PROGRESSING, PREPARED OR PESSIMISTIC? MARCH 2016

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1 ASIA 2020 PROGRESSING, PREPARED OR PESSIMISTIC? MARCH 2016

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3 WHAT S AROUND THE CORNER? ARE YOU READY? Copyright 2016 The Nielsen Company III

4 Few business leaders would disagree that the pace of change is accelerating in Asia Pacific. Technology advances have impacted industries across the board, geopolitical moves have occurred in many markets, economies have risen and fallen while various other fundamental shifts have significantly changed our world and business environment. It could be argued this rate of change has been more profound in Asia Pacific. As parts of the world struggle to find growth in these economic times, Asia Pacific still boasts significant opportunities due to favourable demographic and economic conditions. Around the world, multinational companies continue to look to Asia Pacific as a driver of growth. These changes, both macro and more specific, have knock on effects of varying degrees impacting the business environment through which business leaders must navigate their organisations. It can change the economies they operate in, the business partners they rely on, the consumers they hope to please the chessboard they play on is changing before their eyes. There are ample examples of organisations (and even industries) being blindsided by change that they either did not see coming or were too slow to respond to. A product surpassed by competition, technology becoming redundant, legislation that inhibits growth or shifting consumer tastes. Increasingly as change accelerates and becomes more diverse yet connected, business leaders must anticipate change and understand how their organisations can mitigate risk and take advantage of opportunities that arise from it. IV ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

5 Nielsen sought the opinions and thoughts from senior leaders within the Asia Pacific business community to gain greater visibility and understanding of the changes they anticipate they will face over the next five years. OVER 7 IN 10 BELIEVE IT IS LIKELY THEIR ORGANISATION WOULD HAVE TO CONTEND WITH A MAJOR CHANGE IN THEIR INDUSTRY OR MARKET IN THE NEXT 5 YEARS. BUSINESS SENTIMENT Extent your organisation will have to contend with a major change in industry 78% LIKELY NEUTRAL UNLIKELY 5% 17% What is the biggest change or concern in the next 5 years? 16% 15% 15% 9% 8% CHANGING CONSUMER PREFERENCES LEGISLATION/ POLITICAL CHANGES REGULATIONS AND TAXATION ECONOMIC DEVELOPMENTS NEW COMPETITORS NIELSEN FUTURE BUSINESS SENTIMENT SURVEY Copyright 2016 The Nielsen Company 5

6 WHAT KEEPS SENIOR LEADERS AWAKE AT NIGHT? Navigating a large organisation through periods of significant change is not easy. Much of the change that is taking place across the region is unmistakable economic development, changing political environments and changes to regulation and taxation. But as the famous boiling frog anecdote illustrates, gradual change such as changing consumer preferences or emerging new competitors, can be just as impactful. SENIOR LEADERS ACROSS THE REGION AGREE THAT IT WILL BE DIFFICULT TO NAVIGATE THEIR ORGANISATION THROUGH THE CHANGING LANDSCAPE THEY OPERATE IN OVER THE NEXT 5 YEARS. EASE OF NAVIGATION Ease of navigating business in changing landscape in the next 5 years 59% DIFFICULT NEUTRAL EASY 6% 35% NIELSEN FUTURE BUSINESS SENTIMENT SURVEY 6 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

7 HOW DO LEADERS REACT AND FUTURE PROOF THEIR ORGANISATION IN THIS CHANGING ENVIRONMENT? IT VARIES. Almost one in two (48%) leaders believe their organisation is prepared for the future but less (43%) are confident they have the systems and processes in place to spot early indicators of change in their operating environment. 1 IN 4 ARE NOT CONFIDENT AT ALL But despite half of business leaders not being prepared, almost three quarters believe their business model in five years will differ significantly to today. IN THE ENVIRONMENT OF A CHANGING LANDSCAPE... Prepared for the future PREPARED NEUTRAL NOT PREPARED Ability to spot early indicators CONFIDENT NEUTRAL NOT CONFIDENT 48% Change in business model 19% 34% 43% 24% 33% SIGNIFICANT DIFFERENCE NEUTRAL LITTLE DIFFERENCE 76% 7% 16% * Although business leaders see the future business environment as complex and unpredictable, 75% say they have systems; processes or alternative operating plans in place in case of an emergency event, or natural, political or other major disaster. NIELSEN FUTURE BUSINESS SENTIMENT SURVEY Copyright 2016 The Nielsen Company 7

8 When we asked business leaders what keeps them awake at night, not surprisingly the range of responses varied widely, from disruption of innovative competitors to oil prices to rising obesity rates. But while the concerns business leaders flagged were wide-ranging, some common themes emerged. While change is inevitable, it is the speed of change and how we adapt to it which determines how successful our organisation will be. Some changes can be considered broad and slow moving population change, emergence of a growing middle class, changing political and trade environment. Other changes such as changing consumer preferences, entrants of new competitors or disruptive innovation can be focused and swift and require leaders to be agile and flexible to ensure their organisation can flourish in a new environment. CHANGE IS COMPLEX, CHALLENGING AND ACCELERATING... 3D PRINTING AUTONOMOUS CARS BIG DATA/APIs/PREDICTIVE ANALYTICS CONSUMER STRATIFICATION DRONE DELIVERY ENERGY FOOD STRESS GEN Y HEALTH & WELLNESS/FUNCTIONAL & PERFORMANCE FOODS PERSONAL DEVICES/THE INTERNET OF THINGS POLLUTION PREMIUMISATION SOCIAL RESPONSIBILITY VIRTUAL & AUGMENTED REALITY OVER DECADES BROAD & SLOW OVERNIGHT FOCUSED & SWIFT ASEAN SECONDARY CITIES ASIAN MEGACITIES CHANGING REGIONAL BUSINESS FRAMEWORK DEMOGRAPHIC SPREAD INFRASTRUCTURE INVESTMENT MIDDLE INCOME EMERGENCE POPULATION GROWTH 8 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

9 THE CHANGING FACE OF ASEAN CITIES, MIDDLE CLASS GROWTH AND THE CHANGING REGIONAL BUSINESS ENVIRONMENT ARE KEY EXAMPLES OF LATENT CHANGE. The UN forecasts that the population of Southeast Asia will grow from approximately 632 million in 2015 to approximately million in But the real story is where the population will be living. While Southeast Asia is becoming increasingly urbanised, a sizeable proportion of the region s population will still be living in rural areas in 2025 and many urban dwellers will live in large towns and small cities as opposed to megacities. This is quite a different trend to that being observed in India and China where megacities are surging, moving from a total combined population of 2.68 billion in 2015 to 2.86 billion in The growth of the combined Australian and New Zealand population is also driven by urban centres, estimated at 28.5 million in 2015 and 32 million in In many ways, we are products of our environment and from a consumer perspective, our options around retailers, education providers, jobs availability and entertainment options all influence our lifestyle and the accessibility and suitability of products and services. When segmenting different city sizes into population tiers along with their characteristics, it is evident that less densely populated places are developing rapidly in Southeast Asia change is afoot. As the strains on high density cities increase and investment and infrastructure flow outside traditional boundaries, smaller cities and rural populations will be a much bigger prize than they are today with very different needs than their big city cousins. Compounding this trend, the number of middle class consumers living in Southeast Asia is forecast to more than double to 400 million by In the midst of such substantial change, clearly opportunity abounds with hundreds of millions of new consumers trialling new products, categories and brands for the first time. Copyright 2016 The Nielsen Company 9

10 The key to successfully tapping into middle class growth and urbanisation of smaller cities lies in understanding the unique nuances of these consumers and how they differ to consumers in rural areas and big cities. As all of this is happening at the consumer level, a slow but persistent change is also occurring in the economic and business environment that companies operate in. Regional and cross country agreements which will level the playing field, such as the ASEAN agenda, the Trans-Pacific Partnership (TPP) and other bilateral/unilateral exchanges are already being discussed and implemented, allowing organisations to compete in more countries regardless of their origin. For some who previously enjoyed a protected industry or marketplace, local competition will arise while others look for expansion opportunities in other markets. In a new environment it is likely more mergers and acquisitions will evolve as companies either struggle to keep pace or look for footholds in new markets, with foreign investment being a key enabler. The majority of business leaders (58%) from across the region believe trade agreements such as the ASEAN agenda or TPP will have a positive impact. One in three believes it will have little or no impact on the business environment in the future. Among leaders looking to expand their businesses into new growth markets, Vietnam, Indonesia and China are the most common priority markets. MOST LEADERS ARE ABREAST OF SLOW-MOVING CHANGE Impact of trade agreements Expand into new markets POSITIVE LITTLE/NO IMPACT NEGATIVE 7% LIKELY NEUTRAL UNLIKELY 14% 58% 34% 56% 31% Top 3 priority markets for companies likely to expand VIETNAM INDONESIA CHINA NIELSEN FUTURE BUSINESS SENTIMENT SURVEY 10 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

11 LOOKING THROUGH THE RETAIL WINDOW TO THE FUTURE Asia s retail footprint and environment has evolved dramatically in the last five years, and is set to continue with growing urbanisation and changing physical and digital formats. The retail landscape in Asia represents true diversity, from luxury mega-malls to street stalls to digital outlets the retail eco-system is in a state of change. 1 IN 2 SENIOR BUSINESS LEADERS BELIEVES RETAILERS AND THE TRADE WILL HAVE A POSITIVE INFLUENCE ON THEIR INDUSTRY AND MARKETPLACE IN THE COMING 5 YEARS. 1 IN 5 BELIEVES THEY WON T. Copyright 2016 The Nielsen Company 11

12 When asked to nominate the factors which will be most important to their retail environment in the future, not surprisingly, the majority of business leaders singled out digital shopping and e-commerce. RETAIL ENVIRONMENT Influence of the role of retailers and trade POSITIVE NEUTRAL NEGATIVE 20% 30% 50% Top 5 factors in retail environment of the future that will be most important to your organisation 63% 52% 50% 48% 22% ONLINE & E-COMMERCE ROUTE TO MARKET CONSOLIDATION OF RETAIL POWER GROWTH OF SMALL FORMAT & CONVENIENCE LOCAL PLAYERS NIELSEN FUTURE BUSINESS SENTIMENT SURVEY 12 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

13 TECHNOLOGY IS CHANGING THE RETAIL FOOTPRINT BEFORE OUR EYES. E-commerce is no longer the sole domain of travel, book and music retailers. In Korea, e-commerce is now the largest retail channel and in China online retail sales grew at over 24% in While still in its infancy in Southeast Asia, one thing is certain, e-commerce is set to grow exponentially and will change the retail and consumer landscape as we know it. In China, we ve seen retail formats and distribution channels leapfrogged as e-commerce brings new purchasing opportunities to rural consumers. With the size of the rural and small city populations of Southeast Asia, China and India, a new wave of opportunity is upon us and our surveyed leaders agree. NEARLY ONE THIRD OF SENIOR LEADERS BELIEVE E-COMMERCE WILL ACCOUNT FOR GREATER THAN 20% OF THEIR ORGANISATIONS TOTAL SALES OVER THE NEXT 5 YEARS. 50% BELIEVE E-COMMERCE WILL REPRESENT MORE THAN 30% OF THEIR ORGANISATIONS GROWTH IN THE NEXT 5 YEARS. Copyright 2016 The Nielsen Company 13

14 E-COMMERCE AND THE ORGANISATION E-commerce as a percentage of your organisation s sales in the next 5 years E-commerce as a percentage of your organisation s growth in the next 5 years 16% 21 30% 7% 31 50% 9% >50% 36% UNDER 10% 21% 31 50% 10% >50% 32% UNDER 10% SALES 19% 21 30% GROWTH 19% 10 20% 32% 10 20% NIELSEN FUTURE BUSINESS SENTIMENT SURVEY These numbers alone represent a step change in the way organisations operate. The reality of these irrevocable shifts is reflected in senior leaders sentiment, with almost three in five (59%) concerned about competition from outside their markets. Having the ability to do business in a market is one thing, but understanding how to play in that market is another thing altogether. The diversity of consumers within one market like Indonesia can be extreme but multiply that by the ASEAN community and its neighbours, and it is not hard to understand the complexity and challenge that companies will continue to face in the future. Senior leaders across the region are well aware of this situation citing understanding changing consumer preferences as their biggest concern for the future. 14 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

15 THE CONSUMER LANDSCAPE OF THE FUTURE The sheer diversity of consumers in a region like Asia has a significant impact on business factors like distribution channels, product ranging, services and marketing strategies. Adding to this challenge, underlying themes of change are beginning to impact consumer attitudes and preferences in a way that will change the future environment. These themes are not new but are gaining incremental momentum and are fast approaching a tipping point. Health and wellness, premiumisation, social responsibility and environmental stewardship are just a few of the emerging themes that are resonating with consumers, and companies that offer products and services in these areas are starting to win the hearts of consumers. These emerging themes, coupled with the accelerating stratification of consumers in Southeast Asia due to the diversity in age, income, education, values, interests, technology and infrastructure access, mean that mass marketing is being replaced with one-toone marketing as bespoke and niche segments emerge to meet consumers needs. Copyright 2016 The Nielsen Company 15

16 SENIOR LEADERS AGREE THAT CUSTOMER ENGAGEMENT OF THE FUTURE WILL NEED TO BE FOCUSED ON CUSTOMERS AS INDIVIDUALS. As our world becomes increasingly digitalised and connected, companies can now use big data sets to establish preferences and customise the way they interact with individuals. Senior leaders anticipate a rise in customer engagement methods which leverage digital and social media platforms to augment traditional formats such as television and print media. ENGAGEMENT WITH CUSTOMERS IN THE FUTURE Thinking about how your business will engage with customers in the future, do you think there will be. INCREASE IN BOTH SEGMENTS AND INDIVIDUALS MORE FOCUS ON CUSTOMERS AS INDIVIDUALS MORE FOCUS ON CUSTOMERS AS SEGMENTS NO CHANGE IN FOCUS 3% 12% 32% 53% NIELSEN FUTURE BUSINESS SENTIMENT SURVEY 16 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

17 WHAT DO CONSUMERS OF TOMORROW WANT? ASIA PACIFIC CONSUMERS CARE ABOUT THE ENVIRONMENT AND SOCIAL AND SUSTAINABLE PRACTICES. Three in four consumers in Asia Pacific say they will pay more for products and services from companies committed to positive social and environmental impact, up from 64% in 2014 and 58% in Compared to the global average of 66%, it highlights Asian consumers are likely to lead the demand in this emerging trend. Considering consumer attitudes in conjunction with the commitments the Asian Development Bank and countries like China made following the Paris Climate Conference in December 2015, there is a definite logic that consumers will seek out companies driving this environmental agenda. Similarly, governments are likely to provide incentives through tax breaks and subsidies. Copyright 2016 The Nielsen Company 17

18 THE RISE AND RISE OF THE HEALTH-CONSCIOUS CONSUMER Despite relatively low obesity rates in Asia compared to many western countries such as the US, UK and Australia, there is an alarming increase in the number of overweight citizens, especially in markets like Malaysia, Singapore and Thailand. Many Asian consumers are aware of this emerging trend and are actively trying to change their behaviour. The Nielsen 2015 Global Health and Wellness report identified: 68% of Asia Pacific respondents are cutting down on fats and 60% are cutting down on chocolate and sugars in a bid to change their diet and lose weight; and Over half (54%) are eating more natural fresh food. Not only are consumers seeking foods that are healthy and nutritious but governments agencies like Singapore s Health Promotion Board have initiated a number of programs (eg Healthier Hawker Program encourages street hawkers and local food courts to use healthy ingredients) to drive awareness of the importance of a healthy diet and active lifestyle. Health and wellness has broader financial implications as well. Governments in Asia Pacific are looking abroad to countries that have identified the impact of an unhealthy diet on their health systems. Legislation has been suggested to transfer the health cost back to producers that do not address this need. A recent Australian study estimated that issues related to overweight and obesity cost AU$56.6 billion per annum *. France and Mexico have implemented a sugar tax which is also being considered in the UK. The implications are clear companies that are unwilling to address the increasing demand for products which cater to health and wellness needs in the future risk harsh penalties. *Source: 18 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

19 As the economic prospects and purchasing power of Asian consumers increase, they increasingly seek out products which express their growing prosperity and changing lifestyles. Although this trend is more prominent in industries like fashion, automotive and travel, it has also entered the retail and consumer goods industry across Southeast Asia. Premium products (defined as 20% more expensive than the average category price) account for 16% of grocery sales and are growing by 21% which is double the highest percentage growth of other price tiers. To a degree, senior leaders are aligned to some of these signals of change. Asians lifestyles are increasingly on the go, and the majority of business leaders concur that convenience is one of the most important factors they must deliver on in the coming years. Business leaders also highlight time saving, efficiency and health and wellness attributes as being important factors to consider in the future. MOST IMPORTANT PRODUCT/SERVICE ATTRIBUTES IN THE NEXT 5 YEARS 93% 87% 82% 81% 75% CONVENIENCE PRODUCTIVITY/ EFFICIENCY/ TIME SAVING HEALTH & WELLNESS ONLINE/ DIGITAL PRESENCE SOCIAL NETWORKING NIELSEN FUTURE BUSINESS SENTIMENT SURVEY Copyright 2016 The Nielsen Company 19

20 FROM NASCENT TO MAINSTREAM: EMERGING TRENDS WATCH LIST THE FUTURE IS ALREADY HERE, IT S JUST NOT EVENLY DISTRIBUTED. WILLIAM GIBSON While many of tomorrow s mainstream trends already exist today in some form, the challenge lies in understanding which emerging ideas will find fertile ground to grow and shape the future. Emerging technologies are a perfect example where prototypes and products already exist, but we must consider factors such as affordability, potential alternatives, supporting infrastructure, demand, practicality, barriers to entry and legislation to determine which are most likely to gain wide-spread acceptance. 20 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

21 MAKE NO MISTAKE, TECHNOLOGY WILL FUNDAMENTALLY RE-SHAPE ORGANISATIONS OVER THE NEXT 5 YEARS. IMPACT OF NEW TECHNOLOGY Do you agree new technologies will change your business environment in the next 5 years? AGREE 84% NEUTRAL DISAGREE 5% 11% NIELSEN FUTURE BUSINESS SENTIMENT SURVEY Technologies like 3D printing could fundamentally change the way some industries operate. Imagine walking into a shoe retailer and printing a customised shoe. The benefit of such a revolution is all-encompassing for consumers, manufacturers and retailers alike. Drone technology is an example of the future potential of logistics with the likes of DHL, Amazon and Singpost already trialing delivery capabilities. Although there are currently limitations, it is easy to imagine the impact such technology would have on retail, e-commerce and consumption options across Asia Pacific where large proportions of the population are still expect to live in rural areas in As consumers lifestyles continue to evolve and the availability of resources and infrastructure expand, technological advancement and innovation will emerge to address these needs be it sustainable energy, nano-technology, driverless cars, artificial intelligence or robots assisting the aging population in many countries. The release of the iphone less than a decade ago popularised the smartphone and heralded a change to modern life that few of us could have anticipated in What would have seemed impossible ten years ago, is now the norm. Copyright 2016 The Nielsen Company 21

22 IN A WORLD OF UNCERTAINT Y AND EVOLVING CHANGE WHAT ARE THE TOP AREAS OF FOCUS FOR ORGANISATIONS OVER THE NEXT FIVE YEARS? Not surprisingly, the vast majority of business leaders (94%) believe innovation will be increasingly important in the next 5 years. A company s ability to innovate is pivotal to its success. A focus on all things digital be it a digital presence in market or leveraging digital platforms for internal operations is also deemed critical by many. Similarly, big data and predictive analytics will play a key role in driving companies understanding of what their customers are seeking. 22 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

23 IMPORTANT FOCUS AREAS FOR ORGANISATIONS IN THE NEXT 5 YEARS 94% 87% 81% 80% 77% 74% 72% INNOVATION DIGITAL BIG DATA/ PREDICTIVE ANALYTICS SUPPLY CHAIN IMPROVEMENT RETAILER PARTNERSHIPS PARTNERSHIPS & ACQUISITIONS NEW MARKETS & EXPANSIONS NIELSEN FUTURE BUSINESS SENTIMENT SURVEY HAVING A SYSTEMATIC APPROACH TO IDENTIFYING SIGNALS OF CHANGE WILL SERVE AS A PRACTICE IN RISK MITIGATION AND OPPORTUNITY IDENTIFICATION FOR ALL ORGANISATIONS. Keeping abreast of key topics and themes as the pace of change accelerates is essential for business leaders, as 2020 comes firmly into focus. In the complex fast-paced business environment of the future, only the most prepared and agile organisations will be positioned to tap into the opportunities that await. Conversely, companies that are unable to anticipate the changes ahead and adapt are likely to be left behind. Copyright 2016 The Nielsen Company 23

24 FORESIGHT: AMMUNITION FOR UBIQUITOUS CHANGE GLOBAL/MACRO INDUSTRY BRANDS MARKET SOCIETY ORGANISATION ECONOMY 24 ASIA 2020 NIELSEN FUTURE BUSINESS SENTIMENT SURVEY MARCH 2016

25 ABOUT THE AUTHOR REGAN JAMES LEGGETT EXECUTIVE DIRECTOR, THOUGHT LEADERSHIP AND FORESIGHT SOUTHEAST ASIA, NORTH ASIA AND PACIFIC NIELSEN Regan Leggett leads Nielsen s thought leadership and foresight initiatives in Southeast Asia, North Asia and Pacific. Prior to joining Nielsen he studied strategic foresight and worked as a foresight consultant. He is passionate about encouraging forward focused conversations with clients and colleagues. ABOUT NIELSEN Nielsen Holdings plc (NYSE: NLSN) is a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy. Nielsen s Watch segment provides media and advertising clients with Total Audience measurement services across all devices where content video, audio and text is consumed. The Buy segment offers consumer packaged goods manufacturers and retailers the industry s only global view of retail performance measurement. By integrating information from its Watch and Buy segments and other data sources, Nielsen provides its clients with both world-class measurement as well as analytics that help improve performance. Nielsen, an S&P 500 company, has operations in over 100 countries that cover more than 90% of the world s population. For more information, visit Copyright 2016 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies. 16/9711

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