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4 Challenges faced by MNCs in Asia, and how they can overcome these hurdles

4 Challenges faced by MNCs in Asia, and how they can overcome these hurdles

By SMU City Perspectives team

The swift nascence of the "Asian Century", during which the global centre of trade has shifted to the continent, has led to an abundance of opportunities in Asia. While Asia was not immune to the economic shock triggered by the pandemic, regional GDP growth rates have proved resilient, with the Asian economy shrinking by a mere 1.5 per cent in 2020 versus the 3.2 per cent experienced by the world economy. Add to the mix the rapidly growing populations of these emerging markets - and it's no wonder that global companies are hoping to leverage on fast-moving developments in the region.

However, critical knowledge is essential to help build successful ventures across this variegated economy, comprising 48 countries and three territories.

“Visualise what 3.2 billion middle-class consumers will do for the economies in Asia, and what revenue opportunities this represents for multinationals.”

- Dr Gordon Perchthold, Build & Manage Multinationals for Sustained Growth Across Asia

A former Global Partner with Deloitte Consulting, SMU Associate Professor of Strategic Management (Practice) Gordon Perchthold, has developed a curated collection of insights through his latest book, Build and Manage Multinationals for Sustained Growth Across Asia. Based on decades of industry experience and academic research, the book guides readers in accumulating valuable knowledge by the spoonful, thereby building relevant expertise, avoiding pitfalls, and accelerating results.

Here are four challenges (among many more detailed in the book) facing multinational companies looking to expand into Asia, and how companies can overcome such hurdles as well as identify new opportunities for growth.

Key challenges faced by MNCs

1. Cultural diversity

Asia is home to some of the most diverse countries and cultures in the world, and it can be challenging for businesses from different areas in the region or around the globe looking to expand their operations. Understanding how dynamics vary among these nations will help better navigate this richly diverse terrain.

For a start, business leaders should identify dimensions in which people from different countries are culturally dissimilar, and adapt their engagement approaches accordingly.

In terms of organisation structure, for example, Asian managers may be more directive to their subordinates, with the latter possessing a lower degree of expectation when it comes to freedom to pursue directions on their own accord. Conversely, in the West, employees are entrusted with greater freedom to make individual choices, but may tend to be more focused on personal success than loyalty to their bosses.

When it comes to communication, the way one's message is received by foreign colleagues may also differ. As such, it is important to adjust delivery style when presenting across cultures to ensure the content resonates in the way it is intended.

2. Cognitive bias

The human brain is a complex and tricky thing to navigate. There are over 180 cognitive biases that can influence decision-making when confronted with something new. Self-serving bias is one of the more common cognitive biases that can lead to irrational decision making. This mindset leads us to attribute successes exclusively to ourselves while blaming failures on factors outside of our control.

While it might be especially difficult to avoid biases when engaging with or managing and selling in different countries, it is important to be aware of such tendencies and avoid them whenever possible. Furthermore, differences in cognitive orientations between the East and Anglo-Saxon cultures can also lead to miscommunication and other hurdles when expanding into Asian markets. But although such differences may arise in greater conflicts, they also lead to a broader diversity of solutions and opinions.

3. Analysis paralysis

When faced with a deluge of research intelligence during an assessment of a new market's viability, firms may spend unnecessary effort on areas that do not contribute greatly to decision-making. It helps to develop a shortlist for detailed assessment, create an issue tree — a diagram to break down a problem into several smaller ones — and develop a Topology of Distance Framework. The latter is designed by Prof Perchthold for business leaders to compare differences in a consistent manner, in the form of a mental map.

After which, case studies of foreign peers in the host country can be created to assess strategies that worked or failed; as well as roleplay reactions from local and foreign competitors when one's firm enters the market. With these tools, firms can avoid "analysis paralysis" and focus on key areas that will yield clear benefits to their business development efforts.

4. Internationalisation risks

International business risks are often perceived to be insurmountable barriers to venturing abroad. This is perhaps due to the generalisation of risks relating to a fear of an unknown culture and market, and being an outsider in a foreign economy.

How to formulate your international business strategy

But Prof Perchthold notes that risk is often confused with uncertainty, with the latter based on "unknown unknowns" due to a lack of quantifiable knowledge. Instead of writing off internalisation plans due to uncertainty, he suggests for executives to participate in scenario planning exercises to tease out the implications of such possibilities.

Experienced executives may also share that risks are not necessary barriers to overseas expansion, but rather factors to be mitigated or accepted as part of a plan to internationalise. Instead, it is worthwhile to examine how risks affect financials, intellectual property and brand reputation, and devise approaches to mitigate such scenarios.

Internationalising a business is not without its challenges. For business leaders considering this path, be mindful of cognitive biases that may affect the decision-making process in an international team, and avoid analysis paralysis when it comes to assessing the viability of a new market. Furthermore, rather than put off overseas business development based on generalised risks, it is more constructive to develop a game plan to mitigate uncertainties and engage meaningfully with local talent to help navigate cultural differences during an internalisation journey.