McKinsey’s experience suggests that even the most sophisticated multinationals must change significantly to realize Asia’s growth potential. The region is as diverse as it is vast. Its markets come in a bewildering assortment of sizes and development stages, and its customers hail from a multitude of ethnic and cultural backgrounds. Their tastes and preferences evolve constantly. The speed and scale of change in Asian consumer markets can surprise even experienced executives.

 

To meet the challenge, global companies will have to organize themselves regionally to coordinate strategy and use resources in the most efficient way while at the same time targeting the tastes of consumers on a very local level.

 

In Asia’s high-growth markets, these companies face intense competition from low-cost local players; customers with modest incomes, disparate preferences, and minimal brand loyalties; and fragmented distribution channels. Some of the problems will recede as the region’s economies mature. For now, though, the savviest players are trading their old management practices—including largely independent country operations and centralized administrative structures—for leaner, faster, more flexible, and regionally collaborative ones.

 

They are strengthening their in-country operations while creating small, fast, and entrepreneurial regional leadership teams, which at their most successful adeptly allocate resources across markets, leverage scarce executive talent, drive innovations from one market to another, and relentlessly cut costs.

 

Four general principles sum up the changes needed to reach Asia’s new consumers through a strategy that’s both regional and local. Global companies must revamp their corporate structures so that operations in Asia enjoy a high status commensurate with its long-term profit potential and have the autonomy needed for significant results. They have to focus on growth opportunities in urban clusters. Their products and prices must be tailored to local preferences. Finally, they must learn how to market, sell, and distribute products through a variety of channels and retail formats.

  

Asia won’t replace the United States as the lead engine of global growth—at least not for five to ten years. At the end of 2008, the GDP of the whole of Asia was just under $14 trillion, roughly the same as the GDP of the United States alone. Private consumption accounted for only about half of Asia’s GDP, compared with 72 percent in the United States. Asia’s three billion people spent less than $7 trillion; America’s 300 million, upward of $10 trillion.

 

If Asia fails to stoke internal consumption, the region may grow more slowly over the next decade than it did in the last. Yet some observers think private consumption in the region’s emerging economies could grow enough, as early as this year, to offset falling consumption in the United States and the European Union. Even under dour assumptions about the prospects for Asian economies, the region is likely to contribute more than half of all growth in global consumption by 2020.

 

Such macroeconomic perspectives understate Asia’s significance for individual companies. In dozens of product categories, the Asian consumer is already global king. China is the world’s biggest market for many household products, including TVs, refrigerators, and air conditioners. This year, for the first time ever, China will probably top the United States and Japan as the world’s largest automobile market by number of vehicles sold. China’s rank may slip back again as sales in those two advanced economies recover.