5 Feb 2020
The Greater Bay Area: The Global Brand Goldrush
DKSH is a leading Market Expansion Services provider that helps brands to increase their sales and presence across the world. The company works with many different brands and products, ranging from Swiss-made Maurice Lacroix watches through Frito-Lay snacks from the US, leading Asian fruit juices and European chocolates to hotel and restaurant equipment and baby diapers.
DKSH generated global net sales in 2018 of CHF11.3 billion (US$11.56 billion) across 35 markets. It focuses on Asia, helping businesses grow in existing and new markets. The company is particularly interested in the opportunities presented by China’s Greater Bay Area (GBA). DKSH helps and supports the entry of many branded products into Asian markets, introducing new brands to the region and positioning existing brands to grow faster. Within this business concept, the GBA stands out as a unique opportunity for accelerated growth.
Frank M Koch is the vice president of DKSH Greater China’s Fast Moving Consumer Goods (FMCG) section – one of the four Business Units of DKSH Group. Explaining how the GBA marries into the company’s strategy, Koch said: “DKSH has been ‘going East’ for more than 150 years, and we have more than 850 business networks in Asia. The GBA absolutely fits our strategic approach and enables us to unlock the strategic and operational value of our six distribution centers in Greater China even further, of which three are in Hong Kong.”
Hong Kong Stands for High Quality
Koch added that Hong Kong’s reputation for quality and transparency makes it the ideal place to enter the Chinese market, saying: “Hong Kong offers a suitable market entry opportunity thanks to its cross-boundary connections to mainland China. Products sold in Hong Kong, such as skin care and baby formula, must adhere to strict product import regulation – there is an uncompromising stance for the highest quality. Hong Kong is a showcase for all of DKSH’s services being synergistically leveraged. It also has a very transparent regulatory framework, which will position Hong Kong as a model for other GBA cities.”
At the same time, Koch expects other GBA cities to develop their individual consumer product preferences, market by market. Explaining how this gives DKSH chances to make headway with brands that have not yet been introduced into the region or could make a greater impact in those markets, Koch commented: “It is one of the biggest opportunities to offer tailored premium brands and services to our customers. This customisation of the product portfolio provides a more unified approach to meeting demands from consumers in those markets – there is already a growth trend for these products.”
Besides Consumer Goods, DKSH also specialises in Healthcare, Performance Materials and Technology, aiming to either enter new markets with a new product or extend the life cycle of established products in existing markets. Describing the breadth of the company’s approach, Koch said: “We focus on providing excellence in every aspect of the value chain for FMCG products to reach consumers and customers, such as distribution, market intelligence, marketing, distribution, merchandising, brand development and customer service.”
Millennial and Senior Generations are Key Sectors
DKSH expects several trends to influence the growth of Asian markets in the near future – the growth of e-commerce, the interest in healthier lifestyles, the push for sustainability and the rise in the consumer power of the millennial generation. Koch says these trends are relevant to the development of the GBA, adding: “The millennial demographic trend actually provides more similarities than differences across many markets. Another factor relevant to the GBA and other Asian cities is the senior population, which is stimulating demand for medical products, services and related technologies.”
The development of the GBA allows DKSH to maximise its marketing and distribution across the area’s 11 cities in a more systematic way, tailoring the availability of products and brands to specific market demand. Koch pointed out that this tailoring of services entails more than merely supplying the right goods to the right market, stating: “While the physical distribution of consumer goods on a daily basis is the main priority – from diapers to chocolate, for example – we also see the importance of e-commerce relevant to individual consumers. Online marketing is gaining importance, particularly with the advent of Chinese online firms like WeChat Pay and Alipay, which offer consumers convenient ways of choosing products and paying for purchases.” In addition, we are evolving our services and capabilities to apply advanced data insights and analytics tools to optimise all aspects of our broad service portfolio to build the brands we are entrusted to manage and accelerate their growth.
Typically, global and regional clients approach DKSH to make use of its expertise when trying to enter the Southeast Asian and Chinese markets, by far the fastest-growing regions internationally. Koch explained that their clients are showing a rising interest in the GBA, saying: “Increasingly, the GBA is being identified by its demographics as an emerging market for high-quality brands and products. As a consequence, US, European and Latin American clients are asking what this means for their businesses. Trade and business into the GBA will be driven by an accurate picture of its co-operative and interactive successes. Hong Kong can help in that respect, given its highly-regarded professional and analytical background.”
Better Grasp of Markets
According to Koch, the GBA is seen as a major spearhead for many players aiming to enter the Chinese market. Explaining how DKSH helps their clients evolve a more sophisticated approach for individual cities and markets, he said: “The GBA, like the wider Greater China, includes highly diversified requirements from foods to other products. The new plans for the GBA will help companies reach a new level of understanding markets and making products available to those consumers.”
Koch added that the process will make Hong Kong stronger as a test market for introducing new brands to the GBA, saying: “As a gateway to Asia and China, Hong Kong will benefit from the ‘cluster effect’ that major clients require. What adds to Hong Kong’s appeal is its international outlook tied to its close association with the Chinese language and culture and a strong preference for mainland-bound clients. Hong Kong offers various areas of expertise, including brand marketing and the prospect of harmonisation of brand identity, as the GBA develops further.”
One of the major challenges in the GBA is the diversity of compliance requirements across Hong Kong, Macau and mainland China, specifically the different duties and customs regulations imposed on products. However, DKSH expects these differences to be reduced in the coming years. Outlining his company’s optimism for the future, Koch said: “We see more brands ultimately entering the market as well as adopting value-added services such as ours. Our business scale, service portfolio and distribution network are likely to grow bigger.”
Belt and Road Connection
With DKSH operating in many locations across Southeast Asia, Koch expects that the company will benefit from close connections between China’s Belt and Road Initiative (BRI) and the GBA, saying: “Interaction of these two major initiatives is likely to see the cross-pollination of consumer goods, with many Southeast Asian brands looking to make inroads in the GBA.”
Additionally, e-commerce trends may well enhance the fulfillment of contracts in the GBA, with Hong Kong acting as a trans-shipment and trade finance hub for the global brands that DKSH represents. Pointing out what that will mean for Hong Kong, Koch said: “It makes sense for small- and medium-sized Southeast Asian companies to establish themselves in Hong Kong as a stepping stone into the GBA markets, as they become increasingly familiar with consumer needs there.”
With more than 2,000 brands managed, Koch said that DKSH expects many to be positioned in the GBA, particularly in the sectors of beauty and skin care as well as high-quality packaged foods. He added: “There is an enormous GBA appetite for growth in premium goods, many with healthier choices. Hong Kong is likely to play a major role in addressing and enhancing those markets.”