News / Asia

Asian Sales Propel Profits for Large Multinational Corporations

As large multinational corporations have reported their second quarter results in recent weeks, a trend is emerging - many are relying on Asia for growth.

Michael Geoghegan, the chief executive officer for the global bank HSBC, moved to Hong Kong from the bank's headquarters in London earlier this year. In announcing the bank's second quarter earnings of $6.8 billion recently, Geoghegan underscored the importance of that shift.

"Asia remains the bedrock of profitability," he said. "It is in Asia that we are seeing the greatest opportunity for growth."

HSBC's Hong Kong operations saw profit rise 13 percent, while earnings from the rest of Asia climbed 36 percent.

At Standard Chartered Bank, 73 percent of its $3.12 billion profit in the second quarter came from Asia. Profit from the Americas, Britain and Europe accounted for only four percent.

Where the action is

Akzo Nobel, the world's largest paint and coatings supplier, reported that Asian sales, which account for 20 percent of global revenue, helped its second quarter profit leap 76 percent from last year to $351 million.

"We are where the action is and where the action could be," said Hans Wijers, the chief executive of the Dutch company.

The International Monetary Fund forecasts that China's economy will expand by more than 10 percent and India's by over 9 percent this year. In comparison, the U.S. is only expected to grow at 3.3 percent, and Europe at 1 percent.

With demand in the U.S. and Europe still weak after the global financial crisis, Asia's growing population, rising middle class and strong investment spending offer strong potential growth for multinational companies.

Expanding market

U.S. consumer products giant Procter and Gamble plans to work with the Chinese government to bring its distribution network to 10,000 villages. Chief Executive Officer Bob McDonald described the plan to financial analysts recently.

"We expand the distribution of our products in the rural areas of China to reach more Chinese consumers and to create economies where economies never existed," said McDonald. "As we do that, that obviously creates more people to use our products and helps us get to the five billion consumers that we targeted over the next five years, in the four years now remaining."

Geoghegan at HSBC counts on the growing ranks of Asian millionaires and the overseas expansion of Chinese companies to help raise the bank's revenue.

"Mainland Chinese companies expanding overseas accounted for around half of the new growth in commercial customers in Hong Kong," he said. "And we have also captured increasing flows of trade between China and Latin America."

However, some multinational companies are cautious, including German luxury car maker BMW. Its sales in Asia jumped 59 percent in the second quarter this year, and most of the gain was in China.

But BMW executives say they do not want to "become dependent on the Chinese market" and want to strengthen the company's U.S. business.

And some Asian ventures have fallen short of expectations. French supermarket retailer Carrefour, which opened stores in Southeast Asia and China in the late 1990s, is reportedly selling its business in Southeast Asia, to concentrate on China and India.

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