The struggles of the retail industry are well known. Shifting consumer habits and the rise of online shopping has seen a precipitous decline in market values and profits among traditional brickand-mortar stores. Brands are going digital or going broke. Yet, reports of the death of retail and some segments of the consumer goods sector may be widely exaggerated, at least for now. If anything, the industry is going through a transitionary phase of growing pains. The rules of retail are being rewritten, especially in Asia where increasing numbers of customers are going digital. For instance, in Malaysia, Touch ‘N Go, a mobile payment platform, is simplifying the payment process for online shoppers and challenging traditional market leaders. And while the rapid rise of disruptive technologies and new competitors is definitely putting a dent in top and bottom-line growth among Asian consumer goods corporations, other priorities also pose a challenge.
KEEPING UP WITH COSTS
Despite the seismic shift in technology sweeping the industry, executives say dealing with costs is the biggest complexity facing their businesses. From their additional insights, it’s easy to see why. From almost every direction, pressure on cost structures and cash flows is impacting corporate growth. Many respondents point to increasing competition in the market as start-ups upend the industry or as rivals roll out digital strategies. Others highlight increasing costs in procurement and rising compliance costs on the heels of new legislation in various countries. Taxes and trade deal uncertainty add to the mix, as do shifting consumer demands for cheaper products.
Disruptive technology and innovation, respectively, rank as the second- and third-greatest complexities facing the industry. Providing insight into possible solutions, respondents agree that the only way to survive, let alone thrive, in the current market is through the uptake of digital technology and a comprehensive digital transformation strategy. E-commerce will be the main component of these strategies, as the increasing use of mobile phones opens new customer segments in emerging Asia. Indeed, e-commerce sales in Asia Pacific may rise at a 32% CAGR from US$5.5bn in 2015 to US$88bn in 2025, according to research by Google. Technology in general can also help retailers find the middle ground between using physical stores and digital channels to merge and synergize the online and traditional shopping experiences.
DIGITAL TRANSFORMATION
M&A: CHINA’S E-COMMERCE GIANTS EXPAND
As part of mid- to long-term strategies, Asian consumer goods companies will likely pursue acquisitions to achieve growth, according to 69% of respondents (Figure 3). China’s e-commerce giants exemplify this trend, with Alibaba making investments globally to aggressively expand its Alipay mobile payment into Southeast Asia and forge partnerships in the US. Alibaba’s latest “Smile and Pay” technology, which uses facial recognition software to allow customers to complete payments, is yet another example of the company’s drive to disrupt mobile payments as it simplifies the traditional shopping experience. Meanwhile, US firms are not sitting on the sidelines. Major online retailers have been opening offices and operations in Singapore as their first steps into Southeast Asia. Some are also planning to expand into Australia.
While e-commerce is becoming rapidly more popular in Asia, there’s still a preference for brick-and-mortar stores, resulting in the development of multiple channels based on an online-offline model. Asia has room for both virtual and physical channels and needs to have both.”
Loke-Khoon Tan, Partner, Hong Kong, and Head of Asia Pacific Consumer Goods & Retail, Baker McKenzie
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What else does Loke-Khoon Tan have to say?
With mounting pressure to develop game-changing innovations, there’s going to be a sharpened focus on IP. But profiting from IP is only possible if a corporation is able to protect it.”
Say Sujintaya, Partner, Bangkok and Head of Asia Pacific Intellectual Property, Baker McKenzie
TRENDS AND KEY COMPLEXITIES:
Controlling costs is the biggest challenge for Asia’s consumer goods and retail corporations.

Digital transformation strategies will help consumer goods companies, especially retailers, remain relevant in the face of increasing industry disruption.

M&A is a quick path to growth for Asian consumer goods companies looking to expand their customer bases, especially in the region’s emerging markets.
of respondents feel doing business in the consumer goods and retail sector is becoming more complex.
55%
Figure 3: Which areas do you think will be a major focus for your industry in the next two years?
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