For years, Asia has stood as a beacon of economic growth and opportunity, attracting businesses worldwide eager to tap into its vast consumer base and thriving markets. However, the region’s potential is accompanied by noteworthy challenges.
This article will delve into the common hurdles faced by businesses in Asia while shedding light on the promising opportunities available to astute entrepreneurs. For more information, please see the accompanying article on the top 5 most popular countries for doing business in Asia.
Challenges of Doing Business in Asia:
Challenge 1. Embracing Diversity:
Asia, composed of 48 countries with distinct cultures, customs, and languages, poses a significant challenge for businesses seeking a one-size-fits-all approach. Tailoring strategies to individual markets is essential for success, necessitating efforts such as hiring local staff, cultural consultants, and in-depth market research.
Challenge 2. Local Competition:
Entering the Asian market means confronting stiff competition from well-established local players. Recognizing that global brand recognition does not guarantee dominance, businesses must conduct thorough competitive analyses, identifying unique selling points and forming strong partnerships with local distributors.
Challenge 3. Infrastructure and Logistics:
While Asia boasts economic growth, its infrastructure is not uniformly well-developed. Challenges such as inconsistent transportation networks and regulatory hurdles can hinder the efficient movement of goods. Meticulous location selection, strategic partnerships, and technology integration are crucial for overcoming these obstacles.
Challenge 4. Intellectual Property Concerns:
Protecting intellectual property rights is a common challenge. While instances of infringement exist, businesses can safeguard their assets by registering patents and trademarks in relevant countries and actively enforcing their IP rights.
Challenge 5. Regulatory Environment:
The regulatory landscape varies greatly across Asia, creating complexity for foreign companies. Navigating legal requirements, language barriers, and translation errors requires collaboration with local legal experts and advisors, emphasizing the importance of compliance.
Opportunities for Growth in Asia:
Opportunity 1. Free Trade Agreements:
Multilateral treaties such as the ASEAN trading block and agreements with Australia, New Zealand, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) facilitate the movement of goods and services. These agreements open avenues for cost-effective and tariff-free access to overseas markets, benefiting businesses, workers, and consumers.
Opportunity 2. Tax Holidays and Special Economic Zones:
Governments across Asia offer incentives such as tax holidays and special economic zones to attract businesses. Understanding and leveraging these incentives, whether in Thailand, Singapore, or China, requires guidance from local experts to maximize benefits.
Opportunity 3. Growing Consumer Classes:
The burgeoning middle-class populations in Asia present a significant opportunity. Entrepreneurs catering to the evolving needs of this expanding consumer base, especially through innovative business models and digital technologies, can achieve remarkable growth.
Opportunity 4. Technological Advancements:
Asia, particularly China, Japan, and South Korea, leads in technological innovation. Businesses can tap into this opportunity by collaborating with local tech companies, investing in research and development, or partnering with startups.
Opportunity 5. Fintech and Financial Services:
The thriving fintech industry in Asia, embracing mobile payments and blockchain technologies, provides opportunities for innovative solutions. Entrepreneurs in this space can cater to the growing demand for secure and accessible financial services.
Overview of popular jurisdictions to do business in Asia Pacific
The table below provides a pilot overview of key jurisdictions in Asia Pacific to do business, covering critical criteria both entrepreneurs and companies with should consider when expanding or establishing their presence in the region.
| Criteria | China | Cambodia | Hong Kong | Indonesia | Malaysia | Singapore | Thailand | Vietnam | Australia | New Zealand |
|---|---|---|---|---|---|---|---|---|---|---|
| 100% Foreign Ownership Allowed? | Yes, for a wholly foreign-owned enterprise (WFOE) | Yes | Yes | Allowed only for certain industries. Local shareholders are needed in many industries which are set out in a government-published negative list. | Yes | Yes | Usually need to be 51% Thai owned, but structuring can achieve 100% foreign ownership. | Yes, allowed in most sectors. Some businesses require local investors. | Yes, for most industries. Some restrictions apply. | Yes, for most business structures. Some restrictions apply. |
| Minimum Capital Required | USD 30K-USD 75K for a WFOE. Otherwise, no minimum capital | USD 1,000 | No minimum capital | IDR10 billion (USD 680,000) for a foreign-owned company, of which 25% must be paid up. No minimum capital for a local company. | RM 500K to RM 1 million for a foreign company, depending on the industry. No minimum for a local company. | SGD 1. If Employment or Entre Pass is sought, capital should be appropriate for the business. | THB 15, though in practice it should be enough to be able to run the business. | No minimum for most sectors, but in practice investors should consider an appropriate amount commensurate with their chosen activities. | No minimum capital requirement. | No specific minimum capital requirement. |
| Local Directors Required? | No | No | No | At least 1 with a local tax ID. Can be local or a foreigner. | Yes | Yes | No, unless the company is subject to specific laws. | No, but needs one resident legal representative. | No requirement for local directors. | No requirement for local directors. |
| Physical Office Required? | Lease of business premises required for WFOE | Yes, physical premises required | Registered office can be outsourced | Yes, physical premises required | Registered office can be outsourced | Registered office can be outsourced | Registered office can be outsourced | Yes, physical premises required | Physical office required for certain business structures. | Physical office required for certain business structures. |
| Local Licensing Required? | Yes | Yes | Only for some sectors | Required for most sectors | Required for most sectors | Only for some sectors | Required for most sectors | Required for most sectors | Required for most sectors. Some exemptions may apply. | Required for most sectors. Some exemptions may apply. |
| Currency Controls? | Yes, approval required for offshore remittances | No, but reporting required over USD 10,000 | No but reporting required over HKD 120,000 | No but reporting required over IDR 100 million | No but reporting required over RM 30,000 | No but reporting required over SGD 20,000 | No but reporting required over USD 20,000 | Remittances must be through a bank account at an authorized institution | No currency controls. | No currency controls. |
| IP Protection Laws in Place? | Yes, IP needs to be registered locally | Limited, but protection laws are improving | Yes, IP needs to be registered locally | Yes, IP needs to be registered locally | Yes, IP needs to be registered locally | Yes, very strong protection. Local registration required | Yes, IP needs to be registered locally | Yes, IP needs to be registered locally | Yes, strong IP protection laws. | Yes, strong IP protection laws. |
| Auditing of Local Accounts | Required | Required if not a small company | Required | Required if handling public funds or turnover/assets >IDR 50 billion | Required if not a small company | Required | Required | Required if not a small company | Required for certain entities. | Required for certain entities. |
| Tax Filings | Income tax quarterly and annually. VAT monthly | Income tax monthly and annually. VAT monthly | Income tax annually | Income tax monthly and annually. VAT monthly | Income tax annually Sales and services tax monthly | GST return quarterly, Estimated Chargeable Income and income tax return annually | VAT monthly, income tax half-yearly and annually | Income tax annually | Varies by business structure. | Varies by business structure. |
| Government Incentives | Preferential tax rates available in certain regions and for certain sectors | Tax deferral available on projects approved by the Council of Development of Cambodia. Import and export duty exemptions also available | Lower tax rates available for qualifying activities in certain sectors | 5-20 year tax holidays available depending on industry. Special Economic Zones offer incentives to companies set up there | A range of tax incentives from partial to full exemption from tax available to companies in certain sectors | Lower tax rates available for certain sectors. Some exemptions available | Board of Investment administers income tax and import duty incentives for certain industries | Tax holidays and lower rates of tax available in special zones for qualifying industries | Various incentives available at federal and state levels. | Various incentives available at federal and state levels. |
| Member of ASEAN? | No | Yes | No | Yes | Yes | Yes | Yes | Yes | No | No |
In conclusion, doing business in Asia requires navigating challenges with strategic precision while seizing the abundant opportunities. By understanding the diverse cultural landscape, overcoming infrastructure hurdles, and leveraging regional agreements and incentives, businesses can position themselves for sustained success in this dynamic and thriving continent.
Questions? Capital Cities can help.
Jumping into business in Asia unveils both challenges and remarkable opportunities. With an open-minded approach, adaptability, and a discerning eye for possibilities, businesses can unlock the immense potential of this dynamic and promising region. Capital Cities, an Asia Pacific-focused advisory and corporate services provider, stands ready to be your trusted partner in navigating the complexities of establishing and expanding your business in this vibrant market.
Whether you are aiming to establish a new company, broaden your existing operations, or explore investment opportunities, Capital Cities can furnish you with tailored solutions and valuable insights to ensure a seamless and successful entry into the Asian market. Reach out today to schedule a call.