Why European SMEs should change gear on Asia now!

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By Peter Buytaert, Co-founder & Executive Committee SRP

The covid pandemic, the Ukraine war and trade frictions with the USA have put China in a rather bad media spotlight for the last couple of years. As for the general population, lines between ‘Asia’ and ‘China’ may remain blur, it also impacts the overall image of the now largest regional economy of the world. In addition, the US protectionist trade approach has spilled over and culminated in a rather non-rational sentiment in the EU versus anything ‘Chinese” or Asia at large.

This development, in my view, has been very regrettable. Today represents probably one of the biggest opportunities for Europe to define its own position towards the unstoppable growth of the Chinese and Asian economies at large. Rather than being fearsome and protectionist, we should encourage dialogue, collaboration and exploration of partnerships, to ensure we grasp and optimize the tremendous opportunities that are offered along the modern Silk Road, linking Europe with Asia at large.

Rather than listening to biased media views and political rhetoric, Europe’s businesses – and SMEs especially – should refocus their strategies with regard to Asia and explore forging local partnerships that not only offer them opportunities in the respective Asian markets but also present a backup plan for continual geopolitical shifts and can offset declining growth in mature markets like the USA and Europe.

Now that China has re-opened its borders post-covid (triggering positive GDP growth revisions by most financial institutions) it is timely to reflect on some of the numbers and opportunities that the Asian region offers:

–         Most predictions see China in the next 7 years as a 30 Billion+ US$ GDP (PPP) economy far ahead of the US at 18 Billion US$. Asia at large will hold a massive 45% share of the world economy by 2030. Today, China’s share is 25% with the EU at about a 16% share.

–         Asia at large sees a massive entrepreneurship movement, driven by the mind-blowing numbers of (also overseas) graduates in business, engineering and life sciences, who are keen to have impact and work with purpose. In April 2021, there were about 200 unicorns (start-ups valued at $1 Billion or more) in Asia-Pacific, second only to the United States (290) and ahead of Europe (69).  

–         Strong investment in industry 4.0, among which “internet of things”, artificial intelligence, virtual reality, robotics, etc., combined with the vast number of talented engineering resources, turn the Asia region in a world leading technology force. The largest share of overseas engineering students at EU and US universities are either Indian or Chinese and Asian universities are now taking a 25% share in world leading university rankings.

–         The same is happening with nano- and bio-technology, which in combination with life sciences will bring leapfrogging medical and life science innovations in the region.

–         Last but not least, more than 60% of global e-commerce revenues are originating from Asia today.   

Fear of collaboration will not stop innovation and development. It is exploration of opportunities and dialogue that will ensure we maximize the value in a win-win strategy.

I understand perfectly of course that Asia is still in many cases unknown and out of the comfort zone of many leaders and decision-makers. I have actually observed that first hand – rather to my surprise – when I returned to Europe after 30 years in Asia, experiencing a significant level of ignorance of opportunity and a lack of understanding of Asia reality, that could become costly, not only for individual businesses but our economy at large.  

While most large businesses have found their way to Asia and invest in rethinking their presence with a more localized market strategy (“China for China”), the SMEs especially – as the growth engine for our EU economy – should shift gear and explore Asia rather than remaining in the comfort zones of mature North American and European markets.

We observe in our interactions with clients that numerous Asian tech scale-ups would love to partner with EU firms, that either present complementary technology or provide access to the EU market for them.

While European companies may benefit from a token Asian strategic investment, intending to co-develop the EU market, they may equally seek a technology transfer or stake in the Asian company, providing them access to scaling and localization of their business in the largest economy of the world.   

With the fastest growing middle class in the world, Asian consumers demand increased access to innovative and life quality enhancing solutions, preferring mostly strong local brands where available. This is nothing different from what we have observed when European firms entered the US market. It does require a localization and forging the right domestic partnerships to enter and develop a share in this massive new market. The early adopters of this model, who succeed in identifying the right strategy will reap the rewards.      

In order to successfully execute this new approach to Asia, we firmly believe in the power of a trusted network, including European advisors that have vast Asian experience. From my experience, ensuring ‘trust’ and an unbiased view of reality are the key success factors for this new business model. These networks can significantly overcome not only the risks of entering these new waters but equally important, help identify the right targets and opportunities. At SRP, this network is exactly what we have passionately been developing.

Hearsay has it that the “Year of the Rabbit” is expected to bring prosperity, hope and calm. Maybe the year to explore new horizons…