cost
entry strategy, clever marketing and
relentless focus on emerging markets to
successfully take on Coke and Pepsi,
the global soft drink giants, in Asia.
Honda has been very successful
against low-cost motorcycle competitors
in the ASEAN market. It defended its
Asian export turf against Chinese
encroachment by lowering by
performance, revising design standards
and sourcing lower cost parts while
maintaining reasonable quality.
Samsung is fighting back against the
local challenge to its market share in
Southeast Asia, India and China where
local brands are offering increasingly
robust devices that rival its
smartphones—but a fraction of the
price.

18. 15
Implications for product strategy
Companies brave enough to look
beyond Asia’s premium market segment
will need to make major adjustments to
their product portfolio, their
manufacturing cost structure and their
organisation.
Competing in the good-enough space is
not necessarily a sensible strategy for
MNCs operating in sustainable premium
segments. These companies should
rather lower their costs and innovate to
maintain their premium or niche
positions and sustain their margins. B2B
customers are often willing to pay more
for reliability (lower cost of ownership),
even when faced with a variety of other
cheaper options. For engineering
companies in particular, R&D and
enduring differentiation may be
sufficient to keep local competitors at
bay, while allowing time for expanded
distribution/service to improve
responsiveness, and lower costs by
using more local or regional
procurement.
These premium players are the lucky
ones. In China, many local firms are
looking to move upmarket as the lower-
end segment becomes increasingly
crowded and competitive. If growth in
the premium segment is slowing and
returns are slipping, MNCs should
consider a position in the good-enough
space. The MNCs that eschew the
middle market because of their current
competitive strength should regularly
revisit their decision and guard against
emerging competitive threats.
A move into the good-enough space
can occur in one of three ways:
(1) Leading MNCs providing ‘excess
quality’ in the premium segment can
attack from above. The goal for these
organizations is to lower their costs,
introduce simplified products or
services, and broaden their distribution
networks—while maintaining
reasonable quality. Simple cost cutting
may not be sufficient to bridge the price
differential; quality and design
standards must be reviewed.
(2) Local market challengers in the low-
end segment burrow up from below.
These companies aim to take the legs
out from under established players by
providing new offerings that ratchet up
quality but cost consumers much less
than competitive premium products.
(3) Some MNCs may not be able to
quickly reduce their costs or rapidly
adapt their processes. Acquisition is a
breakthrough option for entering the
middle market for these companies. A
classic example is Gillette’s acquisition
of Chinese battery maker Nanfu. Gillette
continues to sell premium batteries in

19. 16
China under its Duracell brand while
developing Nanfu as the leading
national brand in the mass market.
Similarly, F&B company Danone
acquired four local water brands to
achieve #1 positions in both the
Indonesian and Chinese markets.

20. 17
 Productivity
Prioritisation
In Asia’s diverse regional economy
almost all countries and territories are
making concerted efforts to industrialise
and accumulate capital in order to
improve their growth potential and catch
up with the so-called developed world.
According to the Asian Productivity
Organization, their efforts are yielding
results beyond impressive growth rates.
Asia’s capital accumulation is being
accompanied by strong productivity
improvements.
To date, much of the region’s growth
has been driven by a demographic
dividend. 40% of past growth in ASEAN
for example was created by an
expanding working class
8
, now the third
largest in the world; and half of
productivity gains were the result of the
transition from agriculture to
manufacturing. These drivers are
fading, highlighting the need for new
engines of growth. The answer for some
governments is productivity.
Policy prescriptions
At the policy level, the need for
productivity growth is most acute in the
more developed and mature markets. In
Singapore, the country’s meagre
productivity growth rate is a national
priority and the government is throwing
resources at the problem.
The government has devised a slew of
generous financial incentives and
schemes to support firms to upgrade
productivity, whether by investing in
technology, training workers or
streamlining operations. Foreign worker
inflows are being restricted to
pressurise employers to upgrade their
workers, instead of just hiring more.
Not only is productivity important for
GDP growth, it has a politically
advantageous consequence of raising
incomes. In the longer term, wage rises
can only be sustained through higher
productivity.
MNC corporate priority
At the corporate level, more MNCs are
experiencing or anticipating slower
growth in some Asian markets. The
economies of countries such as China
are also slowing—but costs are not,
hurting margins. According to the
European Chamber of Commerce only
63% of European companies in China
were profitable in 2013, down from 73%
in 2011. Revenue growth expectations
are now at their lowest since the peak of
the Global Financial Crisis. Fewer
American companies expect major
gains in their China revenues (see chart
on previous page).

21. 18
In response, many corporates are
prioritising productivity growth. A survey
of over 100 regional managers
conducted by IMA Asia in January
2015, revealed the following initiatives,
ranked in order of importance, for
achieving productivity gains in Asia:
 Supporting a culture of innovation
 Re-engineering of internal processes
 Incremental / one-time
organisational restructuring
 Technology upgrades
 Overhaul of business model
architecture (e.g. fewer models)
 Hiring staff for new business issues
(e.g. data analytics)
A ‘laser-like focus’ on staff productivity
will involve a variety of efficiency
metrics, including sales / profit per
employee, cost-to-income ratio or gross
cost savings. These measures are
complemented by a range of non-
financial metrics such as revenue
growth/new business, client/customer
satisfaction and staff satisfaction.
Expectations for regional growth remain
relatively high. A key concern is then
how to maximise the growth potential
while sustaining productivity
improvements. Some approaches:
 Reduce complexity in the business
model organisational structure;
 Introduce flexible operating platforms
and flexibility in fixed cost structure;
 Make the organization leaner,
including significant headcount
reductions;
 Make heavy investments in new
technology;
 Target internal development of staff
rather than relying on expensive
expatriates.
Solutions wanted
Consulting firms are gearing up to help.
In October 2014, US management
consultancy McKinsey opened its first
McKinsey Productivity Sciences Centre
in Singapore. The centre, a partnership
with Singapore Economic Development
Board (EDB), provides research, bench-
marking tools and technology-based
solutions to help companies drive
productivity. The centre promises
productivity gains of 10-15%.
Finland, a league leader in
manufacturing productivity may be able
to leverage its expertise in this regard.
0,0%
30,0%
50,0%
20,0%
0% 10% 20% 30% 40% 50% 60%
Not a priority
One of several priorities
A leading priority
The top priority
Productivity Prioritisation
% survey respondents
Source: IMA Asia Survey of C-Level Asian Manager, Jan 2015

22. 19
 South-South
Strategies
The rise of emerging markets, the
deepening business links between
them, and the importance of Asia to the
new South-South axis (emerging
markets mostly located in the Southern
hemisphere) will have implications for
corporate strategy. The tilt in economic
power from North-South to South-South
is creating new trade and investment
flows, to which corporate leaders must
respond.
Following WWII, the Western world
successfully promoted global integration
as a way of ensuring world peace and it
caused a surge in trade and investment
flows. In the 1980s and 1990s the same
developed nations built global supply
chains, accessing cheap Asian labour.
Today, a third phase of global
development is dawning: deepening
South-South trade and investment
flows.
South-South trade has grown at double-
digit rates annually for the past three
decades, rising from a 6% share of
global trade in 1990 to 24% in 2012
9
(see figure above). South-South foreign
direct Investment (FDI) activity is also
expected to expand. Overseas
investment by transnational
corporations (TNCs) from developing
economies (‘South’ economies)
continued to grow in 2013, reaching a
record level of US$460bn. Together
with FDI from so-called transition
economies (another US$100bn) these
investments accounted for 39% of
global FDI outflows in 2013.
10
An important qualification to the
impressive trade and investment trend,
is that three quarters of South-South
trade now takes place within Asia. Asian
exports to other developing countries
account for another 10% of such trade.
China alone accounts for about 40% of
South-South trade, almost half of intra-
Asian total merchandise trade and 60%
of intra-Asian trade in manufactures, as
well as for about one third of all
developing-country imports from Africa
and Latin America.
The economic rise of China has been
the single most important factor in
stimulating South-South trade through
its imports from other developing
countries and overseas investment over
the past two decades. In the meantime,
FDI outflows from China swelled by

23. 20
14% in 2014 to US$103bn—almost
matching FDI inflows. However,
networks of global flows are broadening
and deepening as emerging economies
join the South-South paradigm and
emerging economies beyond Asia are
becoming important as both consumers
and producers in the global economy.
Global Heads of Emerging Markets
One ramification of the growing South-
South dynamic is the increasingly
common practice of stationing the
Global Head of Emerging Markets in
Asia. Not only are global division heads
and CEOs being sourced from Asia
(see Senior MNC Leadership Moves to
Asia) but Asia is increasingly being
used as a base for Global Heads of
Emerging Markets. The expertise
developed in Asia’s challenging yet high
growth emerging markets is readily
transferable to other regions. The logic
is simple: if you can make it in China or
India, you can make it anywhere.
GlaxoSmithKline is one example of a
company that has based its head of
global emerging-markets operations for
the UK pharmaceutical giant, in
Singapore.
South-South Strategy implications
Companies operating along the South-
South axis will need to adjust their
business models and alliances:
(1) Successful models created in Asia
will be adapted for use elsewhere.
Products and services developed for
Asia’s consumers and industrial end
users will likely be more transferable to
other emerging markets.
(2) Partnerships forged in Asia’s
emerging markets will be carried
forward to countries outside the region.
Many MNCs are well placed to help
internationalising Asian MNCs, thanks
to their established global networks.
(3) As emerging markets become more
connected, competition in some sectors
may stiffen. Early investors, typically
Western or Japanese MNCs, often had
emerging markets much to themselves.
But competition will intensify as
emerging market companies expand
along South-South lines.
(4) With Asia at the core of emerging
market integration, the role of new

24. 21
business and financial hubs will
evolve—cities with cultural diversity,
such as Singapore, Kuala Lumpur or
Dubai, will benefit.

25. 22
 Corporate
Strategies for
China
China will be high on the agenda of
many MNC boardrooms. Key discussion
points: (a) how best to manage the
internationalisation of Chinese
competitors and customers; (b) what
resources should be allocated to China
given the expectation of slower growth,
continued over capacity, hyper
competition in some sectors and greater
market volatility; (c) how to deal with the
risks associated with a more assertive
China at home and abroad; and (d) how
to organise for China given its growing
importance both within the region and
as a rising contributor to companies’
global sales.
China’s internationalisation
China’s ‘strategic’ SOEs are being
pressed to venture overseas to build
high-speed-rail links, construct new Silk
Route roads and pipelines, buy up New
York and London real estate and to
develop infrastructure to exploit
resources in the emerging continents of
Africa and South America. Many of
these projects have geopolitical aims
and many are supported or underwritten
by Beijing.
Senior executives in China’s private
sector companies want to move
overseas also. By pivoting to new
sectors within China, or more likely to
international markets, these Chinese
companies hope to sustain their
accustomed revenue growth rates.
Some of these Chinese investors are
rolling out devastating business models
in overseas markets, ones that western
listed companies simply cannot
compete with (razor-thin margins or
lengthy ROI).
China’s internationalisation drive
includes coordinated ‘Soft Power’
initiatives. China large and sustained
current account surpluses are providing
ample financing for expanding foreign
aid and for unofficial government-linked
investment. Newly pledged aid from
China was a massive US$189.3bn in
2011. Though not directly comparable,
this sum dwarfs the funding provided by
the US Agency for Development
US$8bn in the same years
11
. China is
also projecting massive soft power
overseas by building cultural and
language institutes. One initiative
example is the proliferation of Confucius
Institutes. Following a rapid rollout,
there are now around 500 of these
institutes on six continents
12
.
Dealing with a more assertive China
At its core, China is still a command
economy driven by a political agenda
that seeks to legitimise the ruling party.
But the implicit Social Contract in China
is expected to come under some strain
in the near future. The accustomed
double-digit annual increase in wages
and salaries may soon end, perhaps in
2015. Lower GDP growth will not
support the same level of job creation
and factory automation is reducing the
need for workers. Many low-skill
assemblers are downsizing, some are
moving offshore. To forestall the
potential for social discontent, the
government may be inclined to become
more nationalistic.
MNCs are complaining that they are
being unfairly targeted for tax evasion,
unfair pricing, abuse of monopoly power
and corrupt practices. Targets in many
cases have been foreign companies
with a commanding presence in their
markets or ones that lack strong
Chinese competitors. They typically
high profile companies reporting strong
profitability. (Although to be fair, some
the same companies have fallen foul of
regulators in Western jurisdictions also.)
China’s is using the levers that it
controls to demonstrate that foreign
companies operate at the pleasure of
the Chinese government.

26. 23
Organisation
Previously, corporates would attempt to
align their China strategy with the
relevant aspects of China’s latest 5-year
plans. Today, the challenge is to more
broadly align with President Xi Jinping’s
quasi-official ideology captured in the
phrase ‘Chinese Dream’. Unlike the
individualistic ’American Dream’, the
Chinese version is more suggestive of
the future revival of Chinese as a great
nation.
This importance of the new alignment is
mirrored in corporate organisation for
China:
(1) A growing number of MNCs have
elected to relocate global business units
(GBUs) to Shanghai or Beijing, a clear
statement of the role of China in their
global strategy. The GBUs are usually
businesses that rely heavily on the
China market. Typically, this
organisational structure requires strong
support from head office and there is a
danger that decision–making can
become too China-centric.
(2) Some companies have removed
China from their Asia Pacific
management structure altogether,
making it report directly to HQ. The
danger with this approach is that the
growing importance China’s regional
role maybe be under appreciated.
(3) Other firms have relocated their
regional headquarters from Singapore
or Hong Kong to mainland China. Here,
the main concern is that smaller
emerging markets in Asia may be
overlooked given the higher priority in
terms of management and resources
that China will command.
Corporate imperatives for China
It is not just what happens within China
that matters. Since the turn of the
century, global manufacturing has been
redefined by China production lines.
The country will continue to move up
the value chain over the next decade—
improving productivity and efficiency will
be essential to maintaining profitability
for many companies, given lower
industry growth (see Prioritising
Productivity). China’s coming flood of
overseas funding and investment
(including unrecorded unofficial
investment by banks and SOEs) may
redefine the global economy in ways
just as profound as China’s current
influence on world trade.
Companies should think of China
strategy as a two-way street. In one
direction, it is what you do in China that
will count. In the other direction it is
what you do with (or about) China. Most
companies will ultimately decide to stick
with their current China strategy, but
there will be real choices and trade-offs
on the table. Even companies only
peripherally engaged with China should,
start monitoring the key trends,
particularly as they spill over China’s
borders: China’s tourists are reshaping
global tourism; China’s engineering and
construction firms to move offshore;
China machinery manufacturers are
slicing European market share away
from Germany and so on.
Companies that pivot to support
outbound China companies and
confront Chinese competitors will find
new market opportunities and increase
their chances of survival in the new
world order.

27. 24
 Competing
Against
Emerging Asia
Corporations from emerging economies
are becoming important players in the
globalized world economy. The best of
them have embarked upon rapid
globalisation targeting the industrialised
economies, particularly in North
America, Australia and Europe.
Internationalising local companies in
emerging Asia have a better
understanding of their markets than
Western MNCs. They are also more
nimble.
There are several segments groups of
newly emerging Asia competitors.
These include overseas Chinese
corporations based in countries such
Hong Kong, Taiwan, Thailand and
Indonesia, the Korean chaebol,
government-linked ‘Singapore Inc’
corporations and so-called national
champions (such San Miguel in the
Philippines and Sime Darby in
Malaysia).
Dragon abroad
The main threat is China. Keeping their
Western counterparts awake at night,
China enterprises are investing heavily
in R&D, securing resource inputs,
expanding offerings of high-value
products and aggressively pursuing
acquisitions to gain access to
technology, brands and markets. The
Chinese are becoming a major
competitive force in the global economy
based upon relatively inexpensive and
highly productive labour as well as scale
and cost advantages. Worse, they are
using process innovations to boost
productivity and raise efficiency.
Everywhere, Chinese manufacturers
are sharply increasing their global
market shares: construction equipment
–from 3% in 2006 to 15% in 2011;
telecoms equipment—from single digits
to ~25% in the same period.
The same German engineering
companies that benefited from strong
sales to China in recent years are
seeing Chinese encroachment in its
core EU market (see Calculating the
Chinese Threat below).

28. 25
The ascent of Asian manufacturers was
enabled by the rise of the Asian middle
market and the development of “good
enough” products that accent price
competitiveness and basic functionality
(see also Lifting the Local Relevance of
Products). Demand for these products
is now increasing in Europe and other
developed markets, as companies and
consumers seek to reduce supply chain
costs in the face of persistent economic
uncertainty in the EU and elsewhere.
Going beyond cost leadership, some
new Asian competitors are also offering
highly customised products and turnkey
solutions. In an effort to improve access
to global markets, they are building their
own sales networks in developed and
developing countries and partnering
with MNCs to share distribution
channels. They are gaining access to
advanced technology through
aggressive investments or acquisition of
companies with cutting-edge technical
capabilities.
The rising number of Asian companies
in the Global 500 reveals the extent of
emerging Asia’s new found corporate
power. The number of Chinese
companies in Fortune’s Global 500 has
increased six-fold since 2005.
The new global reality is forcing MNCs
to fundamentally rethink strategy and
devise new business models that can
win the new middle class market in
emerging Asia, while holding Asian
market rivals at bay in home markets.
Success factors
Almost by definition, emerging markets
grow strongly and change rapidly.
Entrepreneurial family-owned Asian
firms immersed in the local business
environment can often out compete
developed market MNCs. They can
make decisions quickly, without
recourse to board approval, without the
need for detailed due diligence and
oblivious of onerous governance
requirements.
On-the-ground decision making makes
for faster and better decisions. By
leveraging local partners’ understanding
of market conditions and opportunities,
MNCs may partially overcome this
inherent competitive weakness.
Writing for Harvard Business Review,
business advisor Ram Charan suggests
there are four ways in which business
leaders in emerging Asia may have a
competitive advantage
13
:
(a) They make do. Many have grown up

29. 26
under conditions of scarcity and
hardship. Improvising and working on
tight margins is second nature, as is a
fierce focus on operations.
(b) They think big. Emerging market
business leaders have experienced
massive changes in their home
countries; their growth and opportunity
expectations are vastly different from
those of European or American
businesspeople.
(c) They learn fast. Many are adept at
using partnerships, joint ventures,
licensing deals, and acquisitions—
whatever it takes—to establish
themselves in a market or industry and
scale up quickly.
(d) They move fast. These leaders are
energized by the opportunities they see
before them, and they are decisive.
Emerging market acquisitions
Acquisitions by emerging Asian firms
are having a significant impact on the
competitive landscape. They allow
emerging market competitors to
14
:
• leapfrog entry and mobility barriers
into mature markets;
• introduce new competitive models in
new markets by combining low cost and
differentiation in new ways;
• transfer local market competencies,
e.g. frugal engineering, to new markets;
• leverage home market economies of
scale—in addition to absolute cost
advantages—in developed markets;
• reconfigure their value chains to
complete more effectively on a global
scale; and
• force competitors to make hard
choices when devising countermoves.
MNC competitive strategy
With the rise of indigenous Asian
corporations, companies are looking for
new ways to compete in Asia against
Asian firms. Incumbent MNCs—at least
those that that fully appreciate the threat
from emerging market MNCs—are
devising their strategic response, both
in Asia and home markets. Options will
include:
(a) block market entry by emerging
Asian MNCs in home markets;
(b) attack the home markets of
emerging Asian rivals (example: in
2014, Whirlpool bought a 51% stake in
China’s Hefei Sanyo, a joint venture
between Japan's Sanyo Electric Co a
Chain partner for US$552m to give the
company traction in the Chinese
appliance market); and
(c) partner with those Asian firms
looking to internationalise their
business.
Tactically, the following options can be
considered also:
(1) Identify and understand Asian
competitors. In many boardrooms,
Asian competitors are still not yet on the
radar. MNCs should seek to enhance
competitive intelligence on the
capabilities and strategic intent of these
new rivals.
(2) Appreciate the new partnership
paradigm. Previously, Western MNCs
partnered with Asian firms to gain
access to domestic markets, political
patronage and local distribution. Secure
in their technical expertise and
manufacturing excellence, MNCs would
typically expect to be the dominant
partner. Today, the roles may be
reversed with the Asian partner bringing
technical strengths and seeking global
expansion.
(3) Appreciate (and exploit) home
strengths. Many Asian competitors still
have weak brands with little recognition
beyond national boundaries. They are
often hierarchical, lacking in both
cosmopolitan management and
international experience.

30. 27
 Leveraging
Asia as a Source
of Innovation
Innovation is the lifeblood of every
successful company. Historically,
Western MNCs adopted the so-called
‘waterfall innovation model’, whereby
invention occurred in the European and
North American research labs. Over
time the resulting innovations were
introduced to other Western/developed
markets before eventually finding their
way onto the world’s emerging markets.
Today, declining MNC market shares in
some of Asia’s high growth emerging
industries is forcing firms to rethink the
waterfall innovation paradigm. The
pernicious meme that Asia lacks a
culture of innovation is woefully out of
date. Forbes latest ranking of the
world’s most innovative companies
ranks 16 Asian firms in the top 100,
from seven Asian countries (see table
below).
Asia’s leading innovators
In truth, Asia is beginning to shape
global business trends, most notably
China and most obviously in social
media and electronics:
 Xiaomi has reinvented the
smartphone business model by
selling at wafer-thin margins and
focusing on revenue streams
provided by software applications.
 Beijing Genomics Institute (BGI) has
made DNA sequencing a mass-
market proposition becoming the
world's largest DNA sequencer in the
process. A ‘biological Google’, in
2013 BGI acquired California-based
Complete Genomics, a leader in
genome-sequencing machines.
 Tencent, China's most popular
Internet service portal, has beaten its
Chinese social-networking rivals and
sent chills through Silicon Valley with
a 10-terabyte storage offer.
 Consumer electronics and home
appliances company Haier saw
revenue grow to more than US$29bn
in 2013
15
, in part through innovative
management practices, including the
use of a unique internal talent pool
and bidding system, allowing
business units to bid on project
proposals—and vote out
incompetent managers.
 Geak, a division of Chinese group
Shanda, makes wearable tech
including a novel ring that syncs to
phones and shares contacts via ‘fist
bump’. It has also launched an
Android-powered smartwatch.
 Baidu has expanded from its
dominate position in search to
hardware, including Wi-Fi controlled
smart cameras which records and
monitors children, aging parents, or
pets from afar. Baidu also has a
translation app that includes speech
and text recognition.
While China still lacks international
brand strength, it is making inroads in

31. 28
consumer products also. China’s home
grown luxury brands have developed
offerings tailored to the country’s
growing middle and upper classes (see
also Lifting the Local Relevance of
Products). President Xi Jinping’s
austerity drive may have undercut sales
of foreign prestige brands like Hermes,
but local brands have emerged to take
advantage of the shift in the luxury
market. Chinese fashion labels like
Nisiss have been leaders in targeting
China’s second-tier cities, where
McKinsey estimates around half of the
country’s middle-class, high-income
earners reside.
16
Following the mobile revolution, the
‘Internet of Things’ is widely touted to be
the next global trend—from wearable
tech to tracking technologies. Asia is
uniquely poised for this next wave with
its powerful combination of
manufacturing expertise and tech savvy
population.
Asia as innovation incubator
Asia is starting to drive a wave of
innovation across other emerging
markets. Given the size of its markets
and its talent pool, Asia is now the
epicentre of innovation not only for the
region, but for all emerging markets.
The flow of innovation out of emerging
Asia into similar markets is expected to
accelerate for two reasons: (a) most of
the recipient countries are greenfield
investments; in the developed world it
can be difficult to displace legacy
technology investments; and (b) the
people in emerging markets are
younger and more willing to experiment.
The result is not only a surge in
investment in R&D focused specifically
on emerging markets, but also a
process of cross-fertilisation as ideas
and innovations flow out of Asia to other
emerging markets.
MNC R&D targets Asia
Companies that have not done so
already will soon join Asia’s R&D
revolution. The appetite for emerging
market innovation among MNCs shows
up clearly in the number of R&D centres
that global MNCs have set up, mainly in
China and India. In 2000, just 361 such
facilities were in operation. By 2010,
that number had risen to over 2000. A
survey conducted by the Economist
Corporate Network suggests that a
rising percentage of R&D will be
conducted in Asia—with the gain in
R&D allocation outpacing the region’s
contribution to global GDP (see
adjacent chart).
R&D in China and India
R&D in China has steadily grown from
1.4% of GDP in 2008 to around 2% in
2012 (vs 2.8% of GDP for the US)
17
.
China today is the leading destination
for R&D investments by MNCs with 385
Global 500 companies having an R&D
presence in China. The number of G500
R&D centres in China doubled between
2009 and 2013.

32. 29
India has some catching up to do. The
Deccan Triangle in India (Bangalore-
Hyderabad-Pune) now has over 200
established R&D centres (G500
companies) and is rapidly becoming the
innovation engine of South Asia. Half of
the of the world's biggest R&D spenders
have already invested in India. Globally,
the automotive vertical has the highest
R&D spend, which augurs well for India,
the country being one of the key
development centres for these firms
with cities such as Pune and Chennai
fast emerging as auto hubs. The same
is true for a growing number of
pharmaceutical and healthcare
companies.
While some of these investments were
attracted by cheaper technical skills,
today they are more focused on
producing innovations that are relevant
to lower income environments.
Cisco’s R&D in Asia
US tech firm Cisco has set up R&D
centres in both China and India, as well
as in other Asia countries such as South
Korea. The stated purpose is to design
products appropriate for emerging
markets, ones that are not ‘over-
specced’. For Cisco this meant
designing products that were smaller,
consumed less energy and were more
affordable. These R&D centres are not
only about re-designing existing
products. Increasingly, they are
developing entirely new products based
on local market requirements. Cisco
also placed its emerging market
innovation centres in Asia because of
the size of the talent pool of engineers
and scientists in the region. More
importantly, Asia is where the global
middle class expansion will be most
dramatic and it has the greatest unmet
needs. Once Cisco addresses these
unmet needs in Asia, its products will
also be rolled out to other countries at
similar stages of development.

33. 1
Endnotes
1
Japan Bank for International Cooperation.
2
Supply Chain Strategy for the Asia Pacific Region, Accenture 2014.
3
Extracted from: Supply Chain Growth in Asia-Pacific - How Pharmaceuticals can
manage complexity on operating models, Deloitte, 2014.
4
World Economic Forum, Global Agenda Council on Logistics & Supply Chain
Systems 2012-2014; Outlook on the Logistics & Supply Chain Industry 2013.
5
Global Strategies for Emerging Asia, Anil Gupta et al, Jossey-Bass 2012.
6
Michael Enright (IMA Asia Briefing July 2014).
7
Asia Briefing Ltd.
8
McKinsey Global Institute.
9
Global flows in a digital age: How trade, finance, people, and data connect the world
economy, McKinsey, April 2014.
10
Global Investment Trends Monitor, No.16 28 April 2014, UNCTAD.
11
China’s Foreign Aid and Government-Sponsored Investment Activities, Rand
Corporation, 2013.
12
http://www.confucius.ucla.edu/
13
Ram Charan, Harvard Business Review.
14
Global Strategies for Emerging Asia, Gupta, Wakayama & Rangan, Wiley 2012.
15
www.haier.com
16
The Rise of the Middle Class in China and Its Impact on the Chinese and World
Economies, Dominic Barton, Global Managing Director, McKinsey & Company
17
World Bank Indicators (accessed Jan 2015).