By Wolfgang Ehmann
AHK Greater China, Hong Kong
The impact of Asia’s rapid development on the global economy, driven primarily by China, is becoming more and more significant, both in absolute and relative terms. The newly found wealth in the region is fueling demand for Western brands, consumer goods and services. This is creating new opportunities for foreign companies to build and expand their business in Asia. Economic development is also occurring hand in hand with demographic changes, opening up business opportunities in the region’s healthcare sector. With highly developed infrastructure and a liberal market economy in which East meets West, regional business hubs like Hong Kong or Singapore are prime locations to test the latest product and services innovations and set trends that will eventually permeate the entire region.
Driving factors
The history of economic development in Western countries has shown the impact an economy’s higher level of affluence has on demographics. Empirically, there is a positive correlation between the wealth of a nation and the average age of its society. Birth rates are low as a result of better career opportunities, and life expectancy is high due to better medical care. Asia is no different in this respect. In China, this effect is intensified by the one-child policy. As of 2013, Hong Kong had one of the lowest fertility rates in the world, with 1.11 children born per woman of childbearing age. The increasing share of senior citizens has become an economic factor in Asia. The rise of emerging countries is accompanied by a sociological phenomenon: the development of a middle class. This is commonly linked to the state of development of an economy and is directly associated with terms like affluence, urbanization and modernity. The main factors determining the middle class are household income and ownership of residential property. According to OECD statistics, currently 10 percent of the population in mainland China belongs to the middle class. This share is expected to rise to 40 percent by 2020. Such growth rates promise sizeable business opportunities for Western and especially German brands, which enjoy high repute among Asian consumers.
Business opportunities
These middle-class consumers are increasingly demanding quality products and services to be readily available at any time. The preferences of this sector of society have a direct impact on the supply side of the market, particularly in such diverse sectors as culture and entertainment, education, nutrition and healthcare. Take the food-retail market for example: Recurring food scandals have severely eroded consumers’ trust in locally produced food. Although the market share of organic food products in Asia is small compared with the West, the demand for organic groceries has increased by 15 percent to 20 percent annually in the last decade. The consumption of imported organic food such as infant nutrition, cereals and dairy products has been on the rise as well. Growing consumer affluence and food-quality awareness have contributed to the recent success of such trade shows as Asia Fruit Logistica in Hong Kong, where naturally grown fruit and vegetables today command higher prices than in their traditional markets in North America and Europe. At the same time, new sectors in healthcare are emerging to serve the needs of the aging population. Medical insurance is also becoming more important since traditional family roles in which the young take care of the elderly are on the decline. This is one reason why the pension insurance in mainland China aims to cover the entire population by 2015. The scheme was revised in 2005 and requires both employees and employers to contribute to the fund. Adequate insurance coverage is vital to the success of China’s economic shift away from investment-driven growth to increased domestic consumption. Today, private households generally save well over 30 percent of their income. In terms of healthcare, the coverage of public versus private hospitals in China is still very heterogeneous when comparing urban and rural areas. On the other hand, Hong Kong has a highly developed healthcare system in which eligible citizens receive subsidized public healthcare services without insurance. Public and private hospitals alike are of high service quality, both within their peer group and by international standards.
Outlook
There is no denying that Asia already is and will be even more so in the future an important economic region among the world’s economies. With widely diverging states of economic development and each country having its own political, ethnic, social and religious fabric, however, the region is anything but homogenous. In tackling these markets, one has to be aware of the fact that no single strategy is applicable in two countries. Careful consideration of each target market is essential. In this respect, the AHK organization—with its global presence and offices in all major capitals of the world—is extremely well positioned to assist aspiring exporters and investors from Germany, especially small and medium-sized enterprises (SMEs). In Asia, the AHK offices work together in the ASEAN and Greater China regions where they have formed regional alliances.
www.hongkong.ahk.de
ehmann.wolfgang@hongkong.ahk.de
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