The importance of understanding local markets

Monday, June 26, 2023
by Yuwei (AFM Student)

As someone who hails from an Asian country, I am highly intrigued by cross-cultural business practices in the Asia-Pacific region. I have always been fascinated by the similarities in cultures and business etiquette across Asian countries, and I believe that these similarities can be leveraged by companies to expand their operations across different Asian markets. However, in the meetings we had during the International Study Course trip to Singapore with various business professionals, I have come to realize that although there are indeed many similarities among Asian countries, there are also significant differences. The ability to understand and navigate these differences can be a critical factor in determining a company's success in a new market, even if both countries are situated in the same region.

During our meeting with Google, we learned about the success stories of Grab and Go Jek, two ride-hailing companies that have become household names in Southeast Asia. Although both companies started out as Uber copycats, they were able to thrive in the region due to their founders' deep understanding of the local market. Being residents of the countries where they launched their businesses gave them a unique advantage in identifying the weak points of the ride-hailing industry and tailoring their services accordingly. As a result, they were able to gain a foothold in a fiercely competitive market and eventually outcompete Uber. This ultimately led to Grab's acquisition of Uber's business in Southeast Asia and Uber's exit from the market. Grab’s success highlights the importance of having a nuanced understanding of local markets when expanding globally and how local knowledge and expertise can give a company a significant competitive edge.

In the meeting with GIC – a sovereign wealth fund managed by the Singapore government – it was highlighted that the company has a strict policy of not investing in any region unless they have a local team present. Despite having investments all over the world, GIC believes that having a local team in place is essential to make informed investment decisions. The local team is composed of employees who are originally from the region, who can provide them with a deep understanding of the local market. This understanding includes knowledge of local policies, regulations, and cultural nuances that can impact investment decisions. Having a local team in place also enables GIC to make more accurate projections of future market changes, which can be influenced by both internal factors such as policy changes and external factors such as global events. With this knowledge, GIC can make well-informed investment decisions that reduce its overall risk. Additionally, the local team can provide valuable insights to the broader investment team, including information on the region's investment climate and potential opportunities. Ultimately, GIC's approach of making investments with a local team present has helped the company build a strong track record of investment success.

The meetings I attended during the trip clearly highlighted the importance of understanding the local market. When businesses have a strong understanding of the local market, they can identify and target their ideal customer base. By analyzing the needs and preferences of their customers, businesses can effectively tailor their marketing efforts to reach the right audience, leading to increased sales and customer loyalty. In addition, understanding the local market can help businesses identify their competition and develop competitive strategies. By analyzing the strengths and weaknesses of competitors, businesses can make informed decisions about pricing, product positioning, and marketing. Compliance with local laws and regulations is also crucial for avoiding legal issues and financial penalties. Moreover, understanding the local market can help businesses identify growth opportunities. By uncovering untapped markets or new product and service offerings that may be in demand, businesses can grow their revenue and expand their customer base. Building relationships with customers and other stakeholders is a crucial aspect of understanding the local market. By demonstrating a commitment to serving the local community and customers' needs, businesses can increase loyalty and improve their brand reputation.

Understanding local markets is a vital part of any successful business. Even in places that might seem similar, there are always local differences that must be tapped into and understood. This allows companies to tailor their products to the local customer base, build connections and relationships within communities, comply with local regulations, and build up a positive reputation. This trip showed that understanding the local business market is foundational to building up any company. 

The Singapore team standing in the Singapore gardens