Local knowledge comes home to nest

The economic landscape for Asian companies has fundamentally changed over the last several decades.

With growth around the double digits in China for thirty-something years, and close to double digits in India for 20 or so years, a major portion of 2.5 billion people have risen out of poverty.

Add to this the other rapidly growing Asian markets like Vietnam and Indonesia, along with the likes of Thailand and Malaysia, and we see a new market of some three billion consumers, whose buying power has grown dramatically and, importantly, continues to grow.

While growth in China and India has slowed recently, the expansion in these markets continues to be significant and attractive compared with the roughly 1 per cent growth in developed economies.

This sustained and continued growth has led to a quiet but massive shift: the future of growth has shifted to Asia.

The implications for Asian companies are far-reaching.

For the first time in modern history, growth is in these firms' home markets, which gives domestic players an advantage because they know the consumers better than foreign entrants; have a better understanding of the local regulatory and political environment; and can manage better in a more volatile environment, which is the norm for emerging markets.

For example, Chinese watchmaker Ebohr has come up with its own line of timepieces with a Swiss design pedigree to capitalise on Chinese consumers' fascination with "Swiss" watches.

And Indian vehicle manufacturer Mahindra has launched a range of very durable "Jeep-like" vehicles to meet the transport needs of rural Indians. These vehicles function reliably despite poor roads and heavy loads.

A decade ago, Chinese firm BYD used its understanding of the regulatory and economic environment in China to snap up carmaker Xian Qinchuan. Given the Chinese government's control over who gets automotive licences, BYD understood that this acquisition was perhaps the only way it could enter the car business, where it hoped to leverage its battery know-how to become a leading player in electric vehicles.

India's conglomerates, like Tata and Aditya Birla, understand the volatility of the domestic environment and are involved in a diverse range of industries so they can ride out the instability at the group level. Tata, for instance, comprises some 80-plus listed companies.

At the same time, many domestic players have built strong branded businesses, particularly among consumers not in the top income brackets.

These middle- and lower-middle-income consumer groups have historically been ignored by the developed world's multinationals, which have focused on the tiny group of super-affluent consumers in these markets, waiting until economic growth drove other consumers into the targeted affluent segment.

Now that growth is driving up the incomes of this huge sector of society, the developed-world multinationals seem to be at a disadvantage, which they failed to anticipate.

The domestic firms built up strong brands in the minds of these newly affluent consumers when they were not so affluent, and have captured their hearts and minds, making it a challenge for the multinationals to capture their business.

Consider Mahindra and Mahindra's car business. It launched a series of highly successful SUVs aimed at less affluent car buyers in India, giving them dominance in the SUV sector. It is now climbing the ladder to target richer consumers at price points historically occupied by global majors like Toyota, GM and Ford.

China's Shanghai Jahwa has built up a strong portfolio of personal-care brands in the minds of middle- and lower-income Chinese consumers, leveraging its knowledge of traditional Chinese herbs to compete successfully with the global majors in the space, like L'Oréal, Procter & Gamble, and Unilever, in the burgeoning Chinese market for personal-care products.

Liby and Nice Corporation (Diaopai brand) have built up strong detergent brands among Chinese consumers, much to the chagrin of players like P&G and Unilever, who did not grab the opportunity among the less-affluent consumers, choosing to wait for them to become more affluent and start buying their premium-priced global offerings.

As an executive from a detergent major lamented: "It is now too late."

These are, therefore, interesting times. Roles have been reversed, with domestic players owning the hearts and minds of Asian consumers, buyers that have become the future of business growth.

Will the developed-world multinationals be able to tip the balance in their favour, despite their new and unexpected challenger positions in these markets? Or, are we starting to see a changing of the guard in the brands that will dominate the future?

Amitava Chattopadhyay is the Insead Chaired Professor of Marketing and Innovation at Insead