Building a Strategic Plan Towards Meaningful and Profitable Business in the World’s Most Dynamic Region
Source: Twitter, @MelanieJoly. Canadian Foreign Affairs Minister Melanie Joly with ASEAN Secretary General Dr. Kao Kim Hourn during an ASEAN Summit in Jakarta on July 14, 2023. Joly has emphasized the Canadian federal government’s plan to increase engagement across the Indo-Pacific region for the next decade.
Relationship Economies
‘Relationship economies’ refers to the economic systems where social connections, trust and personal relationships play a significant role in facilitating transactions and economic activities.
Relationships can provide flexibility and adaptability in economic transactions, as these often involve negotiation, trust-building, and personalized agreements. This can be especially valuable in complex or uncertain environments where formal structures may be slow to respond.
In some cases, personal relationships can also reduce transaction costs, where trust and familiarity can facilitate exchanges without the need for extensive contracts, legal frameworks, or intermediaries. Personal recommendations and referrals can also help individuals and businesses make informed decisions, potentially reducing information asymmetry and enhancing efficiency.
Challenges with relationship economies can emerge when scaling up and accommodating larger volumes of transactions. Personal connections and networks may have limited reach and capacity. Reliance on personal relationships can also introduce biases, in particular favoritism and nepotism, or where personal connections may not always prioritize merit or optimize resource allocation. Finally, informal economies may lack formal mechanisms for dispute resolution, consumer protection, or regulatory oversight. This can increase the risk of fraud, exploitation, and unfair practices, undermining trust, and long-term stability.
Success in a relationship economy requires access to informal networks that is usually acquired through a patient and mindful commitment to creating a local presence and reputation.
Relationships in ASEAN
Most of us are familiar with the Chinese term of ‘guanxi’, referring to a mutually beneficial relationships which can involve moral obligations and exchanging favours. Similar to ‘yongo’ in South Korea, ‘tsuganari’ in Japan, or ‘wasta’ in Arab countries, these cultural dynamics can influence success or failure in market entry. All of these can be present, indeed crucial in the multicultural landscape found in the Association of Southeast Asian Nations (ASEAN).
Each Southeast Asian nation has particularities which need to be considered. ‘Parantara’ in Indonesia, for example, refers to the role of a third-party agent often used as a backchannel connection between parties. [1]
There are also unique considerations for selective industries. For example, Cruz, Labonne and Querubin (2019) highlight the significant role of social network structures in the provision of public goods (i.e., schools, health centres, and infrastructure such as water systems) in the Philippines. Their study of 15,000 villages finds the scale of the importance at the local level, particularly where mayors and their networks have a dominant role in the allocation of resources (funding from the central government). [2]
So, whether it be for market entry or investment attraction, companies wishing to do business in Southeast Asia must have a strategic plan on how to develop and manage relationships in the region.
Determining whether a new market for products or services in Southeast Asia is relationship-based can be challenging to the newcomer, where professional consulting services can provide targeted, qualitative advice through interviews, surveys, and the heuristics of case studies. It is also helpful to map relationships between individuals or organizations using the emerging tools of social network analysis. GTAsia offers tailored services with a particular focus on the ‘last mile’ in market entry in Asian economies. Our client market reports will include a competitive analysis, with an assessment of products and services, market conditions, key success factors, competition, regulatory, pricing, distribution, and requirements for local presence and after-market support. This can include a detailed network analysis identifying key players and their interrelationships. Finally, we can provide client support through initial introductions, scheduling, and local logistics.
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[1] Gray, Nathan. (2012). Parantara: The Javanese Way of Managing Business Relationships in Indonesia. Retrieved from https://www.unisa.edu.au/siteassets/episerver-6-files/global/business/centres/cags/docs/seminars/gray-paper-6-march.pdf
[2] Cruz, Labonne and Querubin. (2020). Social Network Structures and the Politics of Public Goods Provision: Evidence from the Philippines. American Political Science Review, Vol.114, Issue 2, May 2020, pp. 486-501. Retrieved from https://doi.org/10.1017/S0003055419000789
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