ASEAN EXPANSION FOR SMALL BUSINESSES

Expanding within ASEAN should not be more different (or difficult) than expanding in certain provinces in the Philippines.

QUIETLY AND BENEATH our noses, the influx of retail brands from ASEAN, Europe, and America have caused a bloodbath among small- and medium-sized Filipino retailers.

Mighty brands that once ruled the garment market such as sari-sari store, Koalition Zoo, and Cinderella have fallen on the wayside as Zara, H&M, and Forever 21 flood the market with the latest fashions at bargain basement prices. In the food sector, local chains like as Cindy’s, Coffee Experience, and Go Nuts Donuts have succumbed to the likes of Bread Talk of Singapore, J. Co Donuts of Indonesia, and Chatime from Malaysia.

Foreign retailers continue to inundate the Philippines, wooed by our enormous market, growing affluence, and an economy driven by consumer spending.

For local retailers, the competitive environment will only become more hostile in the years to come, leaving them with three strategic choices: First, allow themselves to be acquired by a bigger company, in whole or in part, so as to gain access to capital, economies of scale, and a better oiled corporate machine; Second, professionalize, modernize, and compete; or, Third, die a natural death.

Those who aren’t fortunate enough to be acquired by a bigger firm have no choice but to level- up if they are to stay in business. Leveling up, in retail parlance, entails an overhaul of the supply chain to become more price competitive. It necessitates an upgrade of production processes to match international quality standards. It calls for a professional human resource department to support the growing organization and spearhead training towards better customer service. It requires ironclad financial controls and audit functions. Most of all, it entails hefty investments in advertising, promotions, and public relations towards building a recognizable brand.

We need not look far to find pegs of local retailers who have grown organically. In the garment industry, Bench, Penshoppe and Gingersnaps have been successful. In food, the Max’s Group, Goldilocks, and even Potato Corner show us the way.

Tremendous opportunities await those who rise in competitiveness. Apart from protecting their space in the local market, they also become strong enough to expand beyond our shores. This gives them the opportunity to compete offensively in grabbing market share abroad, rather than of competing defensively to protect local turf.

EXPANSION WITHIN ASEAN

Regional expansion should be the goal of every Filipino retailer, just as it is the business strategy of most ASEAN-based retail brands. ASEAN is now the world’s retail hot spot owing to its 630 million consumers, 60% of whom are below the age of 35. It is a market bigger than the EU or America. Regional gross domestic product topped $2.6 trillion last year, about the size of the United Kingdom. What’s more, GDP across the region is seen to grow at an average rate 4.8% annually, for the next five years.

Singapore, Malaysia, and Thailand are the wealthier economies of the region with per capita income of $90,000, $27,000 and $17,000, respectively.

However, their markets are not as large, nor as young as the rest of ASEAN with Singapore having only 5.7 million consumers with an average age of 34, Malaysia with 31 million consumers with an average age of 28, and Thailand with 68 million consumers and an average age of 37.

On the other extreme are frontier economies like Cam-

bodia, Laos, and Myanmar whose populations are much younger but with substantially less dispensable income. The average age of Cambodians is 25 with per capita income of just $ 3,700. In Laos, the average age is 22 with a slightly higher per capita income of $5,700. Myanmar’s population has an average age of 26 and per capita income of $ 5.800.

The Philippine, Indonesia, and Vietnam are the retail sweet spots of the region with an average age of 23, 29, and 30, respectively. Our markets are enormous with 103 million consumers for the Philippines, 262 million for Indonesia, and 95 million for Vietnam. All three are middle-income economies with per capita income at $ 7,700 for the Philippines, $11,720 for Indonesia, and $6,400 for Vietnam.

It makes sense for brands that cater to the high-end market, like VMV Hypoallergenics, or those with global aspirations, like the Max’s Group, to first expand in more affluent economies. On the other hand, those that offer products whose competitive advantage is value for money, like Penshoppe and Bench, may chose to expand in frontier markets.

Presence in the Philippines, Indonesia, and Vietnam is a must for all retailers for its sheer size, increasing spending power and potentials for growth.

EASIER IN ASEAN

Among ASEAN’s six larger economies, import duties have been eliminated for 99.65% of goods with the exception of select agricultural products. For frontier economies, tariffs have been eliminated in 98.86% of goods. For all intents and purposes, a free flow of goods, services, capital and skilled labor now exists across the region. Expanding within ASEAN should not be more different (or difficult) than expanding in certain provinces in the Philippines.

Regional expansion can be done in various ways, one of which is through e- commerce. This has been the business model of Singapore’s grocery retailer, RedMart and the Philippine’s Zalora (now 43% owned by Ayala Corp.)

With Internet penetration now at 49.8% across the region, more and more companies are using the worldwide web as a platform to sell their products across borders. Revenues derived by Filipino companies through e-commerce topped $1 billion last year with volume projected to increase by 18% per annum.

Expansion through partnerships and/ or franchise agreements is another way to go about it.

Like the Philippines, some ASEAN nations do not allow foreign nationals to own 100% equity in retail operations. Hence, local retailers have no choice but to expand in partnership with a local resident.

Working with a local partner yields many advantages, not the least of which is local knowledge. In retail, knowing the fine nuances of market preferences could spell the difference between success and failure. In addition, local partners are important in navigating the labyrinth of government permits, acquiring commercial space, hiring personnel, and building a supply chain in a foreign land.

The Department of Trade and Industry is very supportive of companies wanting to expand regionally.

On offer are training tracks such as the Doing Business in Free Trade Areas ( DBFTA), SME Roving Academy, and the Regional Inclusive Platform for Philippine Exporters (RIPPLES). It is for free — all you have to do is ask.

The influx of foreign retailers into our local market should not be seen as an ill- effect of free trade. On the contrary, it should be viewed as an impetus to push local retailers to stretch themselves beyond their comfort zones. It forces them to take advantage of the immense opportunities of ASEAN’s single market.

Local retailers should not sit passively and allow the likes of Bread Talk take a piece of our market. The likes of our very own French Baker should be making an offensive in Bread Talk’s home market, Singapore. This is the spirit of free competition within ASEAN.