ASIA-PACIFIC RETURNING TO DAYS OF SAKE & ROSES: AFTER GRIM YEARS IN THE DOLDRUMS, LOCAL ECONOMIES LOOK HEALTHIER

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It's a paradox. Asia-Pacific, the place to invest in the early 1990s, is not sexy anymore. Yet economic growth has returned to the region.

Every day there are new consumers ready to absorb innovative products and services. And the region's growing technological performance should soon push these countries back onto the list of strategic priorities for many companies, big or small.

The Asian financial crisis of the last two years brought back all the old cliches: too far, too diverse, too complex. In the meantime, the booming U.S. economy was here, straight and simple.

But consider the growth the Asia-Pacific region is experiencing. South Korea's economy expanded at a 9.8% annual rate in the second quarter.

China, after an astonishing 9.7% average annual GNP growth over the last 20 years, should reach 7% this year. India is close to that achievement. Taiwan's economy, despite the recent earthquake, should expand in excess of 5% this year. Not far behind is Australia, which has had the highest sustained growth over the last nine years among the developed countries that are members of the Organization for Economic Cooperation & Development.

Thailand and most Southeast Asia nations, with the exception of Indonesia, are fully recovering. Finally, Japan is slowly coming out of its 10-year recession.

CONTINUED GROWTH

It is likely that further economic prosperity will continue to be driven by consumer demand and that this newly created wealth will be, as in the past, fairly evenly shared among the various segments of the population. That means not only will there be more wealth but also more consumers.

Hong Kong, Singapore, South Korea and Taiwan have young work forces that will continue to grow for the next few years. The labor forces in China and Thailand will expand comfortably until about 2005, and in India, Indonesia, Malaysia and the Philippines the working population will keep growing steadily until about 2025.

MATURE ONES

The two exceptions in the region are the most mature markets: Japan and Australia.

While 46% of its population is 44 years old or older, Japan is still the second-wealthiest market in the world and it's becoming more accessible. Even in the media business, Japan has become somewhat vulnerable and more open to foreigners over the last few years.

The acquisition of a local magazine company by the French Hachette-Filipacchi Medias and the launch of Vogue Nippon, published by a majority-controlled U.S. company, would have been simply unfeasible just five years ago.

Australia, also aging, still has a dynamic population that is well educated and innovative (32% are in the 24-to 44-year-old age group).

Down Under is the place to find the best Internet executives and ideas outside the U.S., and at a fraction of the cost of Silicon Valley. The Sydney Morning Herald now devotes two pages every day to the booming Internet industry, and the local e-commerce business is on a growth pattern of 500% a year.

E-TECHNOLOGY

The values of Confucius, who advocated the power of education to access knowledge, remain strong in Asia. Hence, e-technology is eagerly welcomed. Taiwan is already the leader in content. Hong Kong and Singapore have the best infrastructures, and China -- obviously -- has the largest number of potential consumers. Japan is already the largest Internet market in Asia, followed closely by South Korea.

Several international companies and brands have seriously started to seduce these new Asian consumers, who have more disposable income and a desire for innovative products. Toyota Motor Corp. has developed a superb infrastructure of production, distribution and marketing throughout the region.

However, most Asian companies have been driven by a short-term strategy and have not done a good job at creating global or regional brands.

The Asian trademark best known throughout the region is Singapore Airlines, followed by Sony, Toyota and Honda. However, these four labels do not even figure in the top 10 brands in the world. Coca-Cola, followed by nine other U.S. labels, still holds the highest score in brand awareness.

While most international advertising agencies have joint ventures or their own offices in the region (including Dentsu and Hakuhodo), few international media companies have. American and European magazines, along with three international newspapers and one TV network, have pioneered the expansion to Asia. Yet there are fewer than 10 magazine brands -- mostly fashion, news and business titles -- that can claim they have a meaningful strategy of development in the Asia-Pacific region.

Opportunities currently exist to create new brands, products and services in the Asia-Pacific region, especially on a regional basis. In the cosmetics industry, an Asian brand, SK II, has taken a substantial market share from Estee Lauder, L'Oreal, Shiseido and LVMH in several countries. This success comes from a smart marketing strategy that uses local communication -- with Asian models -- targeted to the specific culture of each market. The strategy is local, but the parent company is none other than Procter & Gamble Co.'s Max Factor.

WISE INVESTMENTS

Finally, what about the investment?

In any Asia-Pacific market, except for Japan, the cost of research, media, production and most salaries is still low. Therefore, the investment needed to develop a meaningful expansion program in this region is a fraction of that required in the U.S. or in Europe.

Each Asia-Pacific country has its culture and conditions that can be frustrating. However, the chance of failure by a well-organized company is small compared to the risk it takes to gain a market share point in Western economies.

So it will not take long for the Asia-Pacific region to become hot again. The race for market share is starting today.

Mr. Guerin is currently president of Conde Nast Asia-Pacific. On Jan. 1, he will

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