Asian countries offer huge sales potential for medium-sized companies – but at a risk. These risks can, however, be minimized to a great extent.
The Asia-Pacific region is one of the biggest export regions for European companies. China, the engine driving Asia, may be spluttering at the moment, but in terms of cutting-edge technology, raw materials, and low-cost production, China’s neighbors – countries such as Japan, South Korea, Vietnam, and Taiwan – still have more than enough economic power to represent an interesting prospect for European companies.
It is a market that is also developing confidently. In 2015, the ten countries that make up ASEAN, the Association of Southeast Asian Nations, launched the AEC economic community. Its aim – inspired by the example of the EU – is to drive forward economic integration and to abolish trade tariff barriers in a market that has a population of more than 620 million. But the road to Asia is not an easy one to travel. Anyone hoping to enjoy success here must establish a local presence.. UniCredit has staff in a number of important Asian countries. Here, we discuss the opportunities and risks for importers and exporters in the Asia-Pacific region.
2015 (EUR Billions)
Living in Hong Kong and provide consulting services is a real challenge. Companies usually need a point of contact in the respective country. This is necessary just to open a simple bank account, which you almost always need. In China, in particular, there are significant differences to consider that are difficult to identify from back home. Clients really value the chance to meet face to face locally. It’s true that companies could turn to Chinese banks, but when they come to UniCredit , they have a partner who can discuss all the issues in their local language and who knows the processes from back home. They see UniCredit as an extension of their branches in their home markets.
Growth in China is showing signs of weakness. Imports have decreased by around 15% over the last year, and exports by 20%. However China’s GDP in 2015 was still almost 7% higher than in the previous year and growth of 6% is expected for this year. This represents a growth rate that is still significantly higher than in many European countries, despite the slowdown in growth. As a result, - there are good import and export opportunities for medium-sized European companies, and a great need for investment in local branches and production sites.
Five southeast Asian countries – Indonesia, Malaysia, the Philippines, Singapore, and Thailand – came together on August 8, 1967 to form the Association of Southeast Asian Nations. Since then, Brunei, Vietnam, Laos, Myanmar, and Cambodia have joined them.
In March of this year, the Chinese government approved the thirteenth five-year plan, putting the focus on environmental issues. This presents excellent market opportunities for companies that offer innovative products and services in this field. Great emphasis is being put on energy efficiency in China at the moment. Demand for- medications and medical technology, for example, is also growing steadily. There are plans to further improve infrastructure. Such measures have been well received in highly developed countries such as Japan and South Korea, as well as in India and Bangladesh.
Apart from regulatory changes, which are difficult to mitigate, the main risk is currency fluctuation. Since 2015, the Renminbi has depreciated strongly against the US dollar for the first time, which unsettles companies. The result is that European companies see themselves as being exposed to a local (“onshore”) currency risk in China.
UniCredit recommend that companies move to increase hedging of their foreign business operations. This usually means employing a range of different instruments. To achieve this, UniCredit has developed customized strategies appropriate for individual clients. For example, currency futures, which hedge against currency losses, are a standard instrument, as is converting foreign currency loans to financing in the local currency.
Risk minimization is extremely important for German companies doing business in Asia, as is engaging with the respective region and its special characteristics. A bank with extensive experience in Asia such as the HypoVereinsbank (which has its own branches and a network of more than 1,000 correspondent banks in Asia, of which more than 100 are in China) can provide support, but the company can also make an important contribution of its own.
Companies should familiarize themselves with the cultural, political, and economic environment of the respective country. The UniCredit Group offers information, facts, and figures on various regions. We have three branches in China alone, with an additional 100 correspondent banks. We have an Asian network with a total of around 1,000 correspondent banks to support our corporate clients. We are also represented in all the major Asian countries. We offer our clients a service locally as well as in the respective local language.
Business partners want a contact person in their own country. Therefore, by having a local presence the company demonstrates that it is interested in establishing long-term business relationships in Asia. For this, they need qualified - staff who are prepared to go to Asia. The foreign chambers of commerce would be one of the first points of contact. They can help you establish a network. Contacts on the ground in these countries are absolutely vital for a successful market entry. The collaboration with an experienced local consultant and a strong banking partner as important factors for success. At -UniCredit, the respective corporate client advisor –in the local country is the initial contact person for the -company – no matter whether they are already a –UniCredit customer or not.
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