According to a recent AmCham survey, 80% of multinational executives plan to expand their presence in ASEAN over the next five years. However, factors such as distinct country characteristics, customer price sensitivity, and talent scarcity will continue to pose challenges for executives looking to make the right decisions regarding their route-to-market.
Hence, companies undertaking a strategic process to make decisions can identify cost-effective channel designs in each of the ASEAN countries. With this in mind, FrontierView has developed a strategic framework to help companies identify their ideal channel strategies and determine key actions to boost channel effectiveness. The first step in the framework is to assess internal factors to evaluate company characteristics and external factors that should play a key role in determining channel strategies for the ASEAN markets. These factors were identified through our interviews with various multinational executives covering the region.
Sales growth horizon: Companies should establish a channel strategy that can help them achieve their current business priorities. Companies looking to achieve national coverage and boost sales through initial orders usually partner with distributors with an established market presence. On the other hand, companies looking to obtain greater strategic control over the distribution of their products and to develop their own sales force that can support long-term growth may establish a direct presence
Risk appetite: Companies will need a high-risk appetite when making the investments to establish a direct presence in ASEAN. This is a result of a complex operating environment and volatile demand patterns in most Southeast Asian countries that make it difficult for companies to forecast costs and revenues accurately
Customer and product sophistication: Product characteristics and customer demands influence companies’ and their channel partners’ ability to effectively serve their end customers. Companies with highly sophisticated customers and products often establish a direct presence to serve their customers more effectively
Market size and growth: The small market size in many ASEAN countries makes it difficult to justify the investment required to establish a direct presence; however, continued growth could create a significant level of white space each year, which may be best pursued through a direct channel
Customer size and dispersion: An understanding of customer size and their geographic dispersion can help executives evaluate the feasibility and profitability of a direct presence. Expenditure and output tend to be highly concentrated in key economic clusters within each country in ASEAN, resulting in high levels of geographical concentration of customers for many companies. This allows MNCs to develop direct relationships with their customers, particularly if the company has a small number of large customers
Business relations: Business decisions in the ASEAN countries are often made based on informal relations, making it difficult for a new player without a well-connected partner to be successful. This issue is accentuated by the significant cultural differences between people from Southeast Asia and western countries
Operating environment: A complex operating environment may increase costs and reduce the profitability from establishing a direct presence. Changing product requirements, the risk of payment collection, high corruption levels, and talent scarcity in most of the ASEAN markets often contribute to MNCs’ decision to establish an indirect presence in the region
Given the above factors, our framework for optimizing channel designs in ASEAN helps companies evaluate these key factors and identify their ideal channel strategies. The framework also helps companies use factors such as their ideal channel strategy, current channel strategy, and risk-adjusted market opportunity to prioritize markets and identify key actions to improve channel performance. Additionally, the report includes examples of common approaches implemented by successful companies to improve their commercial effectiveness.
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