SINGAPORE (Reuters) - There is a new gold rush in the Asia-Pacific: rising incomes and consumer spending by Asia’s fast-growing middle classes that is generating unprecedented opportunities for multinational firms.
If western firms recognize those opportunities in markets for consumer and luxury goods, travel and other services, their strategies will increasingly shift towards building commercial ties with Asia, says Rajiv Biswas, the Asia-Pacific chief economist for IHS Global Insight.
In his book ‘Future Asia’, published by Palgrave Macmillan, Biswas says the key challenge in ensuring the Asian century is Asia’s golden age will be the building of platforms for political and economic cooperation.
Biswas spoke to Reuters in Singapore about Asian consumer spending and his insights from speaking to multinational firms.
Q: Surely western multinationals have known for a while that Asia is where the growth is? A: The large multinationals like Nestle have for long understood that. But several European CEOs were visibly shocked to learn Asia was doing so well. Especially in Europe, it was a sense of disbelief that Asia can be growing when Europe is so weak. Views only started to change after the global financial crisis.
Q: In what way have views changed? A: Before the crisis, many U.S. and European companies were focused on their markets. They saw emerging markets as sweetening their revenues i.e. helpful but not the focus. Since 2009, the conversations have changed. Large multinational companies realize the slump in Europe is not temporary, that Asia has been resilient, that the game has changed.
Q:Europe has realized that protectionism is not the solution? A: Yes, European firms realize that protectionism doesn’t make sense, and they were too inward-looking, particularly the crisis-hit ones such as in Spain, Portugal and Greece. The momentum of global consumer spending has shifted. The tipping point is around 2020, when the GDP of emerging markets will be greater than that of developed economies. They can no longer keep exporting within Europe and they need to engage more with Asia.
Q: Even now, there are corporations that haven’t grasped the significance of positioning in Asia? A: Yes. Where this is not that well understood is in the medium-sized enterprises in Europe, U.S. and Japan. They didn’t position to cater to emerging markets in the past and now they are going through a transformation, and these are difficult markets to operate in. They are late, it is going to take a decade at the least to catch up.
Q: Will the income gap between what you label the first and second growth engines of Asia, China and India, ever close? A: There is a big gap in GDP (gross domestic product) at the moment, plus China is growing at 7-8 percent a year while India is struggling to reach that growth rate. The growth rates are not converging. At best India can keep up with China, and India has the capability to grow 7-8 percent a year, but it can’t narrow the gap.
Q: You are quite confident that there will be an Asian Monetary Fund in the near future? A: Yes, this was an idea Japan had pushed a few years back and the U.S. and other powers had resisted. Asia has developed a monetary cooperation framework in the Chiang Mai initiative. While it has not yet evolved into one, that certainly creates the seeds of regional monetary cooperation. I see it strengthening. As Asian economies grow in size, there will be recognition that they need to help each other. Also, the capability in U.S. and Europe to help other regions has diminished. Some kind of Asian cooperative mechanism is inevitable, whether you call it a fund or not.
Editing by Kim Coghill