17 Dec 2014

Vietnam, Cambodia and Laos Expected to Drive Growth in Asia

For decades China has been the biggest economy on the Asian continent, and has for years been the European Union’s main trading partner along with the United States.

China is the EU’s biggest source of imports, but has also become one of Europe’s fastest growing export partners. While low labour costs and high productivity has made China a popular location for western businesses to outsource their manufacturing, western brands like Ikea, KFC, Colgate and L’Oreal have also found success in the Chinese market.

A growing middle class is now making it even easier and more profitable for western brands to reach out to Chinese consumers. However, over the last decade or so Chinese wages have increased substantially, making manufacturing in China much more expensive.

This has meant that importing goods from China is no longer as cheap as it used to be. What used to be a golden opportunity for Western businesses to bring down costs in production, has now turned into an opportunity to expand into China and sell directly to Chinese consumers.

Moving manufacturing away from China

China is facing extreme social pressures arising from growing income inequalities, poor business regulation, an increase in demand for energy, high levels of corruption and environmental ruin.

China’s export growth has gone from 31% to 8% during the past four years, partly due to the fact that the pay for Chinese factory workers has risen by 14% in the last ten years. In comparison, smaller south-east Asian countries like Vietnam, Cambodia, Laos and Myanmar are experiencing the opposite. While a typical Chinese worker now gets $700 a month, the average Vietnamese worker only gets $250, and in Cambodia, average pay is just $130.

Of the south-east Asian countries Vietnam is of particular interest. With a literacy rate of 94% and a large, young population, manufacturers can gain access to a large pool of skilled workers, reducing the cost and complexity of running factories and export businesses.

“Vietnam, a one-party Communist state, has one of south-east Asia’s fastest-growing economies and has set its sights on becoming a developed nation by 2020,” according to the BBC.

Several companies have already moved their production from China to Vietnam. In 2013 Nike manufactured 42% of its products in Vietnam compared to only 30% in China. Microsoft is also known to have moved its Nokia production unit from China to Vietnam. Global corporations like Adidas, Samsung and Intel are also known to have invested heavily in Vietnam.

Exporting to China

With a growing middle class in both China and Vietnam, there’s space for more foreign companies to meet their needs. China has for a long time been a difficult market to enter for western companies, but this is now changing.

According to the BBC, Giorgio Armani said that when he started off in China, he painted the door of the store in Beijing red as he thought it would appeal more to his customers. Later Armani stated he stopped altering his offering in China as Chinese customers demanded the western-style products the brand markets internationally.

Last year, the BBC asked brand research company Millward Brown to find out more about the secrets behind success in China. The research showed that the Chinese consumers used to value low prices above other factors. However, a higher standard of living as well as lower levels of trust in local brands has made Chinese consumers more interested in foreign brands.

“This is an opportunity for well-known and well-supported international brands to make their move as consumers start to value quality and experience as much as price,” stated Peter Walshe of Millward Brown.

When trying your luck in China, understanding the Chinese market can help you on the road to success. Unilever’s detergent Omo found out that in many markets families would wash clothes with three buckets, while the Chinese consumers used five. So, Omo adjusted their Chinese marketing to support this.

Another important approach is to look outside Beijing and Shanghai towards other cities across the country that is experiencing a growing middle class and possible consumers of foreign goods. In 2012 half of Adidas’s new Chinese stores were placed in “lower-tier” cities (those with a population of 1 to 5 million).

What next?

If Vietnam is the new China, it’s possible that the two countries will eventually share the same destiny in terms of a burgeoning middle class and increased wage growth.

The regions that companies rely on for their manufacturing highly depends on what they are producing and how their businesses operate. Every industry is unique. For companies that rely heavily on transportation, proximity to customers is extremely important. Industries like autos, chemicals, and pharmaceutical highly depend on global innovation for local markets, while production of things like food and printing require regional processing.

It’s predicted that low-tech sectors like garment and shoe manufacturing will be looking to leave China entirely for countries like Myanmar, Thailand, Laos and Cambodia. While western companies in other sectors, such as the technology industry, may be better off bringing their production back home.

Last year Chinese computer maker, Lenovo, chose to manufacture their products in the US when expanding into the country. The company needed to make speedy deliveries across the United States, and Lenovo saw a way reducing the rising costs relating to higher Chinese wages and shipping. By moving their manufacturing base across the Pacific, Lenovo spent less time and money on logistics, compensating for the relatively cheap Asian labour costs.

One can’t predict the future of the world’s manufacturing and trade to its full extent, since there’s more to it than factory worker wages and shipping costs. Where you choose to manufacture your goods is also highly dependent on your customers’ needs and expectations, as well as the ease of running a productive business in each locale.

Talking business, but in what language?

Due to the extent of China’s global trade, Chinese has for some time been a popular foreign language to learn in the western world. During the past few years, Chinese has also been introduced to be taught as a foreign language alongside French and German in schools all over Europe. London Mayor Boris Johnson is one of many supporting the teaching of Mandarin in British schools.

“I think it should certainly be on offer. Whether it should be compulsory or not, it’s probably a little bit early for that, but it should be much more widely available,” Johnson has said in an interview while revealing that he and his children are learning Mandarin.

However, as Asian trade expands outside the borders of China, other Asian languages are becoming more and more useful in international business.

“Employers everywhere are increasingly aware of the rhetoric that surrounds the Asian century, they’re increasingly attuned to the reality that China, and also Asia more broadly, are underwriting so much of the Australian economy,” Laurie Pearcey ( director of China strategy and development the University of New South Wales, Austrlia) told ABC News last year.

Peter Cai, a branch manager of ANZ Bank in Sydney also agrees that Asian languages are increasingly helpful in the business world as the Western world is looking to Asia for its future growth.

“The majority of my customers are from Asian countries,” Mr Cai told ABC News.

Around 30 percent of ANZ’s 2013 graduate intake spoke an Asian language, according to their own registers.

As a result of the growth in other Asian countries, we could see demand for Vietnamese, Burmese, Khmer or Thai translation overtake Chinese in the next decade or so.



 
 

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