FEATURE1 February 2009

New departures for Asia Pacific

The MR business has long been attracted to the potential revenues in the Asia Pacific market. John Smurthwaite of TNS asks what the prospects are for this region now that the global squeeze is on.

?The March edition of HSBC’s Asian Economics carried the ominous title – ‘The gathering storm’. Little did we know how much of a storm this would be.

But while economies are struggling in Europe and the US, the storm hasn’t hit Asia Pacific with its full force yet and it would appear from releases by public-listed market research companies such as Ipsos and GfK that 2008 will prove to have been another banner year for market research in the Asia Pacific region after a solid performance in 2007.

Esomar statistics point to Asia Pacific market research growth at 8.4% in 2007 well ahead of global growth. Forecasts for 2008 indicate growth again at this level.

However, there are some warning signs according to TNS AsiaPanel data. Purchase volumes for food mostly remain stable across Asia; non-food items, especially personal care products and make-up, have seen a reduction in performance, as consumers cut their spending on more luxurious items. Value in most items, however, has risen because of inflation-based higher prices. Because the two most developed countries in the region, Japan and Australia, combined make up more than half the region’s MR market (of $4.1bn) growth for the region is obviously quite dependent on these two countries. It is generally believed that Japan MR growth has been modest but this is not correct – at least not in recent years. While Japan has a relatively small MR market compared with other developed nations, the growth rate at 7% p.a. over the past four years is higher than Germany, UK and the US indicating that Japanese companies are relying more on market research than previously and are now playing catch-up.

Australia plays its part
Australia has a large market for its size but has also seen 7% p.a. growth since 2003. So these two developed countries have been playing their part in the region’s growth.

Australian clients are reviewing their level of spend on brand and tracking monitors. As such the market research industry is streamlining programmes to monitor core measures focusing on tactical delivery and quick turnaround of results.

China has now eclipsed Australia as the second largest MR. market in the region and is now more than half the size of the Japanese market. But China has been the main driver of growth in the region both in economic and market research terms but it’s beginning to slow a little (probably 10% in 2009 ). India is now taking up the growth mantle at 20% p.a. and this is likely to continue into 2009 as India will be less affected by the global economic slowdown.

India’s economic growth is mainly related to its own internal consumption (rather than external/ exports in the case of China). Though theoretically not part of the India market, as defined by Esomar, the outsource market in India is also contributing to growth in the local market through added expertise, competition and better pricing through larger scale.

“One of the main drivers of growth in Japan has been the dramatic switch to online. Very few ‘traditional’ MR companies have grown recently while the online companies have become major players overnight.”

Korea makes up one of the ‘big five’ in Asia Pacific and it may benefit from China’s woes. China’s Yuan has appreciated while Koreas Won has depreciated significantly thus providing an incentive for exports for Koreans. The market research market in Korea will expand on the back of the overseas markets rather than on local consumption.

One of the main drivers of growth in Japan has been the dramatic switch to online. Very few of the “traditional” MR companies have grown recently while the online companies such as Macromill and Infoplant have become major players overnight with panels running into the millions. Online has helped lower traditionally high prices but more importantly sped up the research process which was previously seen to be agonizingly slow.

The amazing success of online appears to be going against traditional Japanese custom which meant that interviewers establish a polite rapport with the respondent first thus dictating the use of face-to-face interviews. CATI was never a major success in Japan ostensibly for this reason. So the jump from face-to-face to online in Japan appears strange.

Online revolution
Online research now accounts for 30% of quantitative research value in Japan which places it well above the UK and Germany and alongside Australia as the leading online country in the world. As for interviews: the 30% probably translates to nearly half of all interviews as the cost of online is not only low by comparison with CATI and face-to-face but proportionately lower than in other developed countries. And it is not only Japan that is moving quickly to online.

In fact online research is also strong in New Zealand, Hong Kong, Singapore, Taiwan and Korea where online panels are relatively well developed. Asia Pacific is not lagging in this field.

Asia Pacific is certainly not a homogenous region with its many different languages, cultures and stages of development. However, it is a region that works as an entity for most major clients. The major FMCGs and other clients talk about Asia Pacific as a region though companies such as P&G do have sub regions such as Greater China, the Sub-Continent and South East Asia.

Report to headquarters
Many clients base their regional HQs in Hong Kong and Singapore though of course Seoul and Tokyo are home to Korean and Japanese companies respectively. But Hong Kong and Singapore are the key centres for Asia Pacific regional projects and even some of the major Japanese and Korean companies use Hong Kong or Singapore for international studies. In fact probably half the MR business in these two countries is conducted offshore. (That business is in addition to the statistics quoted by Esomar.) Unilever is the latest major company to relocate to Singapore (from Bangkok).China with its huge presence is also attracting some regional HQs to Shanghai.

But back to the future. 2008 looks as though it will be another strong growth year. What about 2009?

A little history
The last major crisis in Asia was in 1997/98 when the economic crisis hit the Asia region. For Asia this was a greater crisis than today’s. Many currencies were devalued overnight by 30-40% (e.g. the Korean won, Indonesia rupiah, Thailand bhat, Malaysia ringgit. GDP declined in some countries (Malaysia, Philippines) and hovered around 1-2% growth in others (Singapore, Thailand).

An analysis of that period shows:

For countries where GDP grew at 3-4% p.a (low by Asia standards) the MR market continued to grow at 6% + p.a. For countries that had growth of around 0%-1% the market research market continued to grow at 2-3% p.a. and for those countries where GDP declined, the MR market remained static. The Korean and Indonesian market research markets apparently did decline as these countries were also hit with devastating currency devaluations.

So what does this tell us about 2009?

If we can indeed use the previous crisis as a guide then logic dictates that the research markets in Asia will grow at rates slightly less than 2008 i.e. at 5-7% p.a for most markets, 15-20% for India, 10% for China and 2-3% for the developed markets of Japan, New Zealand and Australia as these last three countries struggle with economic growth.

India’s outsourcing market will continue to grow because of the pressure of costs in Europe/US. And the Philippines will begin to challenge India in some aspects of outsourcing, especially CATI, into the US.

As mentioned above Hong Kong and Singapore house many of the global clients HQs. Despite these countries’ disadvantage of high cost, the high level of efficiency negates the cost disadvantages. It might also surprise many that high levels of efficiency and expertise in Australia and New Zealand account for major international and multi-country projects being managed from these as well. The management of global and regional projects out of high-cost centres is a different business to the offshoring in India and the Philippines. Each has its own type of expertise. Certainly India and the Philippines have great cost advantages for DP, charting and scripting but enormous depth of knowledge in analytics with a number of companies such as MarketLytics specialising in high-level analysis for which price is not such an issue.

For many people outside the region Asia is still considered ‘developing’ and indeed that is the case for many countries. But the ‘Asia’ part of the Asia Pacific region has developed in many respects and has provided great stability to the region.

Doing business in Asia these days is not so difficult. Asia has changed rapidly over the years. Twenty years ago most countries in Asia were under autocratic rule. Gradually the dictators fell – Chung Doo Hwang in Korea, Chiang Kai Shek in Taiwan, Marcos in the Philippines, Suharto in Indonesia and the many various generals in Thailand. Most of Asian countries are now functioning democracies – even Thailand where dissent is tolerated. China and Vietnam stand as two communist states, but no doubt there are many readers that have visited one of these countries and will agree that they are most welcoming for business.

No bars to access
The economies of the Asian countries are generally open for international business. Most have vibrant economies growing at astonishing rates. We all know about China with annual growth rates of 10% or more. But GDP growth rates in the Philippines, Indonesia, India and others are also very significant around 6-7%.

One of the most interesting ways to measure how well a country is performing is in the use of the Human Development Index (HDI). HDI is a measure of elements such as education levels, equal rights, women’s’ development, literacy and so on. Taking Australia or the UK as a benchmark at 9.6 out of 10 points many Asian countries (such as Japan, Singapore, Korea and Malaysia) fit into the so called High Development Group and all of the other key Asian countries are now classified under Medium development. India, Pakistan and Bangladesh only just fit into this category. HDI scores for nearly all of Asia Pacific are now in the ‘acceptable’ range.

Easy does it benchmarking
‘Ease of doing Business’ is benchmarked for most countries and again compared to Europe, the Asian economies show some excellent and improving scores. Again, showing that it is becoming easier to do business in Asia. In fact some countries such as Hong Kong and Singapore do better than Europe on this rating. It might surprise some that Singapore and New Zealand are ranked the top two in the whole.

Of course not all countries fit this glowing account and improvements in doing business are certainly needed in some countries, e.g. Indonesia, where 105 days is required to set up a business it’s 80 days in places like Vietnam and China while in Hong Kong and Singapore it takes only ten days. Work permits for expatriates are easy to obtain in nearly all these countries. Dealing with licences and enforcing contracts such as in the Philippines and Indonesia downgrade these countries on this measure.

The corruption interruption
Europeans are usually concerned about doing business in countries where corruption is widespread. And indeed it is a serious problem in some countries. On global benchmarks some countries do extraordinarily well on the corruption index, like Singapore, Hong Kong and Japan.

“No wonder Hong Kong and Singapore are the centres for regional business in Asia. Crime is low and security not an issue. And Singapore is as the Americans say ‘Asia with plumbing’.”

Singapore with a score of 9.3 out of 10 points is perceived to be one of the least corrupt countries in the world ahead of Australia and European countries who score 8.6. Hong Kong and Japan have scores close to Australia. The perception of corruption in Indonesia, the Philippines and Vietnam is strong and these countries fall below 3 points.

No wonder Hong Kong and Singapore are the centres for regional business in Asia. Crime is low and security not an issue. And Singapore is as the Americans say “Asia with plumbing”. The business environment has greatly improved – political stability is the standard now across Asia – with some exceptions of course like Myanmar.

Despite the consolidation in the industry among the global MR companies their share has not been rising as fast as one might expect. India surprisingly is the most globalised company with 80% of the industry held by the major global companies. Japan is at the other end with less than 30% in the hands of the global companies – the most successful global company being IMS. Typically small new local MR. companies are sprouting rapidly such as in Malaysia and Indonesia.

The hunt for talent
The biggest challenge for the region continues to be well-trained researchers. With the GDP of Asian countries growing faster than the population there is intense competition from all industries – not just MR but recruitment and retention is an even greater issue in MR since the industry grows even faster than GDP growth. The challenge is being partly met by the recent establishment of market research societies in countries such as Indonesia and Malaysia. Certainly some countries like Korea, Japan, Australia, New Zealand, India and the Philippines have well established societies but most of the other countries have been slow to develop their professional bodies. The more advanced societies play a major role in improving standards and some such as Australia provide education and training. But still the level is insufficient to meet needs.

The situation across Asia Pacific seems to be stable for most of the Asian countries as demand for skilled and experienced researchers remains strong. However in Australia signs of softness are apparent with some market research agencies making redundancies as demand for research services has softened in the last months of 2008. Others have curbed recruitment, limited discretionary spend and curbed graduate recruitment progress for 2009.