On the heels of the US-ASEAN summit in Myanmar, manufacturers are considering ASEAN (Association of Southeast Asian Nations) to be a much closer horizon for business opportunities compared to other economic goliaths in the region.
In fact, the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore and Thailand) has been attracting more businesses than China, with about $128 billion in foreign direct investments, overtaking that of China’s $117 billion in 2013.
This year’s plans for economic integration throughout ASEAN should further grow the strategic importance of the 10-member collective as it will further open up trade, make commerce across the region more seamless, and come closer to being a single market of more than 600 million people.
While market entry into Asia is not without significant challenges, multinational companies have found that they can adapt their business strategies to Asia’s complex and diverse business landscape by investing in local hubs. This recognition comes at a critical juncture, when higher wages and currency appreciation in China are prompting companies to look elsewhere. ASEAN stands to benefit from this, with each nation offering a unique value proposition be it advanced technological innovation, an abundant labor force, or a growing shift towards more high-skilled industries.
For example, Singapore, is a strategic entry-point for companies to better access pan-Asian growth markets. The city-state boasts numerous resources valuable to MNCs such as a business friendly environment, highly-skilled labor force, well-established financial markets and infrastructure that support them, opportunities to test bed new products for the region and a predominantly English-speaking population. As a result, Singapore serves as a high tech manufacturing hub which also ranks first for foreign subsidiary density and fifth in the world for corporate headquarters.
As a base for knowledge, partners, and talent, Singapore enables companies to access increasingly critical markets like Indonesia and Vietnam, where revenues are growing. A recent example is General Motors, which moved its international headquarters from Shanghai to Singapore in August of last year for easier access to the company’s priority markets like ASEAN, Africa and Australia.
Along a similar vein, Archer Daniels Midland (ADM) is also centralizing the coordination of its Asia Pacific activities. The American agricultural processing company announced in June 2014 that it will be relocating it regional headquarters from Shanghai to Singapore. This is testimony that many corporations are seeing that their business strategies for Asia can no longer focus on just the region’s largest markets, and are moving their headquarters to Singapore as a gateway to the growing ASEAN customer base.
ASEAN is also home to Malaysia, a country which has been encouraging its universities to invest in R&D centers and partnering with private sector companies to create more high-skilled jobs. These initiatives have yielded significant results. Malaysia is a particularly attractive investment destination for companies looking to capitalize on the lower cost of electricity in developing manufacturing sectors like solar energy. The country plays home to six First Solar plants, which collectively produce more than 80% of the American company’s solar panels. The Southeast Asian nation is currently ranked the world’s third-largest producer of solar equipment; companies including Panasonic, SunEdison and SunPower have also set up shop in the country.
The Philippines is another increasingly attractive business hub with a GDP growth of 7.2% –second only to China’s 7.7% in 2013. An important component of the country’s growing economy is the information technology sector, which contributed to 6% of the GDP last year, or $16 billion. With multinational companies entrusting their customer services to the Philippines, the sector aims to increase annual revenues to $25 billion by 2016. Increasing investment in the region from high-tech companies is likely the reason for this confidence; Accenture, for example, is capitalizing on local talent by establishing business process outsourcing operations in rural regions like Tanjay.
Additionally, the Philippines is uniquely insulated from international market fluctuations due to the number of allowances it receives from citizens living abroad. With the economy more resilient to shifting global economic conditions, heavyweights including JP Morgan and Procter & Gamble have recently taken advantage of the stability the Philippines offers by expanding their operations in the region.
While each nation offers a unique investment proposition, it is important to note that a one-size-fits-all strategy towards the region is unrealistic. There are wide gaps between the economic development stages and political landscapes of different nations. For example, Indonesia represents almost 40% of the region’s economic output and is a member of the G20, while Myanmar is still an emerging market working to build its institutions after a period of isolation from the global community.
Investors need to be aware of local preferences and cultural sensitivities when looking at ASEAN as a business opportunity.