12th Jun, 2018
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There is a saying, “In diversity, there’s beauty and strength” and it fits well with the truly diverse set of cultural as well as industrial positioning of the South East Asia. The diversity that is seen in the SE Asian markets, can be said as one of the biggest pulling factors of all times – there’s one country where the talent pool is extraordinary, then there’s another where the government policies are quite friendly for a foreign entity to set up, there may be another where the cost of operation for a certain industry sector is much lower in comparison to other countries and so on and so forth.
The Association of the South East Asian Nations (ASEAN) was set up in 1967 and since then the local economies of the group nations have seen nothing but an upward movement, while one’s pace may have varied from another’s. With a great neighbourhood leverage of each other, ASEAN has maintained the stance of being one of the most lucrative markets of the globe.
Looking from the Global Lens
A population of over 655 million, corresponding to 8.74% of world’s population – what else will you call such a place if not a major opportunity for the world. The cherry on the cake is the youthful demographics of the region more than half of ASEAN population is under the age of 30. So, it’s not just a pretty big marketplace, it’s a whole lot of workforce potential as well.
Going a bit macro again and taking a collective view of the ASEAN economy, as per PWC’s Long View Forecastby 2050- Thailand, Malaysia, Vietnam, Philippines will come into the league of world’s top 25 economies while Indonesia will move up the ladder by four positions and be ranked number 4 economy of the world.
A big chunk of the E7 economies, these SE Asian countries are forging ahead at a remarkable pace. As part of its World in 2050 report, PWC predicts that the developing market (E7) will be seen growing twice as fast as radical economies (G7). By 2050, the E7 economies could have increased their share of world GDP from around 35% to almost 50%. Being a significant portion constituting the E7, these figures are validations enough to say that SE Asia is the next big thing on the block.
Where the Money Flow Doesn’t Seem to Cease
ASEAN Economic Community has been working in the direction of managing the practices (barring taxation, as that is what differentiates these nations majorly) and reducing the trade barriers with the intent of making SE Asia an even more exciting business destination while ensuring the play field remain levelled amongst the South Eastern nations.
A look at some of the recent news-making investments which were done in SE Asian market:
- The dominant ride-hail start-up in Southeast Asia – Grab, received a combined funding of US$2 billion from China-based ride-hail player Didi Chuxing and SoftBank.
- Alibaba invested US$1 billion in local player Lazada, raising its stake from 51% to 83%.
- Tencent’s 40% investment in Garena Holdings (recently renamed Sea)
- Expedia invested US$350 million in Traveloka, which comes on top of the US$150 million that the region’s leading travel site raised from other investors
Even in the not so 1st tier nations of SEA, such as Vietnam, manufacturing now makes up a third of the economy and it has become the world’s top electronics exporters, with Samsung producing about 40% of its phones there.
Such steps from global behemoths like Tencent, Amazon, Google, Softbank, etc. are proof of the rise of a new economy altogether – an economy of scale, co-existence and growth.
And the Growth Gong Goes On…
In terms of industrial sectors, manufacturing and services sectors saw maximum FDI flow concentration as per ASEAN Investment Report 2018. As per the same report, the region also saw continued major investments from Fortune Global 500 companies. In 2017, Malaysia was on the top recipient in terms of capital in Southeast Asia with US$421 million in foreign outlay, tailed by Vietnam and Thailand.
Talking about digital commerce, despite the large variances amongst the SE Asian nations regarding the payment methods, the market is quite upbeat. It saw the online consumer base grow by 50% last year. SEA can indeed be termed as world’s fastest growing internet market.
The region has also earned itself the tag of a great start-up pad as it plays host to more than 7,000 start-ups, with new businesses being registered every day. In fact, with 2017 seeing record funding in the start up space in SEA pulling in US$7.86 billion from investors – over threefold rise from 2016’s US$2.52 billion – the region has got itself another chip on the shoulder for being a haven for ambitious ideas. While quite presumably, Singapore and Indonesia got the biggest chunk in terms of investors’ attention, the other nations of the region are pacing up fast.
Looking at the overall economies, countries wise, Malaysia and Indonesia economies are growing faster with more upbeat surprises from 2017-2018 ensuring the improvement in their currencies (MYR & IDR) alongside. While Singapore is already in the top developed nations, Indonesia is the fastest rising star one can say.
Not Just the Consumer Potential but the Talent Pool Also Scores A Game
South East Asia is relatively active in job market despite the varied economic condition. This is eventually due to the region’s dominance in enticing new market entrants and assisting in the expansion of existing businesses. The youthful demographics of the region is another factor which makes it a fertile ground for technology adoption, innovation as well as quick-learning workforce.
For example, ranked as one of the leading contenders of best markets of SE Asia, Malaysia offers a great deal of ease for setting up businesses and consequently, produces great demand for finance and accounting talents. Another example, traditionally known as a popular location for call centers, the Philippines boasts of a huge talent pool of fluent English speakers, unlike many of its neighbouring countries.
Malaysia – One of the Most Lucrative Spots of Asia?
The digital economy vision has indeed stepped up the region’s imagery as the leading one in SEA pack. The digital economy contributed 18.2% to Malaysia’s GDP in 2017 and is expected to exceed the projected target of 20% earlier than 2020. This growth is being noticed on a global level and that’s how the country is attracting more and more numbers of foreign investors lately.
Even the government is taking special measures to keep up or rather increase the momentum, with initiatives such as Malaysia Tech Entrepreneur Programme which is designed to attract overseas tech founders who plan to expand in ASEAN, then there is Malaysia Digital Hub initiative that provides physical designated spaces for growing start-ups. There is also a Digital Free Trade Zone (DFTZ) initiative that has brought onboard 2,000 local SMEs using the platform to export their products globally.
A collaboration between the KL City Hall and Alibaba Cloud happened recently, to make Kuala Lumpur the first city outside of China to implement AI-powered smart city solutions. One can say that Malaysia is indeed taking some big strides towards integrating AI in its industrial and societal populace.
Talking from a personal experience, when the global expansion of Denave started actualising, while we started with Singapore, Malaysia was an obvious zero-down for a center. After setting up in 2012, it has been an upward journey since then, with all the support and benefits provision the government has for foreign entities. Last year, Denave also became a MSC Malaysia status company.
The MSC accreditation is one of the best policies of the Malaysian government to promote more global trade. With attractive sops like 100% exemption from taxable statutory income, duty free importation of multimedia equipment, safeguarded intellectual property rights and multiple more advantages, Malaysia has truly emerged as one of the best SE Asian market for foreign companies who want to set up there.
The benefit continues with the provision of freedom to source capital and borrow funds globally while utility providers have 99.9% SLA guarantees for their services. Visa processing is fast-tracked for expats and for foreign knowledge workers.
For this accreditation, an agency (MDEC) is a single point of contact for all interactions with stakeholders from the public sector, thus simplifying a lot of public office interaction for the foreign entrants.
Out of personal experience and otherwise also, based upon the latest associations and announcements, the market seems to be on a fast-track towards becoming one of the foremost market spot for the globe and not just for Asia.
What Lies Ahead
With respect to alternative opportunities, SE Asia is experiencing an outpouring deal in technology sector and internet-based businesses. In Southeast Asia, internet companies will require US$ 40-50 billion in investment over the next 10 years, as mentioned in a joint study done by Google and Temasek. Malaysia can well be said as the frontrunner in this race.
Indeed, the opportunities accessible through this large, emerging economy of the world is extremely appealing, and therefore with proper planning, research and entry strategy, one can take great leverage of the current situation and make most of it.