Is your company prepared for the rise of the Asian consumer?

Companies doing business overseas are about to feel the influence of the rapidly rising number of Asian consumers.

During the past decade, as more multinationals have expanded to the region, Asian workers have benefited from increased disposable income. By the end of the decade, increasingly urban and affluent populations in the nine fastest growing Asian economies are expected to account for 25% of global consumption, up from 14% in 2010 and 9% in 2000, according to a report produced by Ernst & Young and forecasting consultancy Oxford Economics.

The influence of consumers is also increasing in Latin America, the Middle East and Northern Africa but not as quickly as in Asia. Consumers in developed countries are still the most powerful, but their influence is waning. Oxford Economics projects that developed countries’ share of global consumption will drop to 55% in 2020, down from 79% in 2000.

As the economic influence shifts east, goods and services sold in Asia will increasingly reflect Asian tastes, Ernst & Young projects. And growing demand will support up-and-coming Asian companies that are expected to sell their goods regionally, in developed markets and in other emerging markets, particularly in the Middle East and Northern Africa.

To help companies prepare for doing business overseas, the Ernst & Young report zeroes in on how China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand, and Vietnam – the nine fastest growing Asian economies – will drive the expected changes in consumer demands and trade flows.

China’s exporting prowess looms large. Oxford Economics projects Chinese exports to more than triple and reach $5.6 trillion by 2020. Manufactured goods, such as information and communications technology equipment, textiles and household appliances, will continue to drive Chinese exports, but regional demand for Chinese service is also projected to increase. For example, banks and other financial institutions in Shanghai and Beijing are expected to expand to cater to growing middle-class demand for more financial services.

The US, projected to stay the world’s largest consumer market with $16.4 trillion in forecast spending in 2020, would remain China’s most important export market. More than half of Asian companies that do a sizable amount of business outside of Asia have operations in the US.

The developing network of Asian trade routes will be busiest in India. Oxford Economics projects that trade flows from the nine fastest growing Asian economies to India will increase more than to any other destination in the world.

Indonesia, Thailand, and Vietnam will benefit most from increasing trade flows to India. Natural resources including oil and gas are driving Indonesian exports, which are projected to increase 15% per year this decade. Thailand is expected to become a regional centre for passenger car production. Vietnam is projected to see exports of manufactured goods such as clothes, computer chips and shoes rise most.

China is projected to be Indonesia’s and Thailand’s most important export market in 2020. The US is projected to remain Vietnam’s most important trading partner.

India and China are South Korea’s most rapidly expanding export markets. By 2020, about 43% of South Korea’s exports will go to China, the report predicts. About 12% are projected to go to the US, South Korea’s second biggest export market.

Machinery and transportation equipment are expected to drive South Korea’s increasing exports. The country’s shipbuilding industry, in particular, would benefit.

Is your company prepared for the economic shift?

Ernst & Young suggested companies doing business overseas ask themselves several key questions. Among them:

• Are you improving your supply chain for the trade patterns of the next decade?

• Do you know which Asian countries will be the most competitive export platforms for your products?

• Do you have the right plans to serve customers in Asian megacities?

• Does your company have the right relationships with local regulators and government officials?

• Do you have the right talent management strategy to build a sustainable cross-border business?

• Does your regional strategy consider the likely increase in competitive pressures in Asia?

Related CGMA Magazine content:

“How Corporate Expansion Strategies Can Target Emerging-Growth Powerhouses”: Rather than zeroing in on specific countries as they devise a strategy, companies should focus on cities – in particular the 440 cities in emerging markets projected to experience economic growth at double the average global rate by 2025.

“How More Asian Companies Plan to Reach Across the Globe”: This decade, Asian companies are projected to expand rapidly across the globe. A poll of more than 600 business executives in East and Southeast Asia provides clues about their business growth strategies and how they plan to face potential growing pains along the way.

“Rapid-Growth Markets Hit a Temporary Lull”: Rising domestic demand will help reverse the slowdown in rapid-growth countries, Ernst & Young projects. To tap this emerging demand, companies will have to pay attention to the different challenges and opportunities shaping up in specific national and regional markets.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.