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Continuing opportunities for market expansion services in Asia

Report on the markets of Southeast Asia, Greater China

and Northeast Asia – 2016 update

Matthias Hanke, Moritz Werner, Georgia Theodoridis, Julius-Ferdinand Kolb

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Highlights

Asia continues to offer attractive growth opportunities for both Western and Asian

companies. While some Asian markets mature, we see others emerging, creating

new possibilities for growth in the region. However, any company entering the

Asian market faces various challenges along the value chain. These include high

market complexity and uncertainty, market entry costs, fierce competition from

local champions, and a lack of local expertise and infrastructure when interacting

with customers.

The fifth edition of the report will take a closer look at the development and growth

expectations of market expansion services (MES) in three geographic regions:

Southeast Asia (ASEAN), Greater China and Northeast Asia (including Japan).

Based on data and reports from leading research institutions, it offers valuable

insights on current and projected market developments. In accordance with earlier

studies, the report aims at addressing mid-term trends and developments with a

clear view on four key industries for market expansion services: fast moving

consumer goods (FMCG), healthcare products, specialty chemicals and

engineered products.

Our 5-year forecast suggests a positive outlook, despite recent signs of an

economic slowdown in China. The total market for market expansion services in

Asia is expected to grow on average by 6.6% annually until 2020. Additionally, a

slight upwards trend in the overall penetration rate of market expansion services

from 20.0% in 2014 to 20.4% in 2015 is being estimated.

The devaluation of many Asian currencies as well as the recent drop in China's

short-term growth expectations increase uncertainty about the further development

of the region among stakeholders. Nevertheless, we believe that the underlying

trends in the region and the market expansion services industry are still intact. A

rising population, an increasing purchasing power of a growing middle class as well

as continued investments into manufacturing in less developed Asian countries not

only by Western but also by more developed Asian companies fuel growth in the

region. In addition, a strong commitment of governments to develop their physical

and financial infrastructure and a growing integration through regional agreements

(e.g. Trans-Pacific Partnership) and bilateral free trade treaties function as robust

stabilizers of growth.

The underlying figures confirm a higher need for market expansion services as

manufactuers increasingly focus on their core competencies due to rising

competitive pressure and because higher market volatility, market complexity and

political uncertainty have become the norm. As the need for market expansion

services increases, new competitors, especially in the field of digital services (e.g.

online trading platforms), enter the market. While those companies offer a cost

efficient approach to access local markets, they rarely can provide services along

the entire value chain and even rely on partnerships with integrated MES providers.

This study includes detailed tables on the estimated market size, the penetration

rate of market expansion services and growth expectations for 2015-2020. These

figures can offer valuable insights not only for market expansion services providers

operating in Asia but also their clients.

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Figure 1: Market size in 2015 by industry and region

1) FMCG excluding categories with dominant local orientation (e.g. fresh food) or restricted markets (e.g. tobacco China) 2) Southeast Asia excluding Brunei, East Timor 3) Northeast Asia excluding North Korea 4) Includes industrial machinery, industrial apparatuses & equipment and power generating machinery; based on national import figures (not demand figure) Sources Business Monitor International, Epsicom, Euromonitor, IMF, IMS Health, SRI, IHS, United Nations Statistics Division, WHO, World Bank, expert interviews, Roland Berger

Figure 2: Market growth rates 2015-2020 by industry and region

1) FMCG excluding categories with dominant local orientation (e.g. fresh food) or restricted markets (e.g. tobacco China) 2) Southeast Asia excluding Brunei, East Timor 3) Northeast Asia excluding North Korea 4) Includes industrial machinery, industrial apparatuses & equipment and power generating machinery; based on national import figures (not demand figure) Sources Business Monitor International, Espicom, Euromonitor, IMF, IMS Health, SRI, IHS, United Nations Statistics Division, WHO,

World Bank,expert interviews, Roland Berger analysis

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Figure 3: Fast moving consumer goods1) – Market sizing

1) FMCG excluding categories with dominant local orientation (e.g. fresh food) or restricted markets (e.g. tobacco in China) 2) Southeast Asia excluding Brunei, East Timor 3) Northeast Asia excluding North Korea 4) Belongs to Dah Chong Hong Holdings Ltd. 5) Excl. Chinese & Japanese competitors results in the following ranking of top market expansion services providers: 1. DKSH, 2. LF Asia, 3. PT Arta Boga 6) Mainly 3PL business in South Korea; others include local conglomerates and 3PL companies; Li & Fung Distribution focuses on sourcing in South Korea 7) Excluding Chinese competitors results in the following ranking of top market expansion services providers: 1. LF Asia, 2. Sims Trading, 3. DKSH Sources Euromonitor, IMF, World Bank, expert interviews, Roland Berger

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Figure 4: Fast moving consumer goods – Growth projections

1) FMCG excluding categories with dominant local orientation (e.g. fresh food) or restricted markets (e.g. tobacco China) 2) Southeast Asia excluding Brunei, East Timor 3) Northeast Asia excluding North Korea Sources Euromonitor, IMF, WIS forecast database (IHS), World Bank, expert interviews, Roland Berger analysis

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Figure 5: Healthcare (prescription drugs and OTCs) – Market sizing

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea 3) Zuellig Pharma as majority shareholder of PT Anugerah Pharmindo Lestari 4) Local legal name different due to legal requirements 5) Exclusion of Chinese and Japanese competitors leads to following top ranking of market expansion services providers: 1. Zuellig Pharma, 2. DKSH, 3. Geoyoung Note Ranking of competitors is based on sales as market expansion services provider in Healthcare (prescription drugs and OTC); sales

resulting from production or non-Healthcare products is excluded. Companies in the prescription drug / OTC and medical device industries required rough estimations regarding the allocation of sales to respective product categories Sources Business Monitor International, Euromonitor, IMF, IMS Health, World Bank, expert interview, Roland Berger

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Figure 6: Healthcare (medical devices) – Market sizing

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea 3) Zuellig Pharma as majority shareholder of PT Anugerah Pharmindo Lestari 4) Exclusion of Chinese and Japanese competitors leads to following top ranking of market expansion services providers: 1. DKSH, 2. Zuellig Pharma, 3. LF Asia Note a) Medical devices include consumables (e.g. wound care products and catheters), diagnostic devices (e.g. diagnostic instruments

and X-ray apparatus), dental products (e.g. drills and supplies) and orthopaedic and implantable devices b) Ranking of competitors is based on sales as market expansion services provider in Healthcare (prescription drugs and OTC); sales resulting from production or non-healthcare products is excluded. Companies in the prescription drug / OTC and medical device industries, required rough estimations regarding the allocation of sales to respective product categories Sources Epsicom, IMF, Onesource, WHO, World Bank, expert interviews, Roland Berger

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Figure 7: Healthcare (prescription drugs) – Growth projections

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea Sources Business Monitor International, IMF, IMS Health, WHO, World Bank, expert interviews, Roland Berger

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Figure 8: Healthcare (OTC products) – Growth projections

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea Sources Euromonitor, IMF, WHO, World Bank, expert interviews, Roland Berger

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Figure 9: Healthcare (medical devices) – Growth projections

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea Sources Espicom, IMF, WHO, World Bank, expert interviews, Roland Berger

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Figure 10: Specialty chemicals – Market sizing

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea 3) Excluding Chinese and Japanese competitors leads to following top ranking of market expansion services providers: 1. Brenntag, 2. DKSH, 3. Connell Brothers Note Ranking of competitors is based on sales as market expansion services provider in specialty chemicals only; sales resulting from production or distribution of own products (incl. conglomerate) or non specialty chemical products are excluded. Japanese competitors are only shown in Japan, Hong Kong and Singapore as outside of those areas distribution is focused on own products (incl. conglomerate) Sources IMF, SRI, IHS, World Bank, expert interviews, Roland Berger

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Figure 11: Specialty chemicals – Growth projections

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea Sources IMF, SRI, IHS, World Bank, expert interviews, Roland Berger

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Figure 12: Engineered products – Market sizing

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea Note a) 'Engineered products' based on national import figures (not demand figures) b) Ranking of competitors is based on sales as market expansion services provider in the defined product categories of engineered products and focuses on competitors distributing Western products in the entire Asian region or at least a relevant sub-region; Competitor ranking excludes local competitors (focus on one or two countries only) and market expansion services providers focusing on Japanese and/or Chinese products only Sources IMF, United Nations Statistic Division, World Bank, expert interviews, Roland Berger

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Figure 13: Engineered products – Growth projections

1) Southeast Asia excluding Brunei, East Timor 2) Northeast Asia excluding North Korea Sources IMF, United Nations Statistics Division, World Bank, expert interviews, Roland Berger

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Methodology

For the purposes of this study, Roland Berger developed a market model that

covers four main industries (including over 70 subindustries and segments) in 14

Asian countries. The model provides a market outlook through 2020.

Market sizing

The market model is based on industry-specific data and reports from leading

institutes in the industries covered. For each industry, we talked to experts about

which data source best fits our purposes. Wherever possible, Roland Berger based

its analysis on only one source per industry. This was done to make the results

across different countries as reliably comparable as possible. However, for some

industries (such as specialty chemicals) and certain countries (especially peripheral

countries such as Cambodia, Laos and Myanmar), the chosen data source did not

provide all the information required. In these cases, the missing data was either

retrieved from additional leading data sources or modeled from the best available

proxies, using regression analysis based on the available data set (e.g. GDP for

consumer goods, national health expenditure for medical devices, etc.).

Macroeconomic data such as GDP figures and national health expenditure were

retrieved from sources in the public domain (e.g. UNCTAD, World Bank, IMF, WHO

and national statistical offices). Figure 14 provides a detailed overview of the most

important sources:

Figure 14: Data sources used for each industry

Source Roland Berger analysis

Market breakdown

After calculating the size of the market for each industry, Roland Berger estimated

the size of the market for market expansion services in a multi-step approach. The

input for this market breakdown conducted in the course of preparing the initial

report in 2011 was a combination of (quantitative) market data and (qualitative and

quantitative) expert opinions.

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Figure 15: Multiple-stage approach to market sizing

Source Roland Berger analysis

Market projection

Our market projections forecast both market demand and the penetration rate for

market expansion services.

All our market projections are reported in current prices and based on fixed

exchange rates (base: 2015), thus price changes as well as volume increases are

both considered in the forecast figures, although a differentiated presentation of

both effects is not included in this report. Where available, future projections (for

demand) were taken directly from market databases published by the relevant

research institutes (e.g. Euromonitor). Where these leading sources did not provide

the data needed for specific segments or industries, future data was modeled

based on the best available macroeconomic proxies.

Please note that in some cases, 'change in consumption' and 'change in MES

penetration' do not add up to 'Total compound annual growth rate' due to rounding

errors.

Validation

To validate the assumptions underpinning the market model and the company-

specific data, Roland Berger originally conducted more than 100 interviews with

industry leaders, experts and academics. The current update was validated further

by means of additional interviews with various general experts on market

expansion services and the Asia Pacific markets.

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Restrictions

As with any model, forecasting methodology or competitive analysis, our analysis

tool is subject to certain limitations. For the methodology described above, the

most important restrictions are as follows:

> Market size: The market sizes are based on market data from leading

institutes. As explained above, incomplete data was modeled on the basis of

the best available proxies. However, the market sizes modeled are only

approximations and may differ from actual market sizes.

> Market breakdown: The market breakdown is the result of our analysis of

quantitative and qualitative information consolidated from market reports and

interviews with experts. Qualitative information is necessary for a realistic

market breakdown. By consequence, however, estimates are inherent in the

methodology, resulting in best approximations that may again differ from actual

market sizes.

> Market forecasts: The market forecasts are projections of the future and can

never fully take account of all eventualities. They remain predictions – nothing

more, nothing less. It follows that any unpredictable events that impact

economic developments cannot be mirrored in such forecasts. The forecasts

made in this report incorporate expected future market trends based on the

information available at the time of quantification. Certain deviations are to be

expected.

Despite these significant restrictions, we are convinced that our analysis presents a

true and fair picture of the markets analyzed.

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Authors

We welcome your questions, comments and suggestions.

Matthias Hanke

Partner

+41 43 336-8650

[email protected]

Moritz Werner

Consultant

+41 43 336-8652

[email protected]

Georgia Theodoridis

Consultant

+41 43 336-8683

[email protected]

Julius-Ferdinand Kolb

Consultant

+41 43 336-8600

http://mysite-eu.rolandberger.net/Person.aspx?accountname=ROLANDBERGER/cornelia_geissler

http://mysite-eu.rolandberger.net/Person.aspx?accountname=ROLANDBERGER/silke_kampfmeier



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Disclaimer

To create transparency in an industry not yet researched by any independent

analysis, this report, commissioned by DKSH, has been prepared by Roland

Berger AG on a neutral, objective and independent basis.

The present report is provided by Roland Berger AG for information purposes only.

Each recipient should conduct its own analysis of the information contained in this

report. No recipient is entitled to rely on the work of Roland Berger AG in this report

for any purpose. No representation or warranty (express or implied) is given as to

the accuracy or completeness of the information contained in this report. To the

extent permitted by law, Roland Berger AG, its embers, employees and agents

accept no liability, and disclaim all responsibility for the consequences of the

recipient or anyone else acting, or refraining to act, in reliance on the information

contained in this report or for any decision based on it.

Any estimates or projections of future economic performance are influenced by

numerous factors that may impact the various components of the estimates or

projections. Although Roland Berger AG exercises reasonable care when making

forecasts or predictions, factors in the process, such as market behavior, are

inherently uncertain. As such, future events may not unfold as expected and actual

results achieved for the forecast periods covered may vary from the information

presented. Any estimates or projections will only take into account information

available to Roland Berger AG up to the date of delivery of this report; hence,

findings may be affected by new developments. Accordingly, we do not guarantee

that any outcome presented in this report will be achieved. Further, events may

have occurred since we prepared this report which may affect it and its findings.

Roland Berger AG has indicated within this report the sources of the information

provided. We have not sought to independently verify those sources unless

otherwise noted within this report. Roland Berger AG is under no obligation in any

circumstances to update this report, in either oral or written form, for events

occurring after the report has been issued in final form. The recipient must not

reproduce, disclose or distribute the information herein without the express prior

written consent of Roland Berger AG.

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Publisher

Roland Berger AG

Holbeinstrasse 22

8008 Zürich

Switzerland

Tel. +41 43 89 336-8600

Fax +41-43 336-8609

www.rolandberger.ch

Photo credits

Cover: Thinkstock / Getty Images, Goodshoot

© 2016 Roland Berger AG

All rights reserved

http://www.rolandberger.ch/

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