Unlocking the Potential of Cultivated Meat: Overcoming Key Barriers

This article outlines the potential of the cultivated meat industry, discusses the primary barriers, and how IGPI’s business consulting services can help clients in Singapore and beyond.

The Potential of Cultivated Meat and their Benefits

Figure 1; Market Size Projection of Cultivated Meat Industry[1]

Experts from various research firms have reached a consensus on the promising trajectory of the cultivated meat industry, anticipating substantial growth between 2022 and 2030. Projections indicate a remarkable increase from an average of $185 million in 2022 to an impressive $3,905 million in 2030[2], reflecting a significant compound annual growth rate (CAGR) of 46.4%. The rapid expansion in the market is attributed to the advantages offered by cultivated meat, such as promoting a healthier diet, environmental sustainability, and animal welfare[3]. The potential of cultivated meat to address key problems in the conventional meat industry provides it with the opportunity to become an alternative in a space that is worth USD 1.4 trillion in market size in 2023.

In an era where health awareness is increasing, consumers opt for healthier diets, and cultivated meat is poised to stand out. The nature of cultivated meat allows producers to select healthier animal cell variations for cultivation, offering more nourishing options, such as with lower saturated fat content and other health benefits, in their cultivated meat over conventional meat.

Figure 2; CO2 Emission of Conventional and Cultivated Meat[4]

Meat is a staple in most diets and a key source of protein, but conventional meat contributes 16.5%-19.4% of GHG emissions[4], making animal production the largest source of GHG emissions in the food ecosystem. One of the key benefits of cultivated meat is its potential to have a lower carbon footprint. A life cycle analysis by Sinke et al. shows that CO2 emissions can be reduced by 95.9% in Beef (Cattle) and 55.6% in Chicken for cultivated meat (Renewable energy scenario).

Another key benefit of cultivated meat is its potential to address concerns related to animal welfare. Traditional meat production involves raising and slaughtering animals on an industrial scale, often leading to ethical issues. Cultivated meat eliminates the need to raise and kill entire animals as it only involves cultivating a sample of the animal’s cell.

Pivotal Barriers for Widespread Adoption of Cultivated Meat

Cultivating meat leverages novel technologies and hence faces key barriers that need to be resolved prior to widespread adoption — cost parity, taste parity, and adherence to safety and regulatory standards are some of the key obstacles faced.

1. Cost Parity for Cultivated Meat

Figure 3: Comparison of Cost of Cultivated Meat[5] and Conventional Beef[6]

Note: Others include electricity, transportation, repairs and maintenance, cold storage construction, building and property lease, IT infrastructure and Insurance. Cost of Ground Beef based on the gross farm value of ground beef in the United States, calculated from retail price of uncooked ground beef and accounting for the retail to gross farm value margin for beef in the United States. Average of 2022-2023 used due to higher inflation in 2023 that is expected to ease based on FAO’s projection.

In the quest for achieving cost parity, there is no silver bullet solution, but a suite of technological advancements will be required to complement each other and bring costs down (by ~91%) to reach a price-competitive level with conventional beef. The current key cost drivers of cultivated meat are the culture media (30.9%) — of which basal media form a crucial foundation by providing the essential nutrients for cell growth — and bioreactors and processing equipment (28.0%).

Among many initiatives, key efforts aimed at reducing culture media costs for cultivated meat production involve advancements in serum-free and food-grade culture media.

Culture media, traditionally developed for the pharmaceutical industry, largely rely on fetal bovine serum (FBS) and animal-derived components for the necessary factors for animal cells to proliferate; this leads to high cost of materials and animal welfare concerns. Many players in the cultivated meat field, aiming to reduce cost and address ethical concerns surrounding the use of FBS, have pursued advancements in serum-free culture media. Additionally, given the traditional use of culture media in the pharmaceutical industry, culture media are of pharmaceutical grade. Limitations of pharmaceutical-grade culture media include high cost and limited scalability for use in cultivated meat. The transition of pharmaceutical-grade to food-grade culture media will be critical to reducing costs and improving the scalability of cultivated meat during the mass production stage.

Enhancing innovation in bioreactor technologies tailored specifically for food production and larger-scale cultivation is imperative for the continued progress of the cultivated meat industry. At present, the industry heavily depends on pharmaceutical-grade bioreactors, which are not only expensive but also have limitations in scalability. The development of advanced bioreactors designed explicitly for the unique requirements of cultivated meat will facilitate more cost-effective and efficient large-scale production.

2. Taste Parity of Cultivated Meat

Taste emerges as a key criterion for cultivated meat consumption: it is the number one factor in the US, the UK, and Germany[7]. Plant-based meat has yet to achieve the taste and texture level that exactly replicates the taste and mouthfeel of conventional meat, but as cultivated meat is derived from actual animal cells, it has the technical feasibility to be able to achieve a closer resemblance to conventional meat in this aspect.

One such solution to improve taste parity is the innovation in the space of cultivated fats. While most startups have focused on cultivated muscle, as it constitutes 90% of meat, startups such as ImpacFat, Hoxton Farms, and CUBIQ Foods have taken a different approach and focus on cultivated fats, with the aim to provide their fats to plant-based and cultivated meat players to improve the taste and texture of their products. Studies have shown that fats are essential to improve the sensory profile of meat and contain fat-soluble vitamins such as Vitamins A, D, and E for a healthier diet.

3. Safety and Regulations

As a novel and nascent industry, ensuring the safety and regulatory compliance of cultivated meat products is paramount. Yet, it needs to be improved as most countries have taken a careful approach to regulatory approval in cultivated meat. As of January 2024, Singapore (in 2020), the United States (in 2023), and Israel (in 2024) are the only countries to approve the sales of cultivated meat by select approved startups.

Consumers often look to the regulations established by governments to determine if the food is safe for consumption. The lack of regulations may affect the availability of cultivated meat to consumers and deter their acceptance of switching to cultivated meat.

We believe that more regulatory and subsidy support will be required across regulatory bodies to envision a scenario where cultivated meat can be produced, sold, and consumed across different countries.

Singapore as a Development Hub for Cultivated Meat Startups

Singapore has a supportive startup ecosystem for cultivated meat startups with the following three factors: 1. supportive regulatory framework; 2. financial incentives; and 3. alignment of cultivated meat with the nation’s focus on food security challenges.

First, Singapore is the first country to embrace the commercialization of cultivated meat, issuing approval for the sale of cultivated meat to Eat Just Inc. and Good Meat within the country. It has also approved a cultivated meat food-processing license to Esco Aster to manufacture foods using cell-cultivated technologies.

Secondly, the government encourages cultivated meat startups to establish presence in Singapore by offering supportive financial incentives. Grants were provided through the Singapore Food Agency (Singapore Food Story 2.0 R&D Programme) and Enterprise Singapore on a case-by-case basis.

Lastly, cultivated meat aligns with Singapore’s ’30 by 30’ plan, where the country will work towards producing 30% of the nation’s food domestically by the Year 2030. As of 2022, Singapore still imports more than 90% of its food from over 160 other countries. As a land-scarce country with limited land area for livestock and crop agriculture, cultivated meat is one of the key solutions that can alleviate Singapore’s food security problems, and we believe that, given this, the government will continue to take a supportive stance on the industry.

How can IGPI add value to your pursuit in the cultivated meat space?

As technology advances rapidly in the field of cultivated meat, we believe that a carefully crafted and risk-mitigated approach to entering the market will be essential to navigate the current nascent industry. Private companies have many business opportunities, so it is important to seize the appropriate ones and take a proper approach. IGPI’s consulting services can help identify such opportunities in Singapore. In such an environment, it is important to:
        1.           Build and select an appropriate business model; and
        2.           Select appropriate partners and connect them to the business

IGPI’s Singapore office was established in 2013. Since then, we have supported many Japanese companies in their activities in ASEAN. To deal with the above issues, IGPI can provide a variety of business consulting services. Some of our consulting solutions include, but are not limited to:

1.    Building and selecting appropriate business models

 

◆    Market prioritization study: Analyze the industry and competitive landscape in selected countries and the value chain through research and interviews to assess market potential.
◆       Develop the concept of ideation: Create a business model from the shortlisted ideas to allow for our clients to enter a new space in the technology-driven businesses in Southeast Asia, including Singapore.

2.    Selecting appropriate partners and connecting them to different business

 

◆    Potential target/partners search: Identify and shortlist certain companies in Southeast Asia based on the unique needs and requirements of our clients
◆   Mergers and Acquisitions (M&A) advisory: Including project management, data room, due diligence, Q&A assistance, and closing with associated investors.

To find out more about how IGPI can provide Japanese consulting support for businesses in Singapore and the region, browse through our insight articles or get in contact with us.  


[1] Grand View Research, Polaris Market Research, Allied Market Research and Zion Market Research

[2] Average of Grand View Research, Polaris Market Research, Allied Market Research and Zion Market Research

[3] Food for Thought: The Protein Transformation (2022)

[4] Ex-ante life cycle assessment of commercial-scale cultivated meat production in 2030 (2023)

[5] How much will large-scale production of cell-cultured meat cost? (2022)

[6] USDA (2024)

[7] Food for Thought: The Protein Transformation (2022)


About the author

Mr. Tatsushi Sasakura is a Senior Manager of IGPI Singapore. Tatsushi has worked at Mizuho Bank and Deloitte Tohmatsu Financial Advisory (DTFA) in Japan. At DTFA, he belonged to the Corporate Strategy team, specializing in business strategy planning, M&A advisory, and business due diligence. He was also engaged in crisis management, supporting clients to tackle emergencies. He has profound experience in the energy, consumer, and financial industries. He covered a wide range of clients, including Private Equity Funds and large-sized companies. Tatsushi graduated from Waseda University with a B.A. in International Political Science and Economy.

Mr. Matthias Lim is an Associate of IGPI Singapore. Matthias has previously worked as an Investment Associate in Real Estate Investment at Belt Road Capital, a real estate private equity firm. During this time, he was responsible for the deal origination, financial analysis, due diligence and fund structuring for the firm’s real estate investments. During his stint at IGPI, he covered sustainability industry topics such as cultivated meat, de-carbonization and renewable energy. Matthias graduated from National University of Singapore with a B.Eng and is a CFA chartered holder.

 About IGPI

Industrial Growth Platform Inc. (IGPI)  is a premier Japanese business consulting firm with a presence and coverage across Asian markets. IGPI was established by former members of the Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government.

In 2017, IGPI collaborated with the Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC, along with BaltCap, jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus on the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies.

* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

The arrival of the era of regionalization

The era of globalization threatened by GAFAM

In the era of globalization, global IT platforms such as GAFAM established themselves as the dominant forces of this era and are essential to our daily lives.

Business in this era is defined by “who” to sell “what” to. Based on basic business principles taught in business schools for many years, executives decided on the strategy of “who” to sell “what” to, and the operational teams focused on “how” to execute it.

Many management methods were developed during the era of globalization, such as PPM (Product Portfolio Matrix), Balanced Scorecards, and job-based management. However, since the early 2000s, it appears that these methods have become less effective in the U.S.

For instance, job-based management was criticized for lacking innovation, leading to the development of “agile management” and “ambidextrous management” that allows organizations to deepen existing businesses while exploring new areas.

The era of regionalization brought on by the digital revolution

Why did the management methods developed during the era of globalization become ineffective? This is largely due to the rules of the game changing as a result of the digital revolution, heralding the era of regionalization.

Businesses evolved from simply defining “who” to sell “what” to, to now focusing on “who” to sell “what” and “how” to sell. Let’s illustrate with an example from an ASEAN country.

A businessman in Jakarta is struggling to improve his or her means of commuting. Ten years ago, the only solution was to sell them a car or motorcycle. Now, one can propose ride-sharing or on-demand bus services. Remote work, popularized during the COVID-19 pandemic, can even eliminate the need for commuting. Digital transformation, particularly the smartphone revolution, has played a pivotal role in this shift in Southeast Asia and all around the world.

In the era of regionalization, it is not an exaggeration to say that digital technology is at the core of business. This is because digitization enables and expands upon the most crucial factor, the “How”, in addressing region-specific challenges.

There are people who call the global focus on increasing self-sufficiency in food and energy a regression from globalization, but this is incorrect. The reality is that the digital revolution has advanced globalization and ushered in the era of regionalization.

Titans of the age of regionalization in Southeast Asia

Super apps that reached consumers

Now, let’s look at the changes happening in Southeast Asia during the era of regionalization. Alongside the rise of super apps like Gojek and Grab, conglomerates in various countries are also becoming key players. Let us take a closer look at the evolution of super apps.

When I started my business in Southeast Asia in the early 2010s, smartphones were not yet widespread, and banks were one of the main institutions that were reaching out to consumers directly. To reach as many as possible, banks leveraged campaigns to promote opening bank accounts and selling prepaid cards. Convenience stores had five to six payment terminals from different banks, and restaurants often had bank promotions, sometimes offering 30% off.

Then came the rapid proliferation of smartphones. Players who successfully leveraged this to solve consumer-related challenges rapidly grew and dominated the market. For example, Gojek gained market share in big cities by offering bike taxi services to avoid traffic jams, and later diversified into e-commerce, food delivery, and payments, evolving into a super app.

Thriving through franchise support with smartphone apps

The unique transformation brought about by super apps like Gojek focuses on regional issues, or “solving problems within a 5-kilometer radius.” Gojek connects consumers with nearby motorbike taxis and small local stores (known as warungs) through smartphones, thereby addressing various social issues- this eases the burden on consumers and also helps to increase sales for these local businesses. The value of solving local issues is evident when such small business owners and drivers experience improved sales without having to expend significant resources to take active steps in promoting their business.

Moreover, these warungs serve as hubs for local communities, much like the neighborhood gathering spots of Japan’s Showa era.

Let’s consider the convenience store chains and supermarket chains that have become widespread in Japan since the 1970s, for the sake of comparison. The spread of convenience store and supermarket chains in Japan has marginalized traditional shopping streets, particularly in suburban areas. While these chains have provided convenience to consumers, they have also contributed to the decline of local community spaces.

The difference between Southeast Asia and Japan can be attributed to the rise of digital technology, which allows organic integration and innovation without destroying what already exists.

Breaking established interests

Innovations in Southeast Asia are moving into the next phase. For example, an Indonesian startup named Sinbad provides an app that helps warungs order inventory, aiming to disrupt the complex, inefficient supply chains that currently exist. Addressing these inefficiencies is not an easy task, as it challenges established interests and traditional systems, much like the seniority systems in Japanese corporations or subsidies for cedar planting in Japan.

Using smartphone technology and big data to break these established interests is the key for the ASEAN region to move forward.

Conclusion: Winning in the era of regionalization

The three points below are essential for corporations to win in Southeast Asia:

a) Clarify what not to do: Executives must be clear about what the company should not engage in to avoid confusing their operational teams.

 b) Secure necessary resources: In this era, it’s crucial for the regional offices in Southeast Asia to have easy access to resources, personnel, money, and information.

 c) Collaborate with other corporates and startups: Understanding local conditions and networks is vital. While it’s possible to build these capabilities internally, partnering with local stakeholders could offer a faster route to innovation.

    Through these key pointers, we hope to guide corporations in navigating, innovating and ultimately thriving in Southeast Asia during this era of regionalization.


    To find out more about how we can support your value creation endeavours, get in touch with us here.      


    About the author

    Mr. Kohki Sakata is CEO of IGPI Singapore. After joining Cap Gemini and Coca Cola, Kohki joined Revamp Corporation, where he managed projects on global expansion and turnaround in various sectors, including F&B, healthcare, retail, IT, etc. After joining IGPI, Kohki has managed projects mainly on global expansion and cross border M&A in various sectors such as logistics, IT, telecom, retail, etc. In addition to his broad experience in implementing solutions that have been developed in Western countries, he has developed multiple methods to turnaround Asian companies with a focus on setting a clear vision and employee empowerment. He has proven the practicality of these methods by turning around Asian companies not only as an advisor but also as senior management. He graduated from Waseda University Department of Political Science and Economics and IE Business School.

     About IGPI

    Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialisation and monetisation of technologies.

    * This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

    Exploring new markets overseas is becoming a strategic imperative among Singapore companies.

    As business landscapes evolve, exploring new markets and expanding overseas have become a key priority for many Singapore companies. This is particularly evident among Small and Medium-sized Enterprises (SMEs), which are increasingly recognising the immense potential that lies beyond their domestic borders. The DBS annual SME Pulse Check survey conducted at the end of 2022 revealed that over 60% of SMEs in Singapore have indicated overseas expansion as a key business priority[1]. This is contributed by the reopening of borders along with support from government schemes such as the enhanced Enterprise Financing Scheme[2] announced in Budget 2023, which enables local companies to gain access to financing across all stages of growth.

    Among the array of enticing markets, Japan has emerged as a particularly alluring destination for Singaporean businesses. Apart from having a large consumer market backed by sizable economy, bilateral agreements were signed between both nations in May 2022 to boost the flow of entrepreneurs and enterprises by promoting greater access to start-up and innovation ecosystems[3]. Initiatives such as business matching sessions to connect Singapore and Japanese firms with accelerators, business partners and investors, are put in place to empower businesses to build market knowledge and tap into new opportunities, deepening their networks in the process.

    Japan has seen growing interest among Singapore companies from diverse industries, as exemplified by various market entries in the past year.

    Drawn by the influx of tourists into Japan in a post-pandemic era, five-star resort hotel operators from Singapore, Capella Hotels & Resorts and Banyan Tree Holdings, have announced plans to enter the Japanese market. Capella Hotels & Resorts intends to open its first Japanese hotel in Kyoto as early as the summer of 2025[4], located on Yamatooji-dori in the historic Miyagawa-chō district[5]. The office of renowned architect Kengo Kuma, which designed the Japan National Stadium for the 2020 Tokyo Olympics, is supervising the construction. On the other hand, Banyan Tree Holdings plans to open flagship hotels in Kyoto and Hakone from now through 2026. These hotels aim to provide signature standards of service that will serve as a benchmark for all future Banyan Tree locations in Japan[6]. The presence of Singapore hotel groups in Japan contributes to enhancing tourism infrastructure while attracting affluent visitors to experience premium accommodations.

    Shifting the focus to a more mass-market brand, Singapore design studio Beyond the Vines launched its first international pop-up store in Tokyo in March 2023 as it seeks to grow its international presence[7]. The brand, known for its minimalist and contemporary designs, has gained popularity in Singapore and other Southeast Asian markets. Its entry into Japan reflects its recognition of the country’s vibrant fashion scene, and the opening in Tokyo allows the brand to tap into the city’s fashion-conscious consumer base. While the initial pop-up store only lasted for a week, Beyond the Vines has since launched another pop-up at Miyashita Park North in Shibuya, which will remain at the location for a month until the end of July 2023. The expansion demonstrates Singapore’s fashion industry’s potential to resonate with the Japanese market.

    On the technology front, Singapore-headquartered Fintech company M-DAQ Global has announced the opening of its Japanese office in Fukuoka in September 2022[8]. The company specialises in providing currency conversion and payment solutions, enabling businesses to transact seamlessly across different currencies. It sees opening a subsidiary office in Fukuoka as a natural fit for a myriad of reasons, including its similarity to Singapore in terms of the active collaboration between private and public sectors to develop innovative solutions for business needs and quality of life improvements. M-DAQ has since commenced discussions with the Fukuoka City Government, Kyushu Railway Company and other entities to improve the foreign currency user experience when making retail and travel transactions. This expansion highlights Singapore’s ability to deliver advanced financial services on an international scale.

    In addition to Singapore companies that entered the Japan market recently, others are exploring pathways through trade exhibitions. The Franchising and Licensing Association (FLA) has led a delegation made up of popular Singapore brands including Crystal Jade, Five Star Chicken Rice, Playmade and iJooz, in forming the Singapore Pavilion exhibiting at the 40th Japan International Franchise Show in March 2023. Through this event, local companies sought potential business partners to carry their brand, while gaining an initial sense of their product acceptance in Japan.

    These activities underscore the increasing interest and capabilities of Singaporean companies in capturing opportunities in the Japanese market. With that being said, entering the Japanese market presents a set of unique challenges for Singaporean companies, ranging from language and communication barriers to cultural nuances and intense competition. Overcoming these obstacles is crucial for successful market entry.

    Public agencies such as Enterprise Singapore and JETRO offer a multitude of initiatives to provide support for Singaporean companies venturing into the Japanese market.

    Enterprise Singapore assists Singaporean companies in their internationalisation efforts by providing various support initiatives, including grants and market access programs, to facilitate market entry. For instance, the Market Readiness Assistance (MRA) Grant offers financial support to Singaporean companies to defray a significant portion of eligible costs associated with market entry activities, helping businesses assess market potential, establish networks and promote their products or services[9].

    Hailing from Japan, JETRO (Japan External Trade Organisation) operates in Singapore with the mission of promoting trade and investment between Japan and Singapore. ‘Invest Japan’ serves as a platform to attract and assist Singaporean companies interested in establishing a presence in Japan. Through this initiative, JETRO offers support services including consultation services on company incorporation, networking opportunities and temporary business office facilities in Japan among others to help Singapore companies make a more informed decision prior to market entry[10].

    In addition to support from the public sector, local companies can leverage the expertise and guidance by IGPI, a Singapore-based Japanese management consulting firm.

    IGPI Singapore offers a range of services to support Singapore businesses in their overseas expansion. Services can be broadly divided into:
    Management consulting, where we help companies identify growth opportunities, develop strategies to establish a presence in the target market. In the process, we often employ business matching techniques to find suitable local partners which could be crucial to successful market entry
    M&A advisory, where we guide companies through the end-to-end deal process, ensuring successful transactions

    Our past and current engagements include:
    ● Supporting a local F&B chain in its market entry into Japan, including performing a market study, identifying and selecting the most suitable strategic partner
    ● Supporting a local wholesaler and retailer in its market entry into Japan through business matching, by shortlisting promising partners and facilitating discussions towards the formation of the partnership
    ● Organising missions trips to Tokyo with various industry associations, where we led delegations made up of senior executives from Singapore companies to gain insight into doing business in Japan

    IGPI Singapore can support your company in its market entry into Japan and maximise its chances of success – Get in touch with us!


    [1] The Straits Times: Exploring new markets, expanding overseas key priorities for most Singapore SMEs: Survey (21 Mar 2023):  https://www.straitstimes.com/business/exploring-new-markets-and-expanding-overseas-are-top-priorities-for-most-s-pore-smes-survey

    [2] For more details, please visit: https://www.enterprisesg.gov.sg/financial-support/enterprise-financing-scheme

    [3] CNA: Singapore, Japan ink agreements on promoting start-ups, digital transformation for governments (26 May 2023): https://www.channelnewsasia.com/singapore/singapore-japan-ink-agreements-promoting-start-ups-digital-transformation-governments-2709716

    [4] Nikkei Asia: Thai, Singapore hotel groups target Japan’s tourism boom (26 Jun 2023): https://asia.nikkei.com/Business/Travel-Leisure/Thai-Singapore-hotel-groups-target-Japan-s-tourism-boom

    [5] Artist’s impression of the upcoming Capella Kyoto: https://capellahotels.com/en/capella-kyoto

    [6] Banyan Tree Group Press Release (Jun 2022): https://www.banyantree.com/assets/2022-06/220624-banyan-tree-group-debuts-japan.pdf

    [7] Inside Retail: Singapore’s Beyond The Vines to open first store in Japan (15 Mar 2023): https://insideretail.asia/2023/03/15/singapores-beyond-the-vines-opens-first-store-in-japan/

    [8] Technode Global: Singapore’s M-DAQ Global Opens Japan Office as part of international expansion (13 Sep 2022): https://technode.global/2022/09/13/singapores-m-daq-global-opens-japan-office-as-part-of-international-expansion/

    [9] For more details, please visit: https://www.enterprisesg.gov.sg/financial-support/market-readiness-assistance-grant

    [10] For more details, please visit: https://www.jetro.go.jp/singapore/investinjapan.html


    About the author

    Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experiences especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.

    Mr. Zhi Hao Thean is an Associate at IGPI Singapore. Zhi Hao started his career with IGPI. He graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his time at IGPI, he is involved in multiple engagements pertaining to market entry, strategy development and benchmarking studies across diverse industries.


     About IGPI

    Industrial Growth Platform Inc. (IGPI) is one of Japan’s premium management consulting and investment firms headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI was established in 2007 by former members of Industrial Revitalization Corporation of Japan (IRCJ), a USD 100 billion sovereign wealth fund focusing on turn-around projects in Japan. IGPI has 14 institutional investors, including Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few. IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and funded startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making our own venture investments (30+ till date) adds to our uniqueness. One of our recent investment endeavours has been a VC fund in Europe (EUR 100mn fund) along with Honda, Panasonic, JBIC etc. (a couple of our investees are now unicorns). IGPI group has ~6,000 employees on a consolidated basis.

    * This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

    In this article, we highlight why it is imperative for CPG companies of all sizes across the value chain, now more than ever, to develop or refine their rationalisation framework in their product management toolbox, share key success factors in crafting a rationalisation strategy and shed light on common pitfalls.

    Macro trends depict a critical juncture for the CPG industry

    In 2021, facing rising input cost inflation and squeezed margins, Nestlé S.A. kicked-off Project TASTY as part of a wider value creation strategy, focusing on achieving cost savings, margin improvements and long-term growth via SKU rationalisation and recipe and packaging optimisation.

    Table 1: NIQ 2023 Consumer Outlook Report – Global CPG Price Inflation Rate

    One year on, CPG companies across the value chain faced persistent inflation, driving prices higher and negatively impacting sales volumes across categories. The pandemic also accelerated digital transformation across the entire value chain, with CPG companies of all sizes finding themselves at varying stages of implementing and leveraging newfound digital infrastructure, data pools and analytical capabilities. Changing consumer preferences stemming from rising prices and the pandemic include a rising preference for online shopping, variations in purchase frequency and a flight towards value, albeit varying across the different product categories.

    Such shifts warrant a reprioritization of multi-dimensional criteria in assessing an SKU’s historical financial and operational performance and strategic importance in the short and long-term. At a time of internal change and external shifts, CPG companies have been presented with a golden opportunity to revisit their product mix management strategy, spanning both SKU innovation and rationalisation.

    Performing a one-off innovation or rationalisation exercise will not suffice – corporations should capitalise by fundamentally redesigning their product mix management frameworks, leveraging new consumer touchpoints, access to big data and advanced analytics while revisiting and updating previous methodologies and key performance indicators (KPIs). In lieu of current cost-side pressures, SKU rationalisation remains a priority and a valuable first step in the SKU optimisation cycle.

    Key success factors to maximise value from SKU rationalisation

    Category managers and executives have long understood the need to consider the importance of considering multiple performance dimensions in addition to SKU-level financials and embracing product basket synergies, overall mix value contribution and long-term growth potential.

    In developing or refining existing frameworks, much emphasis is placed on analytical capabilities, data collection and execution agility. However, CPG companies today should also consider strategic elements that have significant bearing on the value unlocked from a rationalisation exercise, such as the following:

    1) Design Digital Infrastructure to Support Rationalisation Needs

    The push for digital transformation entails new infrastructure, workflows and data collection and analysis capabilities. In the midst of change, companies that capitalise on this opportunity to amalgamate existing SKU rationalisation workflows and data needs with new systems will be able to minimise resources spent on data interpretation and developing actionable insights.

    In migrating to new systems, optimization from the collection of data through to the visualisation and framing of key indicators is imperative and companies must actively drive the development of integrated workflows from the get-go. Executives and managers should also re-evaluate existing digital infrastructure and contrast this against rationalisation needs and the price and value of current market offerings.

    2) Systemize Qualitative Insights and On-the-Ground Feedback

    In the pursuit of data-driven insights on SKU performance, companies must also recognise the value of consolidating, interpreting and transforming qualitative inputs from within the organisation (and in some instances, select third-parties involved in distribution, retail or day-to-day operations) into actionable items. More often than not, following rigorous quantitative analysis, qualitative assessments are performed at the executive level or within the steering committee as a final ‘check’ just before implementation to ensure alignment with leadership’s understanding. In doing so, a wealth of insights from the ground remain untapped and deep understanding of select categories or products are not fully leveraged.

    To capitalise, companies must embark on a path of systemizing qualitative inputs, designing existing SKU rationalisation frameworks to periodically collect, consolidate and transform feedback from the ground into actionable items.

    3) Supplement Targets with Sensitivity Analyses

    Forming the basis of a periodic rationalisation exercise is a set of clearly quantitative targets spanning different performance dimensions, such as a minimum improvement in gross margins or process cycle efficiency. Leveraging stronger analytical capabilities and big data, companies can supplement such targets with sensitivity analyses comprising multiple iterations and combinations to obtain a clearer picture of:
    (1)  The array of possible rationalisation solutions to achieve current targets
    (2)  The extent of marginal improvements by extending the number of SKUs reduced in different scenarios

    In doing so, companies shift from a target-focused mentality to one of value-maximisation, driving larger value gains in the long run. The steering committee and key decision makers should also note the interests of other stakeholders and evaluate the pros and cons of adopting a rationalisation strategy based on the company’s ultimate priorities.

    Case-in-Point: Trimming SKUs to drive margins in beverage distribution

    IGPI Singapore worked with a beverage distributor undergoing a major system migration to analyse their existing SKU portfolio and recommend candidates for rationalisation, which would improve:
    ●      Financial metrics by driving gross margins
    ●      Operational metrics by improving warehouse inventory turnover
    ●      Strategic metrics by aligning the SKU mix with the firm’s strategic direction

    We designed a framework detailing each step of our approach to the rationalisation, beginning with segmenting SKUs into analysis groups based on key criteria. We proceeded to develop and refine the KPI that determined each SKU’s performance. Next, we performed multi-dimensional analysis supplemented with sensitivity analyses for each KPI to identify potential candidate SKUs, while managing data coherence across legacy and new systems. Finally, we incorporated qualitative insights drawn from departments within the company and industrial best practices to develop our final rationalisation recommendations.

    Recognizing the importance of implementing a sustainable solution for our client rather than a one-off exercise, we developed a tailor-made rationalisation tool custom-fitted for the new system to allow managers to replicate our work steps, perform the rationalisation exercise and quantify the impact on KPIs independently going forward.

    The rationalisation led to a significant reduction in the number of SKUs, projected growth in gross margins and improved operational workflows.

    Common Pitfalls in the Rationalisation Process

    1) Misalignment across Department Silos and KPIs

    High-level company-wide strategic direction and goals underpin a rationalisation exercise, forming the basis of rationalisation targets and facilitating compromise across KPIs in pursuit of long-term value. Companies must beware of the formation of silos and internal misalignment on wider company goals between departments, which lead to tunnel vision, push-back and low quality implementation. A common example is the conflict of interest between sales and cost centres, leading to either topline targets or cost savings achieved at the detriment of the other. This can be addressed through a clear prioritisation process, facilitated conversations across key functions and dedicated resources to achieving compromise. Taking the middle ground will not be the indicator of successful alignment – a compromise in lieu of company objectives will.

    2) Suboptimal Allocation Methodologies

    Evaluating the financial performance of an SKU leverages heavily on allocating key components in the cost-to-serve equation to individual SKUs to obtain gross and contribution margins. Analysis quality is only as good as the quality of its input data – underlying assumptions such as allocation base have significant implications on the results of the rationalisation and if suboptimal, may result in the trimming of well-performing SKUs mistakenly classified as poor performers along select KPIs. Companies can mitigate this through comprehensive analysis of cost drivers and testing existing assumptions through iterations of rationalisation execution and review.

    3) Compromised Execution and Implementation

    The gap between actionable insights and executing on said insights is a major factor in determining the long-term benefits reaped from a rationalisation exercise, especially in the context of operations and workflows. Compared to insight derivation, this step involves more stakeholders and key process owners, requires more nuance in implementation and is far less straightforward. Companies must devote sufficient resources to support the transition following a rationalisation throughout the organisation, be it in terms of product portfolio, brand equity, sales strategy or people-related factors such as upskilling, managing workflow changes and resource allocation, etc. More often than not, such responsibilities fall to the decision makers in the rationalisation exercise – companies should recognise shared responsibilities and understand that a new pair of hands, more experienced or suited in implementing solutions, may be required to take over from the initial decision makers. A possible solution is the concept of segmenting and allocating scopes to different process owners, to make good executive decisions on what to rationalise and address the issue of how and when.

    4) Lack of Process Discipline

    SKU rationalisation has always been a continuous process, enabled now more than ever with the advent of analytical capabilities and round-the-clock data collection. A key component of the value in rationalisation lies in the future insights derived from acting on current actionable items and with each performance, product portfolios and existing frameworks are refined to maximise value. Opportunistic rationalisation exercises conducted in times of distress fail to leverage on this, resulting in superficial performance analysis and one-off improvements with minimal impact. Successful companies integrate rationalisation into workflows and continually improve analysis processes, implementation frameworks and strategies, developing self-sustaining engines over time.

    How can IGPI Singapore help?

    IGPI has deep experience in strategising, developing, analysing and implementing sustainable product optimisation solutions for companies across all parts of the value chain based on a proprietary approach, leveraging our expertise in multiple sectors in the wider CPG industry. To find out more about how we can support your value creation endeavours, get in touch with us here.      


    About the author

    Mr. Hoong Tian Jin is an Associate in IGPI Singapore. Before joining IGPI, Tian Jin started his career at Ernst and Young Singapore in the Assurance service line, where he led digital audits and reviewed operational controls of healthcare, pharmaceutical and manufacturing companies. During his time in university, he also worked at an e-commerce start-up performing business development, online marketing and search-engine optimisation. He graduated from the National University of Singapore with a Bachelor of Business Administration (Accountancy). Tian Jin is proficient in English and Mandarin. He is passionate about corporate and social responsibility and volunteers regularly with numerous non-profit organisations to give back to society. In his leisure time, he enjoys football, music and chess.

     About IGPI

    Industrial Growth Platform Inc. (IGPI) is one of Japan’s premium management consulting and investment firms headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI was established in 2007 by former members of Industrial Revitalization Corporation of Japan (IRCJ), a USD 100 billion sovereign wealth fund focusing on turn-around projects in Japan. IGPI has 14 institutional investors, including Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few. IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and funded startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making our own venture investments (30+ till date) adds to our uniqueness. One of our recent investment endeavours has been a VC fund in Europe (EUR 100mn fund) along with Honda, Panasonic, JBIC etc. (a couple of our investees are now unicorns). IGPI group has ~6,000 employees on a consolidated basis.

    * This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

    The motivation of this article is to capture select examples of the Australia-Japan innovation activity across diverse stakeholders and to draw attention towards keeping a closer eye on Australia’s innovation ecosystem where many opportunities exist and cut across business, technical and financial collaboration with startups, universities etc.

    Japan and innovation – setting the context

    Japan is an advanced nation that has historically enjoyed the reputation of being a tech front-runner. It has contributed many innovative companies to the world. This has been largely driven by the commitment to quality and a strong work ethic that propelled Japan to economic success in the post-world war II era. Japan went on to become the 2nd largest economy in the world after the United States. This was followed by the ‘lost decade’ when Japan’s economic bubble burst. Since then Japanese companies have been constantly redefining themselves in an ever-evolving world.

    At the same time, if we zoom out to the global stage across the past few decades – where the world was becoming smaller, closer and more global with every passing year, new companies (“startups”) were grabbing the limelight and opening their wings. These companies include the likes of Apple, Google, Amazon etc. which don’t require any introduction. Taking a closer look at the top 10 rankings by largest market capitalization between Japan and USA[1], one would immediately spot that some of the “new” companies that can be seen as torch-bearers of innovation actually became bigger than the conventionally large players such as auto manufacturers, financial institutions etc.

    Table 1: Top 10 rankings of the largest market cap companies in 1986 & 2016
    (*Companies in red font are 30 years old or less)

    The above table reaffirms a very clear message about the importance of innovation. Most corporations are built around a unique set of products or services. That’s why at a certain point, they reach a point of saturation, where their product line has been upgraded/extended to the maximum. The profit margins stop growing so dynamically. When they reach that moment (or are about to), they need to innovate to keep growing[2]. Harvard Business Review reports that since 2000, 52% of enterprises in the Fortune 500 “have either gone bankrupt, been acquired, or ceased to exist” due to digital transformation[3].

    In order to innovate, from a Corporate lens, the innovation can be simplistically be classified into two types:
    (1) Closed – E.g. Internal R&D, In-house innovation labs, Internal accelerators etc.
    (2) Open – E.g. Corporate VCs (CVCs), External accelerators, Innovation teams etc.

    In recent years, more and more Japanese companies have been actively promoting the idea of open innovation. With many Japanese companies operating beyond borders in search of new solutions, there are increasing opportunities for overseas companies as well[4]. The typical destinations for open innovation outside of Japan have been the USA, Europe, Israel, Singapore etc. This can be corroborated by a quick search of the destinations where Japanese CVCs mostly set their mandates. For e.g. Sony Innovation fund which has US$250m AUM has offices in US, EU, Israel, Japan and India[5].

    With this backdrop, the focus of this article is to draw attention to Australia’s startup ecosystem which sometimes gets overshadowed or under-appreciated amidst the global innovation ecosystems that many Japanese corporations turn towards for their open innovation initiatives.

    Australia’s startup ecosystem – stating the facts

    While to some, Australia is more popularly known for sandy beaches and ocean views, Australia’s startup ecosystem (with ~6,500 startups[6]) is promising with innovation across various sectors that is rapidly growing. A study by Startup Blink ranks Australia at 8th place globally and 2nd place within the APAC region for its startup ecosystem[7].

    Table 2: Startup Blink Global Ranking Index 2022 – Asia Pacific

    The above holistic scorings are based on the sub-scores measuring quantity score (including the number of startups, co-working spaces, accelerators, startup-related meetups, etc.), quality score (including traction of entities in all ecosystems, presence of strategic branches and R&D centers, presence of unicorns, exits, and pantheon companies, global startup events, number of startups backed by accelerators, etc.) and business environment score (including diversity index, internet freedom, R&D investment, number of patents per capita, top universities per location, etc.). Such rankings can help provide a good flavor of the relative prominence of Australia’s startup ecosystem in the region.

    When it comes to the sheer scale of startups, Australia has been performing well for its population size with 21 unicorns as of Oct’22 – many of which have been opening their wings on the global stage –

    • Pantheons include Canva, a website for design and publication that offers tools that non-designers can use, and Atlassian, a cloud-based enterprise collaboration suite solution that gives teams access to problem-tracking, development, and collaboration tools.
    • Some other famous unicorns include Fintech companies such as Airwallex, Judo Bank, blockchain based Immutable and HR-tech called Employment Hero to name a few.

    In terms of sector attractiveness from an investor’s perspective, Health, Fintech, and Energy are the top 3 industries that received funding in Australia in 2022. Health startups raised the most money in 2022 ($853 million), followed by Fintech ($839 million), and Energy ($404 million), according to Dealsroom.co. (see Figure 1)

    Figure 1: Australian startups’ fund raised by sector in 2022[8]

    The Australian innovation startup ecosystem has been growing and is further catalyzing. Australia venture capital Airtree, Blackbird and Square Peg raised a staggering amount of ~$2.5 billion in new funds in 2022 showing confidence to grow the Australian startup ecosystem further.

    Why should Japan consider Australia

    Japanese companies have been expanding overseas for decades – including Australia. Therefore, Australia is not ‘new’ for Japan but historically it is also true that Australia was largely being seen through the lens of conventional businesses (e.g. “digging the earth” etc.). This was in stark contrast to countries such as the USA that built a strong reputation for technology (e.g. Silicon Valley) during the same period and attracted Japanese corporates to explore innovation opportunities too. For example, many leading Japanese CVCs have strong activities in the USA while in an Australian context, the examples are far and few. This is because, for many Japanese corporations, Australia’s name and perception of innovation don’t come in the same breath as Silicon Valley, Singapore, Israel, etc.

    Unfortunately, these perceptions can’t evolve overnight but there are reasons why Japan should look more closely at Australia with a dual objective – (i) Scouting innovation to solve Japan’s challenges and (ii) New business creation opportunities for Japanese Corporates in Japan and beyond.

    Some of the various sectors in Australia that can be considered and are not limited to

    1. Clean Tech – Australia’s strategic location provides them with an opportunity to become a renewable energy superpower with the world’s largest rooftop solar penetration, sophisticated grid systems, strong winds, etc., giving them an edge in this field. Their unique location also led to the birth plethora of promising green startups that can help to tackle climate change which can be important for Japan due to their energy security needs as well as slow progression towards net-zero emissions.
    2. Smart City – Australia’s startups are shaping the future of smart cities. Companies within the private sector are innovating with technologies including video analytics and IoT, building a digital “bridge” to support traditional engineering demands in transport and utilities[9], etc. These innovations can help Japan strengthen its future of smart cities since Japan has a declining population and is particularly vulnerable to natural disasters due to its topography.
    3. Health Tech – Australia is home to many cloud technologies that are helping to accelerate research and innovation for complex healthcare issues – from mapping the brain, predicting seizures to improving rehabilitation for elderly patients, etc.[10] The sector is especially useful for given their aging society.
    4. Agriculture Tech – Agriculture is a critical part of the Australian economy, with the country’s agricultural, fisheries, and forestry sectors valued at $69 billion and growing[11].  Australia is home to numerous AgriTech startups in Australia who are providing livestock management software, developing sensor probes and software for soil moisture monitoring, using SaaS-enabled hardware and system for precision aquaculture, robotic packing solution for food supply chain, etc. These advancements can come in handy for Japan in view of Japan’s shortage of farm workforce while also ensuring that Japanese consumers’ high expectations for quality of food products are met.

    From a Japanese lens, apart from the facts stated above, some of the reasons why Japan should consider Australia more closely are: 

    1. Good test market – Australia can serve as a good test market for Japanese companies looking at foraying into USA and Europe. The developed world characteristics, technology adaption, regulatory aspects, high GDP/capita and diverse population are some of the reasons that Australia can not only provide a market ‘close to home’ but market feedback and learnings that can help tackle other western world markets more effectively.
    2. Strong bilateral relationship – Both Japan and Australia share a deep relationship that can act as a catalyst to exploring innovation collaborations more closely. The relationship has only gotten even stronger over the past couple of years as a result of developments in the global geopolitical landscape. There is currently more cooperation and government and industry collaboration than ever before in this closely connected partnership.
    3. Proactiveness of universities – Australian universities, which are one of the best in the world with 7 universities ranking in the top 100 world university rank 2023 act as an active stakeholder in the development of the innovation ecosystems that helps to create an entrepreneurial culture and build connections to improve funding and opportunities for startups.
    4. Other factors – There are other factors that contribute to Australia’s attractiveness that include (i) Stable economy, (ii) Government’s support for startups, (iii) Educated population & migration (brings talent), (iv) Time zone convenience etc.

    Examples of Australia-Japan collaborations

    The good news is that in recent years, Japanese Corporates have been getting relatively more active in the Australia-Japan innovation corridors. But don’t take our word for it – let us look at some examples that encompass a variety of ecosystem players, including startups, universities, and financial institutions / venture funds. These various collaborations can be in the form of business, technical or financial collaboration.

    1) Japanese Corporation and Australia Startups Collaboration

    Collaborations between Japanese enterprises and Australian startups are growing as Japanese organizations are becoming more receptive to “open innovation” with Australian companies. The spectrum of partnerships in these sectors includes energy, smart cities, mobility, etc. and examples include:

    Table 3: Examples of collaborations between Japanese corporation and Australia startups

    2) Japanese Corporations and Australia Universities Collaboration

    Japan has a great appreciation for the educational and scientific institutes of Australia and new relationships are increasingly being established between Australian universities and Japanese companies. Some examples of collaborations include:

    Table 4: Examples of collaboration between Japanese corporation and Australia Universities

    3) Japanese and Australia Financial Institutions / VCs Collaboration

    Japanese investors, both new and established, are increasingly trying to focus on the innovation prowess of Australia. Some examples include:

    Table 5: Examples of collaborations between Japanese and Australia Financial Institutions / VCs

    Collaboration between Australia and Japan can be seen in many different angles and different stakeholders are playing their part to increase awareness and provide support to foster cross-border innovation between both countries. For example, JETRO launched J-Bridge (Australia) in 2021, a platform for exploring various prospective partnerships between Japanese corporations and Australian startups that strives to create a bridge of innovation between the countries.

    In summary…

    To conclude, Australia is an exciting region to consider and has been overshadowed by other prominent startup ecosystems in the US and Europe, etc. However, the growing number of collaboration examples in Australia-Japan’s innovation corridors can potentially turn more Japanese Corporates’ attention to this innovation hub down under too – and if you have preconceived notions, you may well be in for a (pleasant) surprise!

    How can IGPI Australia help?

    IGPI is well networked with most Japanese mega corporations as well as Australian startups – be it Japan (HQ), ASEAN (RHQ in many cases) and Oceania offices and support them for a number of initiatives. If you are an Australian startup, we can assist you find the right potential partner for your market expansion plans beyond Australia. IGPI provides highly customized APAC business advisory to its diverse range of clients including but not limited to:

    • Open innovation roadmap
    • New business creation support
    • Market assessment for business opportunities
    • Strategic partner / capabilities search
    • Commercial negotiations support
    • Other custom hands-on support (in-market)

            


    [1] S&P Capital IQ, Diamond Company Ranking
    [2] Iterators, Corporate Innovation Guide: Problems, Solutions & Real Life Use Cases (2023)
    [3] Harvard Business Review, Digital Transformation Is Racing Ahead and No Industry Is Immune (2017)
    [4] JETRO, The current situation of open innovation in Japan: The points that overseas companies should bear in mind (2021)
    [5] Sony Innovation Fund, About Sony Innovation Fund (n.d.)
    [6] TechCouncil of Australia, Turning Australia into a regional tech hub, https://techcouncil.com.au/newsroom/turning-australia-into-a-regional-tech-hub/
    [7] StartupBlink – Global Startup Ecosystem Index 2022 (2022)
    [8] Dealroom.co, Update on Australia’s startup ecosystem in 2022 (2022)
    [9] Innovation Intelligence – The future of Australia’s smart cities (2022)
    [10] All Things Distributed, Is Australia the new epicenter for healthtech startups? (2023)
    [11] AgFunder News, Innovation hub AgriFutures growAG. plans to make Australia the agtech capital of the Southern Hemisphere (2022)
    [12] FuelCellWorks, LAVO and ITOCHU Corporation Collaboration to help industries achieve SDG (2022)
    [13] Hivery, Australian AI startup, HIVERY, partners with JR East Water Business to optimize vending machines in Japan (2020)
    [14] Powerledger, P2P renewable energy trading in Japan (2018)
    [15] Icetena, Construction of next gen surveillance system (2021)
    [16] Business News Australia, E-bike innovator Zoomo goes full throttle with extra $28m in Series B (2022)
    [17] Startupdaily, Suzuki drives $21 million raise for electric vehicle software startup Applied EV (2022)
    [18] NTT, University of Technology Sydney and NTT Group partner to promote smarter, safer and more secure cities (2021)
    [19] Herbert Smith Freehills, Japan-Australia Investment Report 2022: Decarbonisation (2022)
    [20] Ashurt, Landmark business alliance formed between Artesian and MUFG Bank (2023)
    [21] AFR, Japanese institutions turn their eyes towards Aussie tech start-ups (2021)


    About authors

    Mr. Rachit Khosla is the Country Manager of IGPI Australia. Rachit is a seasoned strategy consulting professional with over 14 years’ experience of leading and executing market entry and growth strategy (both organic and inorganic) and open innovation engagements for Fortune 500 businesses and large MNCs across Asia Pacific. He has advised clients in a diverse range of industries including automotive, fin-tech, industrial and manufacturing, med-tech & healthcare, smart cities, construction materials, travel, IT & telecommunications to name a few. Rachit was the former Country Manager and Director for YCP Solidiance (Japanese owned) and Founder and CEO of an online B2B marketplace startup for professional advisory services focused on Emerging Markets.


    Mr. Nicholas Quek is an Analyst in IGPI Singapore. Nicholas graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his time in university, he gained internship experience at OCBC bank where he took on a compliance role responsible for AML. He was also a Teaching Assistant for Financial Markets and Investments, and a Research Assistant for Real Estate Investment Trusts (REITs). In his final year, Nicholas embarked on an experiential learning course where he formulated strategies to increase e-commerce sales for an MNC. He also analyzes and identifies innovative Australian companies in the space of carbon neutral, smart city (incl. energy SaaS), mobility, etc. to help foster collaboration with Japanese corporations in ecosystem-level engagements.

     About IGPI

    Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government.
    IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron.

    * This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

    Development progress of Iskandar Malaysia

    Iskandar Malaysia is the main southern development corridor in Johor, Malaysia. It is one of five priority regional development projects promoted by the Malaysian government since 2006. Iskandar Malaysia’s plan aims to develop the economy of the southern part of the state with a population of 3 million and a nominal GDP of RM120.4 billion by 2025. However, as of 2020, the population had only increased to 1.93 million while the nominal GDP had grown to 83,225 million, according to Iskandar Regional Development Authority (IRDA). [Refer to chart 1]

    (Chart 1: Key KPIs and Results of Iskandar Development)

    One of the reasons for the stagnation of growth is the impact from the coronavirus disease (COVID-19). The border closure as well as the inter-state movement control order have halted the flow of foreigners and Malaysians into the region, impacting industries including retail and tourism. The real estate market has also been hit hard by declining demand for luxury condominiums and land. However, since the restrictions have been lifted, the flow of people has recovered, signs of economic recovery have begun to appear, and progress has begun to be made in the plan.

    Johor’s major investment sectors

    The investment sector in Johor is divided into three sector categories, namely the primary sector (i.e. agricultural and plantation & commodities), the manufacturing sector (i.e. chemicals, electronics, etc.) and the service sector (i.e. information & communication, real estate, etc.).

    The top two investors in Iskandar Malaysia from 2006 to 2021 are China and Singapore, with inflows of RM54.9 billion and RM25.1 billion, respectively, followed by US and Japan, according to IRDA.

    Johor received RM70.6 billion worth of investments in 2022, the highest amount recorded in the past decade and the highest among all of the states in Malaysia in 2022. These investments are primarily from multinational companies seeking to diversify their operations to other countries as they adopt a China-plus-one strategy amid the trade war, according to the Johor’s State Investment, Trade and Consumer Affairs Committee chairman.

    The majority of the recent investments in Johor have been in the service industry, including technology-intensive projects like hyper-scale data centers (HDCs). The reason for this focus is attributed to Johor’s availability of land and utilities capacity, which makes it suitable for supporting the funding and infrastructure requirements of such projects. The state is a hot spot for large tech players with operations in Singapore to set up data centers in the Johor for a couple of reasons – lower construction cost for data centers, affordable access to large-capacity energy, wholesale high-speed data connections and their close proximity with Singapore to support their business, all without compromising the time lag in data transmission. As such, the state’s favorable conditions demonstrate the region’s potential for new business creation in Southeast Asia (SEA). With the right management consulting support and strategic planning, Johor can leverage these advantages to attract even more investments and foster new business growth in the area.

    The investments in Johor could also have a positive ripple effect that can help mitigate the issue of unsold residential properties due to an increase in employment opportunities. In April 2023, the Prime Minister announced that Malaysia received an investment return of RM170 billion from Chinese investors, witnessing the highest investment in history. Of China’s total commitment, an estimated RM80 billion will be invested for the petrochemical refinery in Pengerang, Johor. Further investment inflows in Johor are also likely to soar in 2023 as the state government is in active discussions with more companies involved in petrochemicals, pharmaceuticals and data centers to move their operations there.

    Brain drain and connectivity problem

    To fully capitalize on the potential for new business creation in SEA, Malaysia must address two key issues affecting the progress of further economic development in Johor, which are brain drain to Singapore and connectivity with Singapore.

    One key factor impeding growth in Johor is the outflow of talent to Singapore. In fact, a total of 1.13 million out of 1.86 million Malaysians who have migrated overseas are residing in Singapore as of 2022, according to the Malaysian Human Resources Minister. The demand for skilled labor will increase in tandem with the inflow of tech-intensive investments in Johor, thus the state government would need to address the issues of talent retention and attraction back into Malaysia, including nudging local industries to offer higher wages to entice Malaysians currently employed in Singapore.

    Secondly, making progress with the longstanding connectivity challenges in Singapore, especially in terms of traffic congestion at the Woodlands Causeway and Tuas Second Link (the two land crossings across the Straits of Johor connecting Singapore and Malaysia), is another key aspect that can aid Iskandar Malaysia’s growth. Massive traffic jams are norms at one of the busiest land borders in the world which could often make a usual 30-minute journey an agonizing 3 hours or even longer. Reducing congestion is a key priority for the state government since it would have a “multiplier effect” on investment, jobs and the economy.

    New Rapid Transit System (RTS) Link as a double-edged sword

    To improve connectivity, foster people-to-people ties and generate shared economic and social benefits between Johor, Malaysia and Singapore, the two governments are working on Johor Bahru – Singapore Rapid Transit System (RTS) Link. The RTS Link will cross the Straits of Johor via a 25m-high bridge from Woodlands North Station in Singapore to the Bukit Chagar Station in Johor Bahru. When commencing passenger service by end-2026, the RTS Link will be a standalone Light Rail Transit (LRT) System with the capacity to serve up to 10,000 commuters during peak periods, for every hour and in each direction, and it is anticipated to help lessen traffic congestion as well as the stress associated with cross-border travel.

    When fully operational, the faster and easier commute between the two countries will benefit the local economy in Johor. One industry expected to benefit from the RTS Link is real estate. During the height of the property boom in Iskandar Malaysia from 2010 to 2013, many Singaporeans bought residential properties in the hopes of flipping them for investment gains or even using them as a second home. The RTS Link will be seen as a major boost for these property owners, who can now expect a stress-free cross-border journey, as well as for new owners looking to find reasonable housing options in Johor and commute back and forth for work and study in Singapore. Other than the real estate industry, tourism, retail, education, medical industries in Johor are also expected to benefit from the RTS Link.

    While the RTS Link certainly benefits the local economy in Johor, the game-changing transport system will potentially accelerate the issue of brain drain to Singapore. There are reportedly over 300,000 Malaysians commuting daily for work in Singapore. Currently a large number of them travel by chartered bus or private motor vehicle but as the journey between the two countries is made more convenient, more Johoreans might look for employment in Singapore commuting via the RTS Link.

    There is a delicate line between increased connectivity to Singapore and brain drain, and Iskandar Malaysia will need to find the balance and tackle these issues in tandem. That being said, the state government, in collaboration with management consulting experts, should develop comprehensive strategies to maximize the benefits of the RTS Link while ensuring that Johor retains its skilled workforce and nurtures a conducive environment for new business creation in SEA.

    Media reports in the past referred to Johor as potentially the next Shenzhen of Malaysia and as a possible New Jersey to Singapore’s Manhattan. With a strong focus on innovation, strategic partnerships, emerging sectors, and talent development, Johor has the potential to establish itself as a leading hub for new business creation in SEA, enhancing its economic growth and integration with Singapore. And as connectivity is one of the key factors to economically integrate people in these cities for reasons including trade, investment, and tourism, we will pay close attention to the new RTS Link and its impact on future developments between Johor and Singapore.

    *This article is based on the lecture IGPI Singapore gave to the Japanese business community in Johor Bahru in April 2023. IGPI Singapore provides management consulting services to companies including new business development, talent acquisition and retention, and restructuring of offices, factories, and logistics facilities which appear to be urgent problems to tackle in companies based in Johor, Malaysia. As a premier management consulting firm, IGPI Singapore can help businesses identify lucrative opportunities and develop tailored strategies to enter Asian markets, make structural improvements and more. To find out more about us, browse through our insight articles or get in contact with us.


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    About the author

    Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experiences especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.

     About IGPI

    Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government.
    IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron.

    * This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

    Increasing global attention is being paid towards CCUS technology

    The International Energy Agency’s Sustainable Development Scenario (SDS), with the premise that we will achieve the 2°C target in the Paris Agreement, assumes that CCUS will account for about 15% of emission reductions in 2070, and CCUS is considered an indispensable technology for achieving net zero emissions in the future (Figure 1). One reason for the emphasis on CCUS is that there are unique values in CCUS that are difficult to achieve it with other CO2 reduction methods. Specifically, according to the IEA, there are mainly four strategic values of CCUS:
    • Tackling emissions from existing energy assets
      • CCUS is one of the few technologies that can remove CO2 emissions from thermal power plants.
    • Solution for sectors with hard-to-abate emissions
      • The industrial sectors such as cement, iron and steel, chemicals, or long-distance transport are said to be the most difficult to reduce CO2 emissions due to the nature of the their processes. In this context, CCS is currently one of the most cost-effective options.
    • Platform for low-carbon hydrogen production
      • Hydrogen (green hydrogen) is needed to be produced by water electrolysis with electricity derived from renewable energy. Depending on the cost of renewable energy, blue hydrogen is considered cost-competitive for the time being.
    • Removing carbon from the atmosphere
      • In case emissions remain in sectors where CO2 reduction is difficult to achieve for zero emissions, they need to be compensated by CDR. Biomass power generation with CCS (BECCS: bio-energy and CCS) and DAC+CCS (DACCS) are positioned as important options as CDR technologies in the long term.²
    Each country aims to increase the number of CCS projects in the future due to the factors above. CCS projects in operation are 38 Mtpa in scale currently, but they are expected to reach to 650 Mtpa (around 17 times compared to present) by 2030 and 9,533 Mtpa (around 250 times compared to present) by 2070 (Figure 2). Most of the current CCS development projects in operation are mainly in Europe and the U.S., whereas in Southeast Asia region, there are no commercialized CCS projects that are in operation phase at present. Major reason for this situation is that the legal system related to CCS is still underdeveloped in Southeast Asia, while Europe and the U.S. have incentivized initiatives such as the Emission Trading System and Tax Credit (45Q). As a result, it is difficult for project developers to invest in PJ development because they have no prospect of its profitability at this point.  

    High potential demand and potential supply capacity of CCUS in ASEAN are gradually attracting more attentions from investors

    While the issues for the commercialization of CCS in Southeast Asia have been indicated above, the CCS potential in Southeast Asia, especially in Indonesia and Malaysia, is considered to be very high. Generally, the size of the storage potential is considered important when assessing the potential of each country for the development of CCS projects. As shown in the figure below, there are many countries in Southeast Asia that have huge storage potential (Figure 3). For example, in Indonesia, there are old oil fields and deep saline aquifers near Java where CO2 emission sources are concentrated. Also, there are depleted oil fields and a number of gas fields. Japanese government and companies have started to promote the development of CCS projects in Southeast Asia against this high potential. For example, in the Gundhi CCS Project in Indonesia, JGC HOLDINGS CORPORATION and Electric Power Development Co., Ltd. are collaborating with Pertamina and the Bandung Institute of Technology to develop the first large-scale CCS project in ASEAN, and the number of similar projects is expected to increase in the future.  

    Collaboration with the local governmental entities is the key to penetrate ASEAN

    Currently, most of the CCUS projects in Southeast Asia are in the prefeasibility or feasibility study stage and are just starting to explore the project developments in the area. By entering the early CCUS market, it is highly likely that the new entrants will be able to benefit from the expected future expansion of the market itself in the area. An analysis of actual CCS development projects in Southeast Asia reveals that most of them are joint demonstrations by state-owned O&G companies (Pertamina in Indonesia and Petronas in Malaysia) and non-local companies (Japanese trading companies, O&G companies, and European and U.S. O&G companies). This may be due to the fact that the cooperation of the local government is indispensable in securing reservoir sites and conducting field surveys for project development, and also because the capital cost of CCS is so large that some type of government subsidy is indispensable for improving profitability of the project. Therefore, relationships with state-owned O&G players are the key to the market entry in the region, and it may be necessary to secure government connections or partner with other companies that have connections with the government to enter the market.  

    Recently, IGPI Singapore has supported multiple clients with regards to CCUS Projects

    Against the backdrop of growing interest in CCUS as mentioned above, IGPI Singapore has been supporting multiple clients with their global CCUS market entry studies, and has extensive knowledge in this area. To find out more about how IGPI can provide Japanese consulting support for business in Singapore and the region, browse through our insight articles or get in contact with us.     **************************************************************************************************** [1] IEA (2020) [2] IEA (2020) [3] IEA (2022) [4] Global CCS Institute (2019) ****************************************************************************************************

    About the author

    Mr. Tatsushi Sasakura is a Senior Manager of IGPI Singapore. Tatsushi has worked in Mizuho Bank and Deloitte Tohmatsu Financial Advisory (DTFA) in Japan. At DTFA, he belonged to the Corporate Strategy team specializing in business strategy planning, M&A advisory, and business due diligence. He was also engaged in crisis management, supporting clients to tackle emergencies. He has profound experience in the energy, consumer, and financial industries. He covered a wide range of clients including Private Equity Funds and large-sized companies. Tatsushi graduated from Waseda University with a B.A. in International Political Science and Economy.      

    About IGPI

    Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies.   * This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

    Japanese companies should consider venturing abroad amid a shrinking domestic market, to explore opportunities that lie in neighbouring ASEAN countries

    Japan’s population has registered 11 straight years of decline since 2011, experiencing the steepest fall in 2021 after a drop of 644,000 people compared to the previous year. The population is also rapidly greying, with the proportion of those age 65 or older hitting a record high of 28.9% while the younger population reaches a historic low[1]. A shrinking and ageing population could spell trouble for domestically focused companies, as they are essentially competing for a smaller pie and human capital. Outside Japan, ASEAN is experiencing quite the opposite where member states are gaining affluence with a rising GDP and a growing middle class. The 10 ASEAN countries have a combined population of around 660 million, making it the third most populous region after China and India. The region’s GDP has increased exponentially from just US$0.6 trillion (~13% of Japan’s GDP) in 2000 to US$3.1 trillion (~61% of Japan’s GDP) in 2020. It is expected to reach US$6.8 trillion in 2030 (~108% of Japan’s GDP), exceeding Japan’s GDP. Due to rapid urbanisation, a wide gulf is observed in terms of the population density and GDP capita in capital cities. The middle and higher classes also make up a larger proportion of the total population today[2]. These factors highlight the opportunities that lie outside Japan’s national borders. Put together, these push-and-pull factors have implications for domestically focused Japanese businesses to come up with a strategy for diversifying their revenue streams, increasing their earning potential by looking beyond national borders and considering market entry in neighbouring countries, especially in rapidly developing ASEAN countries.  

    Why Southeast Asia and in particular, Singapore?

    People in Southeast Asia generally have a positive perception of Japanese brands, as they are commonly associated with reliability, craftsmanship, and simplicity. This grants Japanese companies greater pricing power, provided they are able to meet higher quality expectations. Among ASEAN countries, Singapore is by far the most affluent with the highest GDP per capita of ~US$60k, exceeding Japan’s GDP per capita of ~US$40k in 2020[3]. Consumers in Singapore have relatively high spending power. In turn, this aligns with the value proposition of many Japanese companies, which prefer to compete based on quality rather than on price. Located at the heart of Asia, Singapore is a popular destination for companies looking to establish a presence in SEA, with over 4,200 regional headquarters based in the country as of 2019[4]. Key reasons include its business-friendly environment, strong regulatory body, stable political system, ready access to a highly skilled workforce, and the list goes on. Singapore has capitalised on its strategic strengths to become the global hub for business and innovation. Notably, out of the ~35 unicorns that exist in SEA, ~15 hail from Singapore[5], dwarfing Japan’s ~10 despite its significantly larger size[6]. Having an affluent consumer base and a conducive business environment makes Singapore a highly viable choice for Japanese companies that are looking to explore growth outside Japan. However, as with any form of entry into a foreign market, forming strategic alliances with a suitable business partner equipped with the necessary market intelligence and connections could be one of the determinants of success.  

    Japanese companies face both ‘hard’ and ‘soft’ issues when identifying a suitable business partner in Singapore

     ‘Hard’ issues are those related to having the requisite capabilities and knowledge about a new market, while ‘soft’ issues refer to challenges faced on an individual and interpersonal level.  

    Common ‘hard’ issues faced by Japanese companies in Singapore include limited knowledge about local business practices and language barriers

    Other than cultural differences between Japan and Singapore, business practices between the nations also vary. For instance, large Japanese companies tend to do business with their subsidiaries, especially if they operate in related fields or different stages of the value chain. As a result, some companies are able to thrive by serving the parent company as its major customer and excel in the domestic market without aggressively pursuing new clients or exploring new markets. On the contrary, Singapore companies prefer not to do business with related companies in a culture that advocates transparency and fairness. A tendering process is usually conducted to identify the companies that are able to fulfil requirements with the best quality at a reasonable price, thus embodying meritocracy rather than relationships. This strategy, in turn, ingrains a greater sense of accountability and motivation to ensure continuity after the initial business relationship has been secured. It is important to be aware of such country and industry-specific business practices prior to the market entry in order to have productive discussions with prospective business partners during the business matching process. Compared to Japan, which has a relatively homogenous society, Singapore is a multiracial country that is predominantly made up of Chinese, Malay and Indians, and other races. English is the common tongue that bridges language differences between the various races. Naturally, doing business in Singapore necessitates making business presentations and doing negotiations in English. However, only a minority of the Japanese population possess English skills, which could hinder the progress of Japanese companies that are looking to do business in Singapore. With that being said, Singaporeans do not expect non-English speakers to converse fluently and will try to accommodate by speaking slower and using simple terms. As long as an effort is made by both sides to be understood, language barriers should not be a hindrance when it comes to finding a suitable business partner in Singapore.  

    Conversely, common ‘soft’ issues faced by Japanese companies in Singapore include the speed of decision-making and lack of management support for overseas expansion.

    Japanese companies are known for being cautious in decision-making and placing great emphasis on making a consensus. Major decisions, especially those related to doing business overseas, are subject to a lengthy evaluation process by the HQ. Japanese companies also tend to prefer devoting more time to building relationships before entering into any definitive agreements with third parties, to minimise risks of the alliance falling apart due to irreconcilable differences in the future. In contrast, the decision-making power in Singapore companies tends to be vested in a few senior executives at the top of the organisational chart, which makes the process significantly faster. Singapore companies also tend to be more result-oriented, which makes them more agile and better positioned to seize opportunities as they come by. Finding a balance between building relationships and achieving results would be key to reaching a mutually beneficial agreement between both parties. Lastly, Japanese companies may face a lack of management support for overseas expansion. This is because the company has established a strong local presence in Japan with healthy revenue streams and stable profit margins. The motivation for change is low as the company is likely to continue doing well in the future by remaining status quo, and managers prefer to avoid the uncertainty associated with any form of business exploration. Therefore, convincing the management about the merits of overseas expansion will be an uphill battle, and likely to rank secondary to business activities that are ongoing domestically. The lack of commitment from the top management and lack of determination to succeed would prove to hamper efforts in venturing outside Japan, resulting in missed opportunities.  

    Japanese companies can navigate through these issues by deploying the right human resources, obtaining management buy-in through an objective process, and engaging management consulting firms with a sound understanding of local markets

    To address the ‘hard’ issues, Japanese companies should be selective in terms of the human resources involved in managing the overseas expansion to Singapore. Project members should be able to communicate in English to build a positive impression when dealing with prospective business partners. It’s less about having a strong command of the language, but more about putting in a genuine effort to promote two-way communication and understanding the other party better. Prior to any meeting, a significant amount of work needs to be done to understand the local business practices and industry context, while having a strategic view of what the company intends to achieve in Singapore. This would help to guide conversations and enable the representatives to ask the right questions to make the most out of each meeting. As for the ‘soft’ issues related to decision-making and securing management buy-in, the key is to minimise subjectivity and use a framework for decision-making. Instead of simply biding time to get a better understanding of the other party with no ‘finish line’ in sight, decision-making tools, such as a selection framework and evaluation matrix, could be adopted. These tools are tailor-made, depending on the use case. They take into consideration inputs from relevant internal stakeholders and are able to provide an ‘answer’ at the end of the process (e.g. decision as to which business partner to select). Other decision-making tools could be adopted to secure management buy-in, such as building a business case to explain and quantify the basis for overseas expansion (e.g. potential new revenue streams, new capabilities, return expectations, etc.). Japanese companies can also consider engaging management consulting firms with experience operating in the Singapore market to address any gaps in their organisational capabilities. Since its establishment in 2013, IGPI Singapore has supported established Japanese companies hailing from diverse industries in realising their overseas expansion plans. We understand that the success of overseas expansion hinges upon multiple factors that extend beyond a company’s internal capabilities. Identifying and forming strategic alliances with the right local partner could contribute significantly to its success in venturing overseas.  

    Recently, IGPI Singapore worked closely with an established Japanese company to identify a suitable business partner to support its market entry into Singapore.

    Key activities in the business matching process include:
    • Conducting a market assessment, including trends, opportunities, challenges and case studies of prominent players to gain an understanding of the industry landscape
    • Longlisting and shortlisting prospective partners using a selection framework
    • Arranging and conducting sounding interviews to gauge interest level
    • Facilitating face-to-face meetings with prospective partners
    • Determining the most suitable partner using an evaluation matrix
    We hope the information provided some insight into the key challenges faced by Japanese companies when finding a suitable business partner in Singapore. IGPI can support your company in its market entry and maximise its chances of success – Get in touch with us!        
    [1] The Japan Times (Apr 2022): https://www.japantimes.co.jp/news/2022/04/15/national/population-drop-japan-record/ [2] Previous article published by IGPI Singapore (June 2022): https://www.igpi.com.sg/transformation-of-organizational-capability/ [3] The World Bank, GDP per capita (current US$) – Singapore, Japan [4] EDB Singapore (Apr 2022): https://www.edb.gov.sg/en/business-insights/insights/futuristic-workspace-spore-a-hub-for-corporate-headquarters.html [5] The Straits Times (May 2022): https://www.straitstimes.com/business/weekly-money-fm-podcasts-understanding-south-east-asia-startup-scene%E2%80%99s-diversity [6] Nikkei Asia (Mar 2022): https://asia.nikkei.com/Business/Startups/Japan-s-top-business-lobby-wants-to-see-100-unicorns-by-2027
     

    About the authors

    Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations, such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experience, especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.

     

    Mr. Zhi Hao Thean is an Analyst in IGPI Singapore. Zhi Hao started his career with IGPI. He graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his penultimate year, Zhi Hao embarked on an internship in Corporate Advisory, where he was engaged in M&A, financial due diligence, and valuation projects across various industries. He also worked as a Research Assistant at SMU, where he performed academic research on real estate investment trusts. Zhi Hao is proficient in English and Mandarin. He enjoys keeping up with the latest developments in consumer technology such as smartwatches and mobile operating systems in his free time.


     

    About IGPI

     Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with a presence and coverage across Asian markets. IGPI was established by former members of the Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus on the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support for the commercialisation and monetization of technologies. IGPI Australia is a branch office of IGPI Singapore. The latter, which was established in 2013, focuses on management consulting and M&A advisory in Southeast Asia across various sectors. We act as a bridge between Japan and wider APAC, having advised on market entry strategy, potential target search, valuation, due diligence, M&A process management, post-merger integration and change management for leading Japanese clients. In addition, we have helped businesses in Southeast Asia enter Japan and acted as sell-side advisors for SMEs and private equity funds looking to divest. IGPI Australia was established in 2020 with a dual focus of helping Australian businesses enter and grow in ASEAN / Japan and attracting Japanese investments into Australia. We have since successfully helped to connect multiple Australian businesses with Japanese businesses within IGPI’s network.

      Get in touch with us on internationalisation, strategic planning and fund-raising-related topics!  
    This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.  
    The result of the joint research with JETRO Singapore suggests that for Japanese companies to succeed in creating new businesses and continue to grow in emerging Asian countries, there is an urgent need for organizational transformation for exploration. To achieve the transformation, it is necessary to form and operate a local team that is autonomous and cross-functional and to get sufficient support from the group CEO. There are also eight key factors for the formation and operation of the team. * This article is based on a research project conducted jointly by Japan External Trade Organization (JETRO) and IGPI Singapore, and it is published with JETRO’s permission. The detailed report is available on JETRO’s website (Only in Japanese).    

    In ASEAN, where the environment is changing rapidly, business opportunities are expanding, and the “Exploration” is being required more than before

    The population of 10 ASEAN countries is about 660 million, making it the third-largest region after China and India. In recent years, GDP has increased rapidly with the rise in per capita income, rising from $ 0.6 trillion in 2000 to only 13% of Japan, to $ 3.1 trillion in 2020, 61% of Japan. It will account for 6.8 trillion yen in 2030, which is expected to exceed Japan’s GDP (see Figure1[1]). In ASEAN, along with the urbanization, in which more and more people gather in cities, the ratio of the middle class is increasing in many countries, promoting economic development in the area. In many ASEAN countries, the ratio of middle-class or higher households is more than 50% nowadays. It is even expected that not only the middle class but also the wealthy class will increase in the future (see Figure2[2], 3[3]). Furthermore, in ASEAN, the penetration rate of smartphones is increasing more rapidly than in developed countries such as Japan, and people in ASEAN use smartphones much more frequently and longer a day compared to people in Japan. As a result, the leapfrogging (accelerating development by skipping inferior, less efficient, more expensive or more polluting technologies and industries, and moving directly to more advanced ones) has also occurred, and the business environment has changed significantly (see Figure 4[4]). The rapid changes mentioned above have given not only opportunities in the growing market, but also opportunities from the rising demand for solutions to various social issues such as traffic congestion, medical shortages, and lack of service quality. However, amid such rapid changes, the ability related to exploration is required more than before. It mainly consists of the creativity to make a new business concept through careful observation of the site, and the agility to repeat the planning and verification of new business hypotheses at high speed. In response to these changes, emerging digital and tech companies such as Grab and Go To (Gojek & Tokopedia) are achieving continuous transformation and growth while developing new businesses one after another through quick top-down decision making, etc in Singapore and other countries in Southeast Asia.  

    Acquiring organizational capability for exploration is a challenge for many large Japanese companies in general

    Three or forty years ago, when the environmental changes in ASEAN were gradual, Japanese companies were very successful in ASEAN with the strength of operational excellence (organizational capability of “Exploitation” to make better things faster and cheaper) in mainly manufacturing industries such as automobiles. However, the mindset and customs cultivated by this successful experience, and the various systems that supported this success such as the lifetime employment system have been hampering many large Japanese companies to change. As such, they are having a hard time creating new businesses in the current changing environment in ASEAN. On the other hand, some Japanese companies have been engaged in exploration activities and have achieved certain results. For example, in an emerging country in Asia, a Japanese company in the medical equipment industry has co-created a service with a startup that provides digital services that are expected to have synergistic effects with its high-quality product, released the service in a short period, and achieved financial performance exceeding the initial plan. In fact, Japanese companies that have strengths in exploitation activities have the potential to realize further growth in emerging countries in Asia by acquiring organizational capabilities of exploration. Organizational transformation is an urgent issue for many large Japanese companies.  

    Key factors of organizational transformation for Japanese companies to succeed in new businesses in Southeast Asia

    Therefore, IGPI Singapore, in collaboration with JETRO Singapore, conducted interviews with more than 30 Japanese companies that are actively engaged in exploration activities. We have found out there are two main points for Japanese companies to transform and acquire their organizational capabilities of exploration (see Figure 5). The first is to form and operate an autonomous and cross-functional local team. If the headquarters empower the local team and it can engage in various activities related to creating new business autonomously by itself, the agility of the team will be improved. In addition, by increasing the diversity of the organization (adding members with various backgrounds to the team), it is possible to easily conceptualize business plans from a new perspective, and even if they encounter problems, they will be able to come up with the ideas of solutions from various angles. The other is for the group CEO to commit to ensure that such a local team is formed and operated properly. Since the nature of exploitation of existing businesses and exploration for new businesses are different, there are often conflicts in terms of resources, etc., and it is often required that the CEO take the initiative in providing support to the local team. Then, what should be done to realize the formation and operation of an autonomous and cross-functional local team? There are eight key factors (see Figure 6).

      (1) Co-creation and penetration of MVV (Mission, Vision, Value) and Strategy

    • The headquarters and overseas offices work together while discussing missions, visions, values, and strategies in the region in a two-way manner, and they are penetrated to each member in overseas offices.

      (2) Appointment of capable leaders and appropriate delegation

    • Appoint a person who can think in a new way and try hard to make a thing happen as a leader of an overseas office regardless of his/her nationality.
    • Sufficiently delegate to overseas offices/local teams after clarifying the scope of delegation.

      (3) Sufficient resource allocation

    • Management allocates resources with direct involvement and support.
    • Provide resources separated from the existing business.

      (4) Effective monitoring

    • The headquarters and overseas offices co-create monitoring indicators to reduce unnecessary reporting work.
    • Make business decisions based on rational standards and make proper decisions.

      (5) Generation of “knowledge” at overseas offices

    • Accumulate the knowledge and know-how gained/formed at overseas offices, and learn lessons from failure to be successful next time (do not find a person who is to blame when you fail).

      (6) Sharing of “knowledge” at the headquarters / overseas offices

    • Accelerate growth by horizontally utilizing the knowledge and know-how accumulated at the headquarters / overseas offices in other regions.
    • Overseas offices share local business opportunities with the headquarters and collaborate with it for business development.

      (7) Appointment of appropriate management members

    • Add those who have an understanding of creating new businesses in emerging Asian countries to management members.

      (8) Building a foundation to support new business creation

    • Separate the organization that engages in new business creation from the existing organization.
    • Develop and allocate human resources (coordinators between the headquarters and overseas offices, etc.) to promote local new business creation activities
    • Establish and properly operate personnel-related systems (evaluation, remuneration, placement, etc.) to secure excellent local employees and improve the motivation of Japanese dispatchers.
     

    It is important to derive a unique solution considering the situation of your company

    The above eight factors are general solutions that inductively derived success factors and failure factors from the cases of each company interviewed. However, because management is highly individual, it often fails for any company to apply the general solution or the success stories of other companies as they are. The important thing is to identify the essence of the main point as a general solution, interpret it correctly in light of the company’s unique circumstances (including strengths and weaknesses), and apply it (see Figure 7).  

    The value provided by IGPI

    Whether for digital or traditional organizations, smart transformation is key to growth. Since its establishment in 2013, IGPI Singapore has been exploring many Japanese companies for market research, strategy planning, execution support including partner search and approach, ideation, and related training for new business creation in Southeast Asia. We have provided various services to support our activities. By providing these services in the form of accompanying, not only the results of exploration activities but also the value of strengthening the organizational capabilities of each company is provided. ————————————————————————————————————————————– [1] Created by IGPI from IMF, NLI Research Institute [2] Created by IGPI from Jetro, World Population Review, Demographia, World Meter, CITIE, IMF, C-GIDD etc. [3] Same as above [4] Created by IGPI from Ministry of Economy, Trade and Industry  
       

    About the author

    Jongwoo has worked in ABeam Consulting Ltd, where he engaged in various consulting projects including the development of business plans, creating go-to-market strategy, and hands-on support in several B2B industries such as energy, automotive, ve, IT, etc. He not only develops strategy but also supports clients’ execution of the plan, such as searching for strategic alliance partners and approaching them. He started his career as an auditor in KPMG Japan, leading an audit team for foreign investment banks, and also provided regulation-related advisory services to Japanese financial institutions. He has a bachelor’s degree in economics from the University of Tokyo.    

    About IGPI

    Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai, and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit, and Sumitomo Corporation to name a few.     IGPI has vast experience in supporting Fortune 500s, Govt. agencies, universities, SMEs, and startups across Asia and beyond for their strategic business needs such as market entry and digital transformation and growth strategies, various aspects of M&A, innovation advisory, new business creation, etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with its making its venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with the Japan Bank of International Cooperation (JBIC) – one of JV’s initiatives is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic, and Omron.    Get in touch with us on internationalization, strategic planning, and fundraising-related topics!  

    This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness, and accuracy of such information. All rights reserved by IGPI.

     
     

    What makes Vietnam an attractive destination?

    Vietnam is among the most dynamic emerging countries in the East Asia region1. The transformation of its economy since the 1990s has lifted Vietnam from one of the poorest countries 25 years ago into a middle-income country2. Vietnam’s economic growth was ranked second in 2019 and first in 2020 (Figure 1) amongst its peers in Southeast Asia – one of the few countries in the world to achieve a positive GDP growth rate (2.9%) during the Covid-19 pandemic.

     

    Figure 1: GDP growth rate of ASEAN countries during 2014 – 20203

      Vietnam’s economic growth is driven by export-oriented manufacturing, foreign direct investment and increasing domestic consumption demand.
    • Exports increased at a remarkable average annual rate of 12.8% during 2015 – 2019 and nearly 5% in 20204, allowing Vietnam to enjoy a trade surplus for 5 consecutive years from 2016 to 2020.
    FDI inflows in Vietnam witnessed constant growth and achieved USD 16.1 billion in 20195. Over 70% of FDI is accounted by technology manufacturing sector, indicating that Vietnam is being considered as the new manufacturing hub in Asia6 with the advantages of cost-competitive labour,
    • young population, investment incentives and preferential treatment created by various Vietnam’s FTAs such as CPTPP and RCEP.
    • Vietnam’s population is expected to expand to 120 million by 2050 from 96.5 million in 20197. The workforce is young, dynamic, better educated and digital-savvy.
    Vietnam has a high internet penetration rate of 68.7% (among total population in 2019) and the middle class is expected to reach 26% of the population by 20268, making it an attractive destination for foreign brands to provide high value-added products and services.

    How does Australia – Vietnam bilateral trade relationship facilitate Australian businesses?

    Vietnam and Australia have a strong bilateral trade relationship. The agreement of two countries in August 2019 to develop the Enhanced Economic Engagement Strategy (published in Dec’21) with the aim of becoming top 10 trade partners and doubling bilateral investment9 reinforced the relation. The two countries are currently partners under a growing network of free trade agreements (FTAs):
    • ASEAN-Australia-New Zealand Free Trade Area (AANZ)
    • Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
    • Regional Comprehensive Economic Partnership (RCEP)
    Australia was the 14th largest export market of Vietnam in 2020 (major exports include coal, education, iron ore, live animals, wheat, aluminium, steel, meat and fruits etc.). The total two-way trade between Vietnam and Australia in 2020 was USD 8.0 billion, of which USD 4.42 billion was from Australia and USD 3.62 billion was from Vietnam10.

    Opportunities for doing business in Vietnam

    1. Agriculture  

    Agriculture is an important economic sector in Vietnam (contributing 14.9% to Vietnam’s GDP in 2020)11. Science and technology are key to rising product capacity, quality of products and improving farmers’ lives. There is a rising trend that Vietnam cooperates with other developed countries’ agtech and foodtech businesses who introduce smart farming, machinery and software, the internet of things, genetic and breeding and pest management. Key issues in Vietnam (agriculture)
    • Food-borne illness and food poisoning due to bacterial contamination caused by poor hygiene.
    • High use of antibiotics, pesticides and chemical fertilisers above recommended level and lack of traceability are other elements causing food safety concerns.
    • Low technology adoption leads to volatility in agriculture production
    Common modes of entry into Vietnam: acquisition and joint-ventures.

    SUNRICE – One of Australia’s leading food exporters with 30 brands in 50 countries

    About the company : One of the largest rice food companies in the world and one of Australia’s leading branded food exporters

    Mode of entry : In 2018, SunRice accomplished the acquisition of a rice processing mill in Dong Thap Province to establish a fully vertical integrated supply chain in Vietnam.

    How it solved issues : The investment helps to introduce advanced production know-how accompanying agronomic expertise to upskill and improve the quality, safety standards and reputation of Vietnam’s rice exports.
    CBH Group – Western Australian grain grower co-operative About the company : grain grower’s cooperative that handles, markets and processes grain from the wheat belt of Western Australia Mode of entry : Created a joint venture (Interflour Group) with another regional player through the acquisition of six flour mills in Indonesia, Malaysia and Vietnam12.   How it solved issues : Using grain from Australian and around the world, Interflour supplies better quality flour to Vietnam domestic market for baking, noodle and confectionery production and malt to supply Vietnam’s drinks industry
    With the rise in middle-class population expected, the Government of Vietnam is actively seeking foreign participations to shift towards high-tech agriculture applications. This support, along with CPTPP and ratification of RCEP, makes investment in Vietnam even more attractive13

    2. Healthcare

    Vietnam’s public healthcare system is organised into four levels: Central, Provincial, District and Communal. Central and provincial-level hospitals usually consist of general and specialised hospitals and medical centres. District health centres and commune health stations offer primary care alongside some medical and preventative services14. Vietnam’s private healthcare sector is growing. According to the Ministry of Health, the number of Vietnam’s private hospitals in 2020 was 250, accounting for 17% of the total 1,400 hospitals countrywide15. Key issues in Vietnam (healthcare)
    • Shift of focus from communicable to non-communicable disease due to increasing prevalence of chronic diseases in Vietnam such as diabetes, cancer, cardiovascular disease and etc.
    • Greater healthcare demand is expected in Vietnam as Vietnam is identified as one of the world’s fastest-ageing societies
    • Overcrowding and high-occupancy rates in rural areas due to limited resources (doctors, hospital beds etc.)
    Common modes of entry into Vietnam: strategic partnership and foreign direct investment.
    Icon Group – Australia’s largest dedicated cancer care provider About the company : Reshaped cancer care by integrating distinct treatment disciplines. It has expanded globally, including some Asian countries such as Singapore, China and Hong Kong16. Mode of entry : Entered partnerships with two of Vietnam’s leading healthcare providers – The National Cancer Hospital in Hanoi (the K Hospital) and the Military 175 Hospital in Ho Chi Minh City. How it solved issues : The partnership helped upgrade Vietnam’s cancer care infrastructure to a larger scale, applying an international standard in medical excellence across hospital management and utilise innovative technologies to provide remote care as necessary17. They have also brought in experts from Icon Group’s Australian and Singaporean businesses to assist the Vietnamese healthcare providers.
    Cerebral Palsy Alliance (CPA) – leading Australian care and research centre for cerebral palsy and other neurological disorders About the company : Non-profit organisation providing family-centred therapies, life skills coaches, equipment and support for people and their families living with cerebral palsy and other neurological and physical disabilities18. Mode of entry : Collaborated with key stakeholders in Vietnam’s healthcare industry through joint research19. How it solved issues : CPA has been conducting research, composing clinical management guidelines and delivering clinical care/advice across Vietnam.
    There are growing demands for more accessible and higher-quality healthcare in Vietnam as the growing middle class is becoming more aware of their health and experience when receiving medical treatment. Australia’s advanced technology and expertise in healthcare will be able to help satisfy the demand in Vietnam.

    3. Banking

    Currently, Vietnam’s banking sector consists of 4 state-owned commercial banks, 31 joint-stock commercial banks, 9 wholly-foreign-owned banks, 2 joint-venture banks, 2 policy banks, 1 cooperative bank and 48 foreign bank branches. Commercial banks in Vietnam are currently engaged in a competition of using modern banking technology to provide quality services, thus attracting both Vietnamese customers and foreigners. As of 2019, there are 78 banks offering internet payment solutions, 47 banks offering mobile payment and 29 banks accepting QR code payment20. Key issues in Vietnam (banking)
    • Vietnam has one of the lowest bank penetration rates in ASEAN
    • Low access to credit by SMEs due to guarantees and collateral requirements
    Common modes of entry into Vietnam: strategic partnership and foreign direct investment.
    ANZ – a successful Australian bank with a proud history spanning over 175 years About the company : ANZ is one of the world’s leading financial service groups, operating in 32 markets. Mode of entry : Invested directly and set up a branch in Vietnam and was granted a banking license to operate a fully foreign-owned bank in the country. How it solved issues : ANZ provided financial services to retail and small to medium-sized enterprise banking business across eight branches in Ha Noi and HCMC, serving 125,000 customers before selling its retail and SME in 2017
    Raiz Invest Limited – an Australian fintech startup About the company : Australian fintech startup operating in Australia, Indonesia and Malaysia that allows customers to round-up everyday purchases and pool their spare change to invest in equities, bonds and other securities. Mode of entry : It is expected for Raiz to enter into strategic partnership with a local player similar to their strategy in Malaysia where they partnered with a local unit trust player How it can solve issues : Raiz provides a platform that increases the access to capital for the users (e.g. access to larger sum of money for investment).
    Vietnam has high digital readiness (internet penetration rate of 68.7%, mobile subscriptions of 141.2 per 100 people in 201921), meaning that there is high potential for fintech solutions. To support banking digitalisation initiatives, the State Bank of Vietnam’s Steering Committee on Fintech was set up in 2017 to encourage the development of fintech.

    4. Education

    Traditionally, education is of great importance to the Vietnamese. Since 2000, the government has committed approximately up to 20% of public expenditure on education – one of the highest in ASEAN22. Vietnam’s local rising middle class prefers the private education sector over the public school method due to the better quality of services. This has translated into a strong market for private institutions and vocational schools and services. Key issues in Vietnam (education)
    • Demand for talent and highly-skilled workers in Vietnam far surpasses supply as local qualifications in many fields are not well acknowledged
    • Lack of e-learning platform further limiting access to education in major cities which is further emphasized due to Covid-19 movement control
     Common mode of entry into Vietnam: strategic partnership and foreign direct investment.
    RMIT University – an internationally recognised Australian university of technology, design and enterprise About the company: Innovative university in Melbourne, recognized for its study and research in technology, design and enterprise23. Mode of entry: In 2001, RMIT entered Vietnam by investing directly and opening its first campus in HCMC with services and facilities mirroring the Melbourne campus. A second campus opened in Hanoi in 2004 and in 2017, an English language centre opened in Da Nang. How it solves: RMIT Vietnam is assisting in the development of human resources capability in Vietnam. Degrees are awarded by RMIT University in Australia, allowing Vietnamese students to receive an overseas education without having to leave home.
    English Learning Company (ELC) – an Australian award-winning English language school About the company: ELC offers a range of major English courses which are supplemented by a choice of electives. ELC has partnerships with a number of Australian universities and education providers. Mode of entry: In 2017, ELC entered Vietnam via a partnership with HUTECH University (Vietnam) to establish ELC Vietnam in HCM City to meet the demand for English in Vietnam. How it solved issues: Operating as a private English language centre, ELC Vietnam aims to provide students with a quality on-campus option for English language lessons. ELC works with a number of educational organisations in Vietnam to offer a paid teaching internship working in local primary and high schools with competitive prices for all English programmes.
    The digital economy in Vietnam is already booming, with ICT being one of the fastest-growing sectors. The high internet penetration rate, a significant number of digital consumers and a rapidly emerging middle class underpin the demand for diverse and higher-quality education in Vietnam. This condition has paved the way for Australian edtech businesses and education providers into Vietnam24. Particularly, edtech was among the top five most profitable areas for Vietnamese start-ups behind fintech, e-commerce, traveltech and logistics in 201825.    

    What challenges Australians may encounter in entering Vietnam?

    • Difference in culture between Australia and Vietnam: Compared to Australia, Vietnam may not have a formal bidding/tenure procedure in many business scenarios. Relationships with local stakeholders such as suppliers, industry associations, local government and central ministries are key. Thus, Australian partners need to show their commitment and invest time in building trust. Third-party introduction or recommendations can be a good start.
    • There are still grey areas in Vietnam laws and regulations. This may result in difficulties in interpretation, application and compliance for foreign investors. However, as part of Vietnam’s commitment to a variety of FTAs, the Government is focusing on reforming the legal system to make them consistent with international standards and result in a more business-friendly regulatory environment. Australian businesses can also find local partners to assist in understanding and complying with regulations, permits and laws.
    • Corruption still remains a challenge in Vietnam. Vietnam ranked 107 (out of 180) on Transparency International’s 2017 Corruption Perceptions Index. Anti-corruption has moved up the political agenda recently. With the determination of the Government of Vietnam in anti-corruption, a new Law on Anti-corruption was issued in November 2018. The Decree guiding the implementation of the Law was passed in 201926, which improves Vietnam comprehensive ant-corruption legal framework.
       

    Wrapping up

    There are vast opportunities for doing business and investment in various sectors of Vietnam such as agriculture, healthcare, banking and education. The timing is ripe for both established Australian businesses and startups to engage with Vietnam. Proved to be a resilient economy, Vietnam has achieved positive economic growth instead of falling into recession like several regional peers during the Covid-19 pandemic. With Vietnam’s strong endeavour in regulatory reform to facilitate business environment, sturdy support for digital transformation and technology transfer as well as a profound network of FTAs, expanding middle income population and a high internet penetration rate, opportunities are unfolding for Australian businesses, who are willing to participate and adapt to local market conditions, cultural difference, and leverage Australia’s distinctive advantages.

    IGPI insights and how we can make a difference for Australian business?

    Vietnam is one of the fastest-growing economies in ASEAN. Local government and companies are often looking for opportunities to collaborate and partner with foreign companies who possess technologies and innovations that can help solve key issues in Vietnam and create a new business. Having some form of business collaboration or partnership with local firms is one of the most popular and common ways to effectively enter a new market. Finding a suitable Vietnamese partner may be easier than you think if you get help from the right people. We understand that the Vietnam market and corporations may not be that easy to navigate. Truth being said, there is also no “one size fit all” approach and companies need to employ different strategies based on the unique needs and environment they are operating in. IGPI has vast experience in supporting Fortune 500s, Government agencies, SMEs and funded startups across Asia and beyond for their strategic business needs, including hands-on consulting support and innovation advisory, which allows us to understand the nuances of market entry holistically. Our non-exhaustive list of capabilities to assist foreign companies entering Vietnam includes:
    • Market landscape study and strategic options for go/no-go
    • Custom hands-on support for strategy implementation
    • Business matching support through our established network in Vietnam
     

    About the authors

    Mr. Rachit Khosla is the Country Manager of IGPI Australia. Rachit is a seasoned strategy consulting professional with over 12 years experience in leading and executing market entry and growth strategy (both organic and inorganic) and open innovation engagements for Fortune 500 businesses and large MNCs across the Asia Pacific. He has advised clients in a diverse range of industries, including automotive, fin-tech, industrial and manufacturing, med-tech & healthcare, smart cities, construction materials, travel, IT & telecom to name a few. Rachit was the former Country Manager and Director for YCP Solidiance (Japanese owned) and Founder and CEO of an online B2B marketplace startup for professional advisory services focused on Emerging Markets. Ms. Hang Nga Nguyen is an Intern at IGPI Australia (Jul-Oct 2021). Hang is currently pursuing her Master of International Business from the University of Melbourne. Prior to this, she has completed a Bachelor of Commerce, majoring in Accounting and Finance. Hang is from Vietnam (Hanoi capital) and is currently based in Melbourne.  

    About IGPI

    Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few. http://igpi.co.jp/     IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron. https://nordicninja.vc/ Get in touch with us on internationalization, strategic planning and fund raising related topics!   IGPI Australia – contacts:  

    Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp

    Rachit Khosla Country Manager – Australia +61 414 433 572 r.khosla@igpi.co.jp This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI. __________________________________________________________________________________________
    1. World Bank – Vietnam overview (2021)
    2. World Bank – Vietnam: Achieving Success as a Middle-income Country (2013)
    3. World Bank – GDP growth (annual %)
    4.  World Bank – Vietnam exports of goods and services (annual % growth)
    5. World Bank – Vietnam exports of goods and services (annual % growth)
    6. Austrade – Export markets: Vietnam
    7. World Bank – Vietnam overview (2021)
    8. World Bank – Vietnam overview (2021)
    9. DFAT – Vietnam country brief
    10. United Nations COMTRADE database
    11. Vietnam Briefing – Why the agtech industry will aid Vietnam’s hi-tech growth (2021)
    1. Interflour Group – About us
    2. DFAT – Business envoy (2018)
    3. WHO – Human resources for health country profiles Vietnam (2016)
    4. Vietnam Investment Review – Vietnam’s private hospital chains keep attracting foreign investment (2020)
    5. Austrade – Icon Group to pioneer treatment-plan exports to Southeast Asia
    6. Ibid.
    7. CPA – About us
    8. Austrade – Cerebral Palsy Alliance looks to Vietnam to grow its impact (2019)
    9. Austrade – Digital banking in Vietnam: A guide to market (2020)
    10. World Bank – Vietnam mobile cellular subscriptions (per 100 people)
    11. Vietnam Briefing – Education in Vietnam: Opportunities and Challenges (2020)
    12. RMIT University, About RMIT
    13. Austrade – Vietnam edtech scoping study (2020)
    14. Ibid.
    15. Baker McKenzie – Vietnam: New Decree Relating to Implementation of New Law on Anti-Corruption (2019)