How to sell successfully on the world’s biggest growth marke – Southeast Asia

Many European companies are currently beginning to realise it: although according to the World Bank the ASEAN countries will be the world’s most reliable growth market until 2035, European business isn’t benefiting from this success. One reason for this is that in the past German companies in particular have equated Asia with China.
Everyone wanted a share of business in the Middle Kingdom, and the casual assumption was that if you had someone who devoted his entire attention to China, then he could also take care of “the few bits and pieces available in Southeast Asia”.

As a result these markets were inevitably neglected. Without a fight more than 600 million consumers with a higher gross domestic product than India and a per capita income comparable to China’s urban centres have been left to Japanese, Korean, American and now also Chinese competitors to exploit.

The effects can now be seen in the automobile industry in particular: almost everywhere here these countries today have a market dominance of more than 80 per cent, while German, French and Italian vehicles can be found at most in the luxury class or as niche products.

In recent years European companies have, however, come to recognize the importance of the ASEAN countries more clearly after all. Many of them have also been wondering why they were satisfied in the past with the few euros – to call a spade a spade – which they turned over in the region.

At SANET ASEAN ADVISORS we specialize in identifying the weak points of foreign companies and their representations in Thailand, Indonesia, Vietnam and Malaysia, and then suggesting or implementing appropriate measures for improvement.In this newsletter and the next one we intend to describe some typical failures in this respect and the right approaches for a successful course correction.

1. Closeness to the customer requires a constant presence

Many companies still think that it’s sufficient if the export manager makes a tour of the company’s Asian dealers and customers once or twice a year. Local dealers are well prepared for such visits. Visitors from Europe are well entertained, receive friendly treatment and may even be taken to visit a customer with whom the dealer has an excellent relationship. However, for reasons of loyalty and close ties this customer would never dream of revealing to the visitor from Germany the weaknesses in the local support he receives.

Of course, during the visit the export manager endeavours to discuss with his company’s local partner the complaints he hears at home from the controlling department about turnover, yield and even market share. It goes without saying that the local partner promises to improve the situation and uses a large part of the discussion to draw attention to the specific problems of his country, of which the visitor “naturally” would have no idea. The export manager is reliably informed that the problems have got nothing to do with his company’s local sales agency.

In this way the traveller will not acquire real knowledge of the market, for example facts about the real strengths and weaknesses of the competition, promising potential projects or new customers, the decision-making mechanisms of the market, or even the specific requirements of important customers.

And as a result he returns home exhausted from his tiring journey and the many discussions he has had, without really having achieved anything. The company’s partners in Asia, however, can once again live in peace and quiet until the export manager’s next visit in six or twelve months’ time. And in the meantime the competitors who are on the spot are swallowing up the market.

The first important lesson of this is that efficient processing of the market in Southeast Asia is only possible with a constant presence on the ground.

This presence can be created in various ways. It starts with having your own man on the spot, who instead of long flights is available all the year round to discuss sales opportunities with local partners, agrees campaigns with them and monitors these, participates regularly in meetings with important customers and thus ensures that every sales partner dedicates himself to the interests of his principal 365 days a year.

This responsibility may well be outsourced. Sanet Trade & Services, for example, offers a regional key accounting service based in Bangkok which, in close cooperation with the export manager, checks on dealers within the region, replacing them if necessary, and implements business planning with them the whole year round. Since this key account manager has a complete marketing team and intercontinental flights are not necessary, such “outsourcing” is often more efficient and less expensive than having a dedicated on-site manager.

In both cases the key account managers will report promptly and objectively where the strengths and weaknesses in each country lie, how the competition is developing and what can be done at headquarters when it comes to supporting key customers or dealers.

This optimization measure can ensure that annual revenues increase rapidly from two to ten or even fifteen million euros, without the need to set up an expensive apparatus.

The author, Dr. Gunter Denk, was over 25 years owner and manager of a manufacturing company with various subsidiaries and joint ventures in Europe and Asia. He understands the “mechanism” of sales organisations directly controlled or indirectly managed by partners. In the year 2000 he became an Executive Director Sales and Marketing in a China based listed company with which he had merged his enterprise. Since 2004 he is manager and president of SANET ASEAN ADVISORS, an industrial consulting firm with focus on the leading countries of ASEAN.

2. A joint venture requires close monitoring

We know from many projects that even the company’s own joint-venture operation does not achieve much greater attention than an independent importer does. The question here is not just sales, but also the capital which is invested and the return on this capital.

Such joint ventures are, after all, mainly established with the intention of ensuring direct influence and control, while at the same time operating directly and close to the customer on a market. Frequently elaborate contracts are concluded and an attempt is made to ensure majority voting rights or at least a major say in what happens – but this is normally as far as it goes.

Under some circumstances the company shows up every few years, the controlling department makes an annual check on the perhaps skillfully doctored balance sheet, and in the meantime the local partner gets rich.

At this stage discretion prevents us from listing the real cases in which clever local managers or shareholding partners have lined their own pockets while fobbing off their Western partners with the usual five percent profit. The real earnings go into the partner’s pocket.

The popular repertoire includes the leasing of real estate at inflated prices from the partner’s relatives or close friends, as well as the undermining of margins by sales at highly favourable prices to so-called “customers”, who actually sell as “related intermediaries” at a mark-up of 50 per cent and more. The “customer” of course shares this markup with the local joint venture partner.

At the annual audit the auditor is then surprised by the fact that the joint-venture is selling with very low margins but hardly gaining any market share in spite of this. At worst he even says with a clear conscience that the ailing subsidiary needs to be granted better prices in order to boost local sales.

Often no questions are asked about why the partner in this supposedly low-yielding company with the modest salary he voluntarily allows himself lives in a luxurious house, drives an expensive car and eats at all the best restaurants.

Such cases are not an unpalatable exception. And when it occasionally comes to a real check, we’ve heard of scenarios where the local accountant suddenly no longer understands English, or accounting documents have inexplicably disappeared. It has been reported to us, for example, that the bookkeeper had given notice and taken the account books with her, that no balance sheet had been drawn up for years, and other examples of “Asian fairytales”.

Not infrequently small or large production facilities operated by the joint venture are even used in order to manufacture products that are then sold by the disloyal partner for his own account. He doesn’t have a guilty conscience. After all, he’s the one who does all the work, while the foolish investors in Europe are only interested in appearing once a year and sharing the fruits of his labour.

Two solutions are available in such cases.

If it is not already too late, the answer here is having one’s “own man” with a permanent presence in the joint-venture company, occupying either the position of commercial manager or at least the independent role of controller, and reporting directly to the parent company. Nothing should happen in the joint venture without his signature.

However, for reasons we will go into he should not be made sales manager.

If the situation over the years has been a negative one, then local consultancy is the only solution. Auditors from headquarters may be financial experts, but with their inadequate ignorance of the language and business culture they won’t be able to deal with the local wiles and tricks. In this case a mixed local and European auditing team is required.

It must by the way be taken into account that many cases are not simply based on lack of good faith. On the contrary, the negative development may be due to a simple lack of commercial skills combined with lack of support from the parent company.

The feeling that the Western partners aren’t interested and the whole business rests on one’s own shoulders anyway can turn even well-intentioned characters into dishonest joint-venture partners.

Good consultants will therefore also work to assist the partner in building up successful structures and to help him generate greater understanding of the local market within the parent company.

3. Knowing and respecting differences in business culture

“Thais only buy from other Thais” is a popular saying in Thailand, but in practice it could apply to any other country. In this respect it must be understood that the ASEAN countries have very different Buddhist, Islamic, Christian and Chinese roots. Politically their systems range from kingdoms via sultanates, military governments and states which are gradually opening up right across to Laos as the last communist country apart from Cuba.

For this reason a Thai or Vietnamese is reluctant to conclude a contract with a Singaporean, especially as within the region these are regarded as rich and arrogant. An Indonesian in turn will do business with a fellow countryman but not with a Thai and especially not with a Malaysian, whom he won’t respect in spite of their cultural similarities. A Muslim from Malaysia on the other hand will have serious problems selling anything to a radical Buddhist in Myanmar, and the same applies throughout the region. And giving one’s money to Western is of cause just the worst case.

There are also major differences in negotiating strategies. Vietnamese enjoy negotiating, often without any apparent purpose. They are “wheeler-dealers”. Often somebody will discuss a matter with passion even though it doesn’t fall within his area of responsibility. In Indonesia you can drive someone to commit suicide if you don’t finish up by granting him a massive discount. This is something that needs to be taken into account when you first quote a price.

In Thailand, in turn, you need to be able to recognize the objectives, intentions and objections of your negotiating partner without these being put into words, because they are not communicated directly. Often a de facto “no” is simply expressed by setting up a small hurdle which the European then overcomes, but without it getting him any further. The Singaporean, in contrast, will defend his position decisively and if necessary aggressively.

In all these countries “know-who” is more important than “know-how”. Business deals are only made possible by long-term, well-maintained personal relationships, which can only be established by whoever is locally responsible for sales. Who can create such a relationship mot being constantly at the point?

And this is the first example where just having your own man on the ground will not benefit you, because in many countries people are reluctant to grant the business deal to a foreigner. He can participate, give advice and perhaps even set the internal rules. However, the final signature on the dotted line will only be received by the customer’s fellow countryman.

If the foreign manager does not have the support of the local sales manager, there will be no prospect of success on any market.

The legal requirements are not the same in all countries. However, practical and legally sound solutions are available everywhere, and SANET ASEAN ADVISORS can provide valuable help in this respect.

In the second part of this newsletter you will find out next week how you can find competent sales partners, why a well-functioning customer service is just as important far from your home country and how you can strengthen appreciation of foreign ways of thinking within your own company.