Entering the Asia-Pacific (APAC) market as a non-APAC company comes with a variety of unique challenges. In this five-part series, Peter Hum, Managing Director of StrateValue Pte Ltd outlines some of the key elements to be aware of when establishing a direct presence in the APAC region. Hum, who lives in Singapore, has nearly two decades of experience effectively entering American companies into Asia. Drawing on his years of expertise, Hum has compiled this series of best practices to help businesses who wish to expand into APAC. Read on to learn about the people, patience, and relationships that are necessary to launch a successful entry into the APAC marketplace. Read Part 4 of this article series.
We have now arrived at the final article of our 5-part series on what it takes to successfully perform Asia market entry.
Preparing a budget for business expansion into a region where you have no experience can be truly daunting. A financial plan must be drafted to understand how much money should be allocated to fund the Asia market entry project.
The most basic components of any market entry budget should always contain the following items.
1. Adequate market entry seeding budget
Ensure you will have enough operating cash flow to last you for at least 9 – 12 months on the basis of little to no revenue. Once revenue flows in, the regional office can start surviving off of the gross profit generated by the local or regional business.
2. Local Operating Expenses (SG&A)
The financial budget must cover the following operational expenses:
- Company incorporation costs as a local business entity (if applicable).
- Payroll and all associated costs for for 1 or 2 in-country headcount. On the basis for a lean regional start-up, market entry projects usually employ not more than 2 head-count.
- Office space. Employees can work from home, co-working spaces can be procured, or a full private outfitted office can be set up. Costs will obviously be different between these three options.
- Office related expenses like utilities, insurance, and other peripheral expenses (if applicable).
- Travel and entertainment costs
- Marketing costs – promotional marketing material, marketing campaigns, localisation, etc.
- Outsourced business support service providers. Examples include local payroll services, accounting services, legal services, company secretarial services, etc.
Initial market entry costs are usual very basic and unsophisticated. When the business eventually grows and the structural components of the business expands, the financial requirements of the local operations become more complex. Bank loans or other third-party financial support to provide additional operating cash flow can be obtained. In turn, more scrutiny will be needed to ensure fiscal compliance falls in line with group company accounting standards.
Here is a typical ratio breakout of an Asian market entry 12-month operating budget:
- Payroll: 2 headcount.
- Rent: Co-working space or serviced office setup.
- Business Functions: Regional Business Development, Sales Operations, Partner Channel Support, Service Delivery, Technical Support.
- Limitations: No local software development or R&D focus (typically done at headquarters).
- Existing Business in Asia: None.
- Location Setup: Singapore or Hong Kong
Initial 12 Month Asia Market Entry Budget Amount: US$250K – US$300K (+/- 10-20% )
Rough Budget Breakdown
- Payroll Expenses: 65%
- Office Rental and Office Equipment Expense: 10%
- Selling Expenses: 10%
- Operational Expenses: 10%
- Marketing Expenses: 5%
The stated figures above may be on the lower end of the budget requirements if the office is based in more cost-effective countries like Taiwan, India, Malaysia, Philippines or other Southeast Asian countries (excluding Singapore). Countries like Australia, Japan, Mainland China (tier-1 cities), Hong Kong, and South Korea tend to be on the upper end of the budget scale. However, when judging location for the first Asian office, a broader view on other non-financial considerations like the ability to find qualified human capital, language, travel access, proximity of customers, and other variables needs to be considered in the overall market entry business plan.
All in all, performing your first Asia market entry can be highly successful if you have the right support from a market entry expert to guide you through the maze of setting up a regional presence from scratch. Companies that financially skimp on their budgets will find themselves under investing in their resources and will always be highly squeezed for operational cash flow. Choking your business of cash during the critical window of the first 9 to 12 months will either lengthen your time to revenue or it will collapse your business altogether.
Budget appropriately to get the most bang for your buck in the first 12 months of your Asian operation and you’ll have the best chance to prepare your business foundation to establish substantial revenue growth into the second year of operation!