Countdown to 2015: Creating ASEAN Champions through regional planning, M&A strategy and branding

With the ASEAN Economic Community to be formally constituted on 31 December 2015, business advisory firms JWT and A.T. Kearney recently collaborated in an in-depth study of the new bloc (representing 10 countries with a combined 600 million people and a regional GDP of $2.3 trillion) and its impact.

Through conversations with 50 corporate leaders, the majority from domestic companies across South East Asia, their study indicates the AEC is high on their radar screens: 64% say their organizations plan to enter new markets in the region once the AEC kicks in.

Most CEOs in the study cite “the need for scale to deal with more intense competition” as the main reason for increased M&A activities in their industry. Additionally, 60% will expand their current portfolio of brands and products, and 24% will create new brands or product lines altogether after 2015 in order to reach more consumers.

In a December roadshow through major South East Asian cities, the firms outlined their report’s conclusion that ASEAN companies “need to create a regional game plan, map out an M&A strategy, and start investing more in branding over the next two years if they want to emerge as regional champions.”

According to Chua Soon Ghee, A.T. Kearney’s Southeast Asia Managing Partner, “South East Asian companies that map out a regional strategy now and start investing in building solid brands are poised to emerge as winners in the AEC. Those that don’t have a regional game plan risk becoming their competitor’s lunch.”

Daniel Siswandi, Strategy Head, JWT Indonesia, believes ASEAN consumers aware of the integrated market are excited about the prospect; but regional institutions, businesses and marketers are undervaluing the role of branding.

“Companies have to make the switch from manufacturing products to selling brands. The region’s consumers are moving fast into the middle class and are much more sophisticated, in terms of what they buy and what they expect,” said Bob Hekkelman, JWT’s Southeast Asia CEO.  “It’s time to get out of the commodity game, move up the value curve and form a long term relationship with consumer through brands.”

"Everyone in the region is buying into ASEAN but we’re not aware of any effort to clarify the ASEAN brand," added Lulut Asmoro, CEO, JWT Indonesia.

In Jakarta, panelists provided additional background and perspective to the historic formation of the ASEAN Economic Community.

V. Raman Narayanan, Group Head ASEAN Affairs, AirAsia, described the AEC as returning the region “to what we were before Portuguese arrived in 1500s." However businesses need to adopt an ASEAN mindset – similar to AirAsia’s positioning as a regional airline in 2001 – to take advantage of their location within Asia's “South East sweet-spot” of “geography, demography and economy.” He also opined that if business didn't proactively back the AEC, governments may turn it into "swiss cheese."

John Riady, Executive Director, Lippo Group, emphasised four critical issues that still needed to be addresses for the successful introduction of the AEC:  (1) political stability, (2) regulatory coherence, (3) competitiveness and (4) equal treatment.

For businesses expanding across borders, Albert Tan, Chief Strategy Officer, PT Telkom Indonesia added the importance of a "human capital transformation strategy" including value chains, pre-planning and retention.

In their report, JWT and A.T. Kearney provide 10 ways for South East Asian companies “to capture an immediate impact” before the launch of the AEC:

  1. Recognize the larger market. The region's economies are growing, and the population is becoming more affluent thanks to rising income, greater employment, and more credit. Collectively, ASEAN countries have more than $2 trillion GDP, making it the fifth largest market in the world. Consumers, although diverse, are connected by culture and values and take pride in local products. Create a clear brand proposition and deliver on quality, and there will be plenty of scope to build a strong following across the region's consumers.
  2. Appreciate and embrace change. The push toward the AEC will only hasten progress toward a more open and unhindered market, which will increase integration in the region. The focus so far has largely been on home markets, where many have enjoyed minimal competition, years of profits, and rapid growth—and are cash rich. Now the push to expand beyond national boundaries is inciting strong regional players. (Outward FDI from the region increased more than fivefold from $84.5 billion in 2000 to $495.7 billion in 2011.)
  3. Understand that regional champions will rule. The writing is on the wall. More than half of the M&A deals in 2011 were cross-border transactions. With a level playing field, it will soon be an eat-or-be-eaten world. In our ASEAN study, most leaders cited the "need for scale to deal with intensified competition" as the main reason to engage in M&A. Build solid brands with regional reach to be in the best position to grab a dominant share of this newly enlarged market.
  4. Prepare a regional game plan. The old world of simply appointing a distribution line will not be enough to become a regional player. Operating in new countries will require making complex choices on marketing and branding, products, supply chain, and manufacturing.
  5. Increase scale through M&A. Integration will happen. Companies will move fast to acquire competitors to gain access to new markets, technologies, brands, and resources or as a defensive maneuver. To build scale through M&A, adopt a methodical approach.
  6. Build marketing muscle. Now is the time to create a regional brand, as consumption is about to surge and local consumers are feeling positive about the region's outlook and about ASEAN. Being first or selling cheaply doesn't mean you'll remain a market leader. Become more savvy and sophisticated in your marketing and branding.
  7. Move up the value chain. ASEAN consumers are spending more on higher value items. Products cannot command a higher premium unless they have a clear brand idea.
  8. Take a page from the winner's book. Global companies and big regional players spend half of their communications budget—if not more—on brand campaigns. Start investing more in brand communication, and stop focusing solely on tactical ads.
  9. Don't get lost in translation. As we head toward the AEC, approach product innovation and brand development from a wider perspective, beyond your own territory.
  10. Next stop, the world. Forward-thinking players that capture the region will have a strong foothold to go global.

Download the report here