ECONOMICS: Asia's Sinking Middle Class
Far Eastern Economic Review
April 9, 1998

Asia's Sinking Middle Class:
 As consumer confidence plummets, dismayed marketers rethink strategies
 to ride out the economic crisis
  * By Salil Tripathi in Kuala Lumpur, Bangkok and Jakarta
 And Ben Dolven in Singapore,
 With Prangtip Daorueng in Bangkok
    2590 Words
04/09/98
p10   

At first glance, nothing seems to have changed at One Utama, a
sprawling shopping mall on the outskirts of Kuala Lumpur. Finding a
vacant spot in the cavernous parking lot is as hard as it was a year
ago. Inside, young Malaysian couples shop for groceries and kitchenware,
while gawky teenagers queue outside a cinema multiplex showing Titanic.
The coffee bistro is doing steaming business, and gizmo-aficionados are
trying out the latest PalmPilots.
   But the hustle and bustle belie the overall slump in buying activity,
especially for big-ticket items. Few middle-class families stroll
through the huge Melandas Casa Mobili store, for example, to pick out
its Italian furniture, priced at $1,000 and above. Ever since the
economic crisis hit Asia last year, business has fallen 50%, says
manager F.W. Chan, who sees the gloom continuing for at least another
year. A hi-fi music shop further along is equally deserted. Monthly
sales have shrunk 80% since last year, and a state-of-the-art, $18,000
system has had no enquiries in over a week. "No customer, lah," the
teenage sales assistant says, with a nervous smile.
 Worried about the future, Asians are holding on to their money --
much to the dismay of Western and domestic companies that have invested
heavily in the region in the hopes of ringing up healthy profits. This
thrift has compelled companies to rethink marketing strategies,
particularly because it's now clear that earlier calculations of the
size and growth of the Asian middle class -- the core consumers -- were
probably wide off the mark. "We were very hopeful of our growing middle
class," says an Indonesian businessman. "But their disposable incomes
have now been reduced to pathetic levels. The whole class is
disappearing. What went wrong?"
   That's a question that companies in Asia are asking themselves and
their expensive marketing consultants. A few businesses are packing up
to leave. But most others are meeting the challenge of falling
consumption by cranking up promotional efforts to stress value for
money, by offering cheaper brands or discounts, and smaller sizes to
suit leaner pockets. "Keep cutting costs, keep inventories low. Go for
dollars and give good value," says Jannie Tay, managing director of Hour
Glass, a 19-year-old Singapore watch retailer that's struggling with the
times.
   For many companies it's not a question of choice, but of survival.
Consumer confidence has plummeted in the months of turmoil since July
1997, as rising inflation and job insecurity take their toll. Indeed,
unemployment is expected to almost double this year in nine Asian
countries, including Indonesia, Malaysia and Thailand, according to a
report by a Japanese think-tank. "I've stopped spending completely,
after seeing so many of my classmates lose their jobs," says Pratip
Thiparath, a Bangkok-based analyst with a brokerage.
   In a bi-annual survey of consumers in 12 Australasian countries
conducted by Mastercard, only Australians and Chinese showed some
optimism about the future. Other Asians had become increasingly
pessimistic. Notes Mike Langton, regional director at Bates Asia, an
advertising agency: "Consumers are going to hunker down. The upside is
compressed." Adds Nuchravee Wongbanthoon, a computer-software
professional in Bangkok whose husband had lost his finance-company job:
"We should be very careful about what we buy now. I've stopped going out
on shopping sprees."
   Notwithstanding the current economic turmoil, companies also are
themselves to blame for uncritically accepting early estimates of more
than a billion Asian consumers. In fact, the figure was based on
unmerited extrapolation. In most countries, private consumption accounts
for the biggest single share of gross domestic product. And in almost
every country in the region, from the late 1980s onwards, the share of
private consumption as a percentage of GDP has been more than half. With
Asia's large young population, it was tempting to believe that the
consumer base would continue to grow. Some car makers believed that by
2000, Southeast Asia alone would have a demand for 3 million cars
annually. Motorola believed China would be the world's largest market
for pagers by 1997.
   Determining the exact size of Asia's middle class is difficult, as
purchasing power and individual tastes vary. But in a widely quoted
study, the Marketing Partnership in Manila divided these consumers into
what its managing director, Mike Morris, called the "superhaves," with
annual household incomes above $30,000; the "have-somes," with incomes
above $18,000; and the "near-haves," who had newly crossed over the
poverty line into consumption.
   The study claimed that by 1995, there were 8 million non-Japanese
Asian households in the "superhave" category, and 15 million households
in the "have-some." The numbers were expected to climb to 16 million and
75 million, respectively, by 2000. By that time, another 150 million
households of the "near-have" category would have crossed the threshold
from poverty. The great marketing hope lay in these 150 million
households rapidly escalating their income levels.
   Clearly, those estimates seem too rosy today. Not only are household
incomes falling, but the proportion of high-income households is
declining. In Indonesia, 14% of households were in the upper-income
bracket of 1 million rupiah ($305) and above a month in third-quarter
1997, down from 18% of households a year earlier. In Malaysia,
upper-income households with monthly income of 4,000 ringgit ($1,250)
and above fell from 7.4% of total households in third-quarter 1996 to
6.2% of households a year later.
   That declining purchasing power has led to collapsing sales, leaving
a number of consumer industries in shambles. Malaysia's national car
maker, Proton, reported a sharp 60% drop in January sales from a year
earlier. And French fashion retailers say their sales in Southeast Asia
plunged 70%-80% in fourth-quarter 1997 from the corresponding period in
1996. The dismal performance is not restricted to upmarket items, but
appears to be across the board.
   To keep their heads above water, companies are trying everything from
shutting down operations in Asia and repackaging products and services
to offering cheaper brands and emphasizing added value:
   -- Say goodbye. Some companies are taking the easy way out of the
crisis -- they're leaving. The biggest departures have been in
retailing: J.C. Penney and Walmart have left Indonesia. And in
manufacturing, Japan's Daihatsu announced in mid-March that it was
pulling out of Thailand. But though leaving may be the least painful
option in the short run, it entails high risks, according to Peter
Baldwin, managing director of Intercedent Asia, a management consultancy
in Singapore. "Asians have long memories, and they won't forgive those
who leave during tough times," he warns.
   -- Listen to the customers. A better strategy would be to listen,
says Rah Kugler, chairman of Unilever Holdings Thailand. Unilever is
doing just that in an ongoing programme of consumer focus groups. It has
also brought in specialists from Europe and Latin America with
experience in marketing during recessionary times to assist managers in
Asia.
   -- Emphasize a product's value. McCann-Erickson's consumer-insights
director, Dave McCaughan, says he hears from consumers that they want
validation. "Middle-class consumers want to maintain their lifestyle and
standard of living," he says. "When they find that the product or
service is expensive, they want to feel validated, that they are not
spending too much. Advertisers will have to emphasize the value
contained in the product."
   Smart marketers are doing just that. An ad for Clan MacGregor scotch
whisky released late last year in Thailand highlighted that it was an
imported, quality product, not an international whisky made locally
under licence. Since a bottle of Clan MacGregor carries a price-tag of
240 baht ($6) compared with 800 baht for premium Johnnie Walker Black
Label whisky, the campaign added validation for the consumer. "It tells
him that if even if you have to buy something cheap, you are getting
something of real value," says McCaughan of McCann-Erickson, which
handled the campaign.
   -- Give added value. Another option is to give consumers more value.
Singapore-based healthcare group Parkway Holdings has restructured
health-care services at its high-end hospitals to lower prices by up to
50%. Under the new deal, the group absorbs some of the costs, and
patients are given specialist consultations, surgery, hospitalization
and anaesthetist fees as a package. The combined services for open-heart
surgery, for instance, are now priced at S$18,000-22,000
($11,250-13,750), compared with S$22,000-26,000 earlier. Neurosurgery
costs are down to S$15,000-20,000, from S$20,000-30,000 previously.
   -- Change the product mix. Usually the first to be hit during
recession are discretionary, expensive products, such as the watches
marketed by Hour Glass. To survive the huge loss of its Asian business,
Hour Glass is cutting its operations and changing its product mix. It
plans to shut down one of its seven Singapore stores, and may also close
outlets in Jakarta and Bangkok. "We looked at our stores as entry
points" into Jakarta and Bangkok, says managing director Tay. "But
before we really got into it, the market fizzled out. So we're taking a
step back."
   That includes pushing upmarket -- but comparatively lower-priced --
sports watches made by companies like Tag Heuer and Omega that are
priced at around $400, instead of high-end jewellery watches that retail
at $2,000 and above. Sports watches now make up 50%-60% of Hour Glass
sales in Singapore, much higher than just two years ago. Its plush shop
in Bangkok -- where sales have halved this year -- showcases the cheaper
sports watches. Burberry's, a British fashion retailer, has replaced its
expensive jackets in window displays with comparatively cheap T-shirts.
Says Intercedent's Peter Baldwin, "Everyone wants to believe he can
still afford some luxury, even in hard times."
   -- Repackage the goods. For their part, companies like Unilever are
repackaging their products to suit shrinking buying power. The
Anglo-Dutch company has reduced the size of its Magnum brand ice-cream
packs, for example, making them available in a cheaper size. It is also
offering giveaways on its Lux soaps (buy six, get one free), and
marketing its detergents in refillable packs that are a smaller,
affordable size. Dispensing with packaging costs enables Unilever to
sell the detergent refills cheaper.
   Andre Van Heemstra, Singapore-based chairman of Unilever's East Asia
division, says that during hard times consumers want to continue their
pattern of behaviour, even though they may not have the means. "You
adjust to that by listening to them, and offer similar products at
affordable prices," he says.
   Or sell them at a discount. Some retailers these days are cutting
60%-70% off the listed price for all kinds of products, in order to
maintain cash flow, pay their rent and keep their stock moving. At
Singapore's upmarket Scotts Shopping Centre, there is a rundown retail
outlet that sells brand-name items at ridiculously low prices. At Famous
Brand Name Discount Store, Adidas shorts go for $5 and Valentino jeans
for $34.
   Taking a leaf out of Unilever's book, PC Unlimited, a leading
computer chain in Kuala Lumpur, recently was giving away a 21-inch
colour TV with every top-end Hewlett Packard personal computer. The PCs
were snapped up.
   -- Substitute the product. Mastercard is emphasizing debit cards over
credit cards in its sluggish Asian markets. As consumers' money worries
grow, so does their penchant for debit cards, which draw directly from a
bank account, rather than credit cards, which allow users to rack up
debts. In badly hurt Indonesia, for example, there are 40 million
potential debit-card holders, compared with only probably 2 million-3
million potential credit-card users, says Don Van Stone, Mastercard's
general manager for Southeast Asia.
   -- Maintain stricter inventory. Companies are also tightening their
grip on inventory in order to tide over the crisis. The Kuala Lumpur
store of Swedish furniture retailer Ikea, for example, has not restocked
certain low-demand items.
   -- Shelve or delay plants. For big-ticket products like cars,
shelving an investment is perhaps the best option. In Thailand, General
Motors has cut the planned annual capacity of its plant by 60%, to
40,000 vehicles. In Malaysia, Proton has delayed a proposed plant with
an annual capacity of 250,000 cars. For its part, the Singapore-based
Sedona group has put all plans for new resorts on hold, except for one
in Manado, Indonesia. Metrojaya, the retail subsidiary of Malaysia's MUI
group, has postponed expansion of some speciality stores at home and in
Singapore, although it's going ahead with partly constructed outlets in
Malaysia, including two in the Klang Valley and Penang.
   -- Expand outside Southeast Asia. While suspending expansion in
Southeast Asia, some retailers are pursuing opportunities outside the
region in order to cushion the blow from the economic crisis. Edwin
Yeow, vice-president of marketing with Singapore-based Banyan Tree
Resorts, says the company's planned projects in Indonesia have been
delayed and no others are being considered elsewhere in Southeast Asia.
   Instead, Banyan Tree will look at projects in Nepal, India,
Seychelles and southern Africa. Hong Kong clothing retailer Giordano is
focusing on Australia, New Zealand and South Africa. Personal-computer
maker Acer of Taiwan, too, says it will concentrate on growth in China,
South Asia, Australia and New Zealand.
   The hard times have provoked a typical response from Asia's middle
class-rising nationalism. "We will buy Thai products now," says
Bangkok-based Bangthoon Wongbanthoon, who ran an ice-cream parlour for
several months to make ends meet before regaining a job in finance. More
and more, many upwardly mobile consumers like him and Bernice Chauly, a
writer and publisher in Kuala Lumpur, are questioning the need to buy
foreign products. Thailand has a graphic television campaign which
characterizes imported goods as deadly. In one spot, ironically
co-sponsored by Unilever, a bottle of imported red wine opens to reveal
blood; in another, a gold necklace turns into a hangman's noose. The
underlying message: Don't buy imported goods.
   Smart companies anticipated that backlash, and have begun
highlighting their liaison with Asia. In Malaysia and Thailand, Nestle
is running an advertising campaign that subtly underscores the Swiss
company's decades-long links with the countries, and affirms its
determination to remain part of the landscape, in both good times and
bad. For its part, Unilever in Thailand is aggressively procuring more
raw materials locally, and is publicizing the fact.
   "In most places in Asia, a section of the middle class is
international and secular and wants to see deregulation, change and open
markets, but there is also a huge section that is intensely
nationalistic and can become xenophobic. They will behave differently,"
notes Richard Robison, director of Asia Research Centre at Murdoch
University in Perth and co-author of a pathbreaking study on the Asian
middle class.
   Buying local has a definite cost-benefit for consumers. Local brands
of coffee, herbal shampoo, milk, noodles and other household items on
retail shelves in Thailand cost 25%-80% less than international brands.
And in South Korea, the won's devaluation has made domestic products
more competitive. John Smurthwaite, managing director for Frank Small
Associates, a regional market-research firm, says there has been an
increased uptake of South Korean-made refrigerators, which now can cost
75% less than Japanese or American brands.
   For international businesses, domestic-first consumption is a
headache that will persist until Asia's middle class picks up the pieces
and rises anew. The resurgence is not in doubt: The demographic factors
that made the middle class so attractive to marketers remain: a growing
population, urbanization and a desire for a better lifestyle. Yet the
middle class that will emerge is likely to be different from the one
that carried mobile phones and bought designer labels -- and took
economic growth for granted. "They will demand greater value and
transparency, from the industries and their governments," says Garry
Rodan, an Asia expert at Murdoch University in Perth. Savvy marketers
are preparing for the change.

Far Eastern Economic Review
April 9, 1998

Asia's Sinking Middle Class:
 As consumer confidence plummets, dismayed marketers rethink strategies
 to ride out the economic crisis
  * By Salil Tripathi in Kuala Lumpur, Bangkok and Jakarta
 And Ben Dolven in Singapore,
 With Prangtip Daorueng in Bangkok
    2590 Words
04/09/98
p10    

At first glance, nothing seems to have changed at One Utama, a
sprawling shopping mall on the outskirts of Kuala Lumpur. Finding a
vacant spot in the cavernous parking lot is as hard as it was a year
ago. Inside, young Malaysian couples shop for groceries and kitchenware,
while gawky teenagers queue outside a cinema multiplex showing Titanic.
The coffee bistro is doing steaming business, and gizmo-aficionados are
trying out the latest PalmPilots.
   But the hustle and bustle belie the overall slump in buying activity,
especially for big-ticket items. Few middle-class families stroll
through the huge Melandas Casa Mobili store, for example, to pick out
its Italian furniture, priced at $1,000 and above. Ever since the
economic crisis hit Asia last year, business has fallen 50%, says
manager F.W. Chan, who sees the gloom continuing for at least another
year. A hi-fi music shop further along is equally deserted. Monthly
sales have shrunk 80% since last year, and a state-of-the-art, $18,000
system has had no enquiries in over a week. "No customer, lah," the
teenage sales assistant says, with a nervous smile.
 Worried about the future, Asians are holding on to their money --
much to the dismay of Western and domestic companies that have invested
heavily in the region in the hopes of ringing up healthy profits. This
thrift has compelled companies to rethink marketing strategies,
particularly because it's now clear that earlier calculations of the
size and growth of the Asian middle class -- the core consumers -- were
probably wide off the mark. "We were very hopeful of our growing middle
class," says an Indonesian businessman. "But their disposable incomes
have now been reduced to pathetic levels. The whole class is
disappearing. What went wrong?"
   That's a question that companies in Asia are asking themselves and
their expensive marketing consultants. A few businesses are packing up
to leave. But most others are meeting the challenge of falling
consumption by cranking up promotional efforts to stress value for
money, by offering cheaper brands or discounts, and smaller sizes to
suit leaner pockets. "Keep cutting costs, keep inventories low. Go for
dollars and give good value," says Jannie Tay, managing director of Hour
Glass, a 19-year-old Singapore watch retailer that's struggling with the
times.
   For many companies it's not a question of choice, but of survival.
Consumer confidence has plummeted in the months of turmoil since July
1997, as rising inflation and job insecurity take their toll. Indeed,
unemployment is expected to almost double this year in nine Asian
countries, including Indonesia, Malaysia and Thailand, according to a
report by a Japanese think-tank. "I've stopped spending completely,
after seeing so many of my classmates lose their jobs," says Pratip
Thiparath, a Bangkok-based analyst with a brokerage.
   In a bi-annual survey of consumers in 12 Australasian countries
conducted by Mastercard, only Australians and Chinese showed some
optimism about the future. Other Asians had become increasingly
pessimistic. Notes Mike Langton, regional director at Bates Asia, an
advertising agency: "Consumers are going to hunker down. The upside is
compressed." Adds Nuchravee Wongbanthoon, a computer-software
professional in Bangkok whose husband had lost his finance-company job:
"We should be very careful about what we buy now. I've stopped going out
on shopping sprees."
   Notwithstanding the current economic turmoil, companies also are
themselves to blame for uncritically accepting early estimates of more
than a billion Asian consumers. In fact, the figure was based on
unmerited extrapolation. In most countries, private consumption accounts
for the biggest single share of gross domestic product. And in almost
every country in the region, from the late 1980s onwards, the share of
private consumption as a percentage of GDP has been more than half. With
Asia's large young population, it was tempting to believe that the
consumer base would continue to grow. Some car makers believed that by
2000, Southeast Asia alone would have a demand for 3 million cars
annually. Motorola believed China would be the world's largest market
for pagers by 1997.
   Determining the exact size of Asia's middle class is difficult, as
purchasing power and individual tastes vary. But in a widely quoted
study, the Marketing Partnership in Manila divided these consumers into
what its managing director, Mike Morris, called the "superhaves," with
annual household incomes above $30,000; the "have-somes," with incomes
above $18,000; and the "near-haves," who had newly crossed over the
poverty line into consumption.
   The study claimed that by 1995, there were 8 million non-Japanese
Asian households in the "superhave" category, and 15 million households
in the "have-some." The numbers were expected to climb to 16 million and
75 million, respectively, by 2000. By that time, another 150 million
households of the "near-have" category would have crossed the threshold
from poverty. The great marketing hope lay in these 150 million
households rapidly escalating their income levels.
   Clearly, those estimates seem too rosy today. Not only are household
incomes falling, but the proportion of high-income households is
declining. In Indonesia, 14% of households were in the upper-income
bracket of 1 million rupiah ($305) and above a month in third-quarter
1997, down from 18% of households a year earlier. In Malaysia,
upper-income households with monthly income of 4,000 ringgit ($1,250)
and above fell from 7.4% of total households in third-quarter 1996 to
6.2% of households a year later.
   That declining purchasing power has led to collapsing sales, leaving
a number of consumer industries in shambles. Malaysia's national car
maker, Proton, reported a sharp 60% drop in January sales from a year
earlier. And French fashion retailers say their sales in Southeast Asia
plunged 70%-80% in fourth-quarter 1997 from the corresponding period in
1996. The dismal performance is not restricted to upmarket items, but
appears to be across the board.
   To keep their heads above water, companies are trying everything from
shutting down operations in Asia and repackaging products and services
to offering cheaper brands and emphasizing added value:
   -- Say goodbye. Some companies are taking the easy way out of the
crisis -- they're leaving. The biggest departures have been in
retailing: J.C. Penney and Walmart have left Indonesia. And in
manufacturing, Japan's Daihatsu announced in mid-March that it was
pulling out of Thailand. But though leaving may be the least painful
option in the short run, it entails high risks, according to Peter
Baldwin, managing director of Intercedent Asia, a management consultancy
in Singapore. "Asians have long memories, and they won't forgive those
who leave during tough times," he warns.
   -- Listen to the customers. A better strategy would be to listen,
says Rah Kugler, chairman of Unilever Holdings Thailand. Unilever is
doing just that in an ongoing programme of consumer focus groups. It has
also brought in specialists from Europe and Latin America with
experience in marketing during recessionary times to assist managers in
Asia.
   -- Emphasize a product's value. McCann-Erickson's consumer-insights
director, Dave McCaughan, says he hears from consumers that they want
validation. "Middle-class consumers want to maintain their lifestyle and
standard of living," he says. "When they find that the product or
service is expensive, they want to feel validated, that they are not
spending too much. Advertisers will have to emphasize the value
contained in the product."
   Smart marketers are doing just that. An ad for Clan MacGregor scotch
whisky released late last year in Thailand highlighted that it was an
imported, quality product, not an international whisky made locally
under licence. Since a bottle of Clan MacGregor carries a price-tag of
240 baht ($6) compared with 800 baht for premium Johnnie Walker Black
Label whisky, the campaign added validation for the consumer. "It tells
him that if even if you have to buy something cheap, you are getting
something of real value," says McCaughan of McCann-Erickson, which
handled the campaign.
   -- Give added value. Another option is to give consumers more value.
Singapore-based healthcare group Parkway Holdings has restructured
health-care services at its high-end hospitals to lower prices by up to
50%. Under the new deal, the group absorbs some of the costs, and
patients are given specialist consultations, surgery, hospitalization
and anaesthetist fees as a package. The combined services for open-heart
surgery, for instance, are now priced at S$18,000-22,000
($11,250-13,750), compared with S$22,000-26,000 earlier. Neurosurgery
costs are down to S$15,000-20,000, from S$20,000-30,000 previously.
   -- Change the product mix. Usually the first to be hit during
recession are discretionary, expensive products, such as the watches
marketed by Hour Glass. To survive the huge loss of its Asian business,
Hour Glass is cutting its operations and changing its product mix. It
plans to shut down one of its seven Singapore stores, and may also close
outlets in Jakarta and Bangkok. "We looked at our stores as entry
points" into Jakarta and Bangkok, says managing director Tay. "But
before we really got into it, the market fizzled out. So we're taking a
step back."
   That includes pushing upmarket -- but comparatively lower-priced --
sports watches made by companies like Tag Heuer and Omega that are
priced at around $400, instead of high-end jewellery watches that retail
at $2,000 and above. Sports watches now make up 50%-60% of Hour Glass
sales in Singapore, much higher than just two years ago. Its plush shop
in Bangkok -- where sales have halved this year -- showcases the cheaper
sports watches. Burberry's, a British fashion retailer, has replaced its
expensive jackets in window displays with comparatively cheap T-shirts.
Says Intercedent's Peter Baldwin, "Everyone wants to believe he can
still afford some luxury, even in hard times."
   -- Repackage the goods. For their part, companies like Unilever are
repackaging their products to suit shrinking buying power. The
Anglo-Dutch company has reduced the size of its Magnum brand ice-cream
packs, for example, making them available in a cheaper size. It is also
offering giveaways on its Lux soaps (buy six, get one free), and
marketing its detergents in refillable packs that are a smaller,
affordable size. Dispensing with packaging costs enables Unilever to
sell the detergent refills cheaper.
   Andre Van Heemstra, Singapore-based chairman of Unilever's East Asia
division, says that during hard times consumers want to continue their
pattern of behaviour, even though they may not have the means. "You
adjust to that by listening to them, and offer similar products at
affordable prices," he says.
   Or sell them at a discount. Some retailers these days are cutting
60%-70% off the listed price for all kinds of products, in order to
maintain cash flow, pay their rent and keep their stock moving. At
Singapore's upmarket Scotts Shopping Centre, there is a rundown retail
outlet that sells brand-name items at ridiculously low prices. At Famous
Brand Name Discount Store, Adidas shorts go for $5 and Valentino jeans
for $34.
   Taking a leaf out of Unilever's book, PC Unlimited, a leading
computer chain in Kuala Lumpur, recently was giving away a 21-inch
colour TV with every top-end Hewlett Packard personal computer. The PCs
were snapped up.
   -- Substitute the product. Mastercard is emphasizing debit cards over
credit cards in its sluggish Asian markets. As consumers' money worries
grow, so does their penchant for debit cards, which draw directly from a
bank account, rather than credit cards, which allow users to rack up
debts. In badly hurt Indonesia, for example, there are 40 million
potential debit-card holders, compared with only probably 2 million-3
million potential credit-card users, says Don Van Stone, Mastercard's
general manager for Southeast Asia.
   -- Maintain stricter inventory. Companies are also tightening their
grip on inventory in order to tide over the crisis. The Kuala Lumpur
store of Swedish furniture retailer Ikea, for example, has not restocked
certain low-demand items.
   -- Shelve or delay plants. For big-ticket products like cars,
shelving an investment is perhaps the best option. In Thailand, General
Motors has cut the planned annual capacity of its plant by 60%, to
40,000 vehicles. In Malaysia, Proton has delayed a proposed plant with
an annual capacity of 250,000 cars. For its part, the Singapore-based
Sedona group has put all plans for new resorts on hold, except for one
in Manado, Indonesia. Metrojaya, the retail subsidiary of Malaysia's MUI
group, has postponed expansion of some speciality stores at home and in
Singapore, although it's going ahead with partly constructed outlets in
Malaysia, including two in the Klang Valley and Penang.
   -- Expand outside Southeast Asia. While suspending expansion in
Southeast Asia, some retailers are pursuing opportunities outside the
region in order to cushion the blow from the economic crisis. Edwin
Yeow, vice-president of marketing with Singapore-based Banyan Tree
Resorts, says the company's planned projects in Indonesia have been
delayed and no others are being considered elsewhere in Southeast Asia.
   Instead, Banyan Tree will look at projects in Nepal, India,
Seychelles and southern Africa. Hong Kong clothing retailer Giordano is
focusing on Australia, New Zealand and South Africa. Personal-computer
maker Acer of Taiwan, too, says it will concentrate on growth in China,
South Asia, Australia and New Zealand.
   The hard times have provoked a typical response from Asia's middle
class-rising nationalism. "We will buy Thai products now," says
Bangkok-based Bangthoon Wongbanthoon, who ran an ice-cream parlour for
several months to make ends meet before regaining a job in finance. More
and more, many upwardly mobile consumers like him and Bernice Chauly, a
writer and publisher in Kuala Lumpur, are questioning the need to buy
foreign products. Thailand has a graphic television campaign which
characterizes imported goods as deadly. In one spot, ironically
co-sponsored by Unilever, a bottle of imported red wine opens to reveal
blood; in another, a gold necklace turns into a hangman's noose. The
underlying message: Don't buy imported goods.
   Smart companies anticipated that backlash, and have begun
highlighting their liaison with Asia. In Malaysia and Thailand, Nestle
is running an advertising campaign that subtly underscores the Swiss
company's decades-long links with the countries, and affirms its
determination to remain part of the landscape, in both good times and
bad. For its part, Unilever in Thailand is aggressively procuring more
raw materials locally, and is publicizing the fact.
   "In most places in Asia, a section of the middle class is
international and secular and wants to see deregulation, change and open
markets, but there is also a huge section that is intensely
nationalistic and can become xenophobic. They will behave differently,"
notes Richard Robison, director of Asia Research Centre at Murdoch
University in Perth and co-author of a pathbreaking study on the Asian
middle class.
   Buying local has a definite cost-benefit for consumers. Local brands
of coffee, herbal shampoo, milk, noodles and other household items on
retail shelves in Thailand cost 25%-80% less than international brands.
And in South Korea, the won's devaluation has made domestic products
more competitive. John Smurthwaite, managing director for Frank Small
Associates, a regional market-research firm, says there has been an
increased uptake of South Korean-made refrigerators, which now can cost
75% less than Japanese or American brands.
   For international businesses, domestic-first consumption is a
headache that will persist until Asia's middle class picks up the pieces
and rises anew. The resurgence is not in doubt: The demographic factors
that made the middle class so attractive to marketers remain: a growing
population, urbanization and a desire for a better lifestyle. Yet the
middle class that will emerge is likely to be different from the one
that carried mobile phones and bought designer labels -- and took
economic growth for granted. "They will demand greater value and
transparency, from the industries and their governments," says Garry
Rodan, an Asia expert at Murdoch University in Perth. Savvy marketers
are preparing for the change.