Rise of "sin" industries in Asia 0 comments

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The recent casino debate in Singapore put the spotlight on the gaming industry, and many realised that this was a rising trend in Asia which arguably Singapore would have to follow or be left behind. Countries in the Asia-PAcific are reportedly considering building casinos as well, including Hong Kong and Thailand, in addition to those which already have them, particularly Macau but also Japan and South Korea.

What is this casino fever about? It is linked to the rise of Asian consumerism and the resulting scramble to make money off them through tourism, and gaming is seen as a key attraction to increase the country's entertainment value.

Western gaming companies are also eying a share of this pie, which is why the big Las Vegas and Atlantic City gaming companies like Caesars, Wynn and Harrah's have recently been expanding in Asia in a big way, in particular in Macau, where a series of casino developments are being planned following further industry liberalisation in 2001/02. These gaming giants have also been facing increasing industry regulation and competition in their home countries, and are clearly looking to Asia as their next engine of growth.

These moves in the gaming industry form part of a bigger trend, that of export of "sin" industries into the Asia-Pacific in search of better profit margins. Another example of this trend is the forays planned by cigarette companies like Philip Morris and British American Tobacco into China and Indonesia. Increasing regulatory action (bans on smoking in public places) and taxes, looming class action lawsuits with heavy payouts (in the US) and rise of discount brands are squeezing margins in the developed countries and forcing the big players to move to less-developed countries which have big populations, more lenient regulatory environments and rising consumerism.

The biggest deal in recent months has been the acquisition of Indonesia's No.3 cigarette manufacturer Sampoerna by Philip Morris, a big move indicating the latter's seriousness in expanding in the region. British American Tobacco has long been active in Vietnam, another big nation of cigarette smokers. It is useful to note that these target countries are less developed economies containing large portions of less educated smokers who are likely to care less about the health risks associated with smoking, and hence there is little political pressure to cast a heavy hand over the tobacco industry. China is another country viewed as the holy grail of Big Tobacco companies, with its immense population and relatively backward social attitudes.

A standard template of these "sin" industries has been to offset difficult conditions in home countries with strides in other parts of the globe. It is probable that these "other parts" will include large parts of Asia, where on the supply side, governments are relatively compliant and legal infrastructure is not antagonistic; while on the demand side, large populations with rising disposable income and less developed attitudes towards "sin" industries (hence lack of social lobby groups) provide ideal operating conditions.

An Asian "Playboy" regional headquarters anytime soon?

References:
(1) Chronology of Macau's gaming industry
(2) UK Guardian report: US tobacco companies fall on hard times
(3) Bloomberg report: Altria completes takeover of Indonesia's Sampoerna