by Alan Keir, Global Head of Commercial Banking, HSBC

According to data from HSBC, China will be the biggest economy in the world by the end of the decade. Indeed, it is thought that by 2030 Asia’s economy could be larger than that of the US and European Union combined.  However, for many European companies, Asia is still an unknown territory which can be seen to offer huge opportunities as well as threats.

The changing economic landscape and the impact of Asia on the rest of the world is something that HSBC is particularly interested in. That is why it commissioned The Futures Company to identify the most influential current and future trends in the East and interpret these to define the implications and opportunities for European based companies.

The result, “Looking East: The Changing Face of World Business”, a report which draws on Eastern economies’ political, social, financial and consumer climate. It identifies seven key considerations which should influence the strategic decision making of any European business leader looking East.

• Maximise human capital –look beyond domestic borders to recruit and capitalise on Asia's investment in training and up-skilling as it moves away from its image as a source of low cost labour. 

• Create an ‘innovation supply chain’ – innovative businesses will turn the traditional model of Western innovation and Eastern delivery on its head to take advantage of Asia’s increasing share of R&D spend, and the skills base outlined above to deliver it.

• Invest in consumer insight – the booming Eastern population and growing consumer wealth will create unprecedented market opportunities for European businesses. An enormous number of people who are becoming consumers for the first time as they start to have disposable income. However, companies must understand that the Eastern consumer is not just a replica of the Western counterpart.

• Employ a global mindset – successful businesses will dedicate time to understanding how Asia has redrawn the world business ‘map’, overturning preconceptions about ‘the East’ and fostering a culture in their organisation which accommodates different business models and ‘rule books’.

• Mitigate risk effectively – thriving businesses will accurately research, understand and weigh up risks versus the significant rewards of engaging with the East.

• Rethink consumption and distribution – As Asia suffers from energy shortages in years to come, distribution and export models may need to change.  An individual business’ role in tackling global sustainability issues, particularly the East’s energy consumption, should be acknowledged.

• Create an advisory-led business – acknowledging the role of external experts to provide local market insight into doing business globally will prove to be a great advantage for European businesses.

Of course, fear of the unknown can be daunting for many companies, but the risks of engagement with Asia must be seen in the context of the potential rewards.   While developed markets continue to be important for the world’s overall economic health, European businesses that continue to focus on Europe and North America as their main markets will miss out on the benefits offered by South-South and intra-Asian trade flows. These will carry on whether European companies take part or not. Businesses that take the leap and get it right will have a very different looking business in 20 years time, but one that is likely to be very successful.

To download a copy of Looking East, CLICK HERE

CASE STUDY – ROMAX TECHNOLOGY FULFILS EASTERN PROMISE

Romax Technology Limited, whose headquarters are in the UK, is a leading provider of technical solutions to the world’s transport and energy industries. In December 2009, with support from HSBC’s Nottingham Commercial Banking team, the firm secured £1million funding from the Government’s Enterprise Finance Guarantee (EFG) scheme.   Romax has used this funding to drive growth and support its continued global expansion.

Founded in 1989, by world renowned bearing expert Dr Siu Yun Poon, Romax has grown steadily over the last two decades. It has also matured from its foundations in the UK, to now have representation across global markets including offices in China, France, USA, India, South Korea and Japan. 

And it is China where Romax has identified significant growth opportunities and it has focused on growing its trade and presence there, opening sites in Beijing, Hangzhou and Chongqing.

Asia is an important wind energy market, which although young, is rapidly growing. The region is recognising its need to gain knowledge and expertise quickly in order to develop effective technologies and is looking to the experience and knowledge of companies such as Romax to assist in satisfying the regions huge renewable energy need. 

Indeed, as a result of its outreach in China, one of countries largest certification companies, China Classification Society (CCS) invited Romax to share its knowledge and expertise with the regions leading turbine manufacturers and operators. As a result, CCS purchased Romax’s software RomaxWind as a key tool in the development of their wind turbine certification business.

China has also been an instrumental part of Romax’s strategy to develop new business skills and identify new models for innovation, ensuring its competitive edge. Indeed, Romax now works with universities in China to develop new software and to engage with future engineers in the country, as well as holding regular seminars with the Chinese Wind Energy Association.  Romax has also worked with a leading auto manufacturer in the region to produce the next generation of vehicles, in addition to bringing experts from China to the UK to work at its R&D site in the Midlands.

Key questions for European business people
Have we considered the strategic implications of the rise of Asia?

Have we:

• Accurately measured the risks against the potential rewards?
• Understood the relative strengths and weaknesses of our home market in the new economic landscape?
• Investigated the potential for partnership and collaboration?
• Discussed graded entry into Asia as a risk-mitigation method?
• Broadened our view of human capital and adapted our HR policy?
• Reviewed sustainable business models?
• Developed true market insight?
• Understood the opportunities of new marketing and advertising media?
• Asked for outside help?

Are we:

• Open to the possibilities and opportunities?
• Responsive enough?

Do we:

• Have a global consciousness