Southeast Asia: Next Growth Frontier

Rapid growth in all countries in Southeast Asia offers superb business opportunities for corporations. Navigating the complex and diverse markets in the region effectively will be crucial for success.

The Southeast Asia Growth Story
With its combined population of more than 600 million people, strong economic growth and a growing middle class, Southeast Asia offers superb business opportunities for corporations. Unsurprisingly, many businesses are making their forays into the region, and companies from Southeast Asia are going international. A convergence of factors is driving this momentum.

First, major Asian, U.S. and European multinationals want to go beyond their traditional targets in Asia of China and India. While many of these companies moved to China and India 10 to 15 years ago, they now have a keen interest in Southeast Asia. Corporations are attracted by the lower cost of operations, cheaper land, large population, growing middle class and increasing depth of talent they can find in the region. And along with the interest from developed markets, BRICS nations' trade relations with Southeast Asia are growing as well.

Second, more companies in Southeast Asia, and especially those from Malaysia, Singapore, and Thailand, are going international. These firms often start by venturing into neighboring countries, so Malaysian companies may expand to Singapore or Singapore companies may enter Thailand. From there, they springboard into the rest of Asia and then to the U.S. and Europe.

And finally, there is increasing growth in trade flows within Southeast Asia itself. Intra-regional trade with Indonesia, Singapore and Thailand in particular is growing, and other markets are expanding as well. Supporting this growth, the region's leaders and senior officials have met at regular summits to work towards creating unity, becoming a single ASEAN bloc region and improving productivity. Many of the countries have also structured specific domestic incentives to draw more Foreign Direct Investment (FDI).

The Advantages of ASEAN
Southeast Asia offers a multitude of opportunities that attract corporations.

Whereas companies often struggle to build their operations and find they need to establish partnerships to grow in China, regulations in Southeast Asia are set up to facilitate independent entities in most markets and many companies can operate on their own. Companies can also grow through acquisition more easily in Southeast Asia than elsewhere.

Relative political stability contributes to this welcoming environment. And while this may not be a key driver, the moves toward greater ASEAN (Association of Southeast Asian Nations) economic integration in 2015 and beyond are likely to make doing business even easier.

Many of the ASEAN countries have well-diversified industry sectors which are very active. Rather than a concentration in just a few sectors like software or manufacturing, for example, most countries in Southeast Asia have a mix of natural resources, agriculture, electronics, large consumer markets and rapidly expanding infrastructure projects.

Making it an even more compelling location, Southeast Asia is also now a lower-cost operating center than much of China for instance, given the rise in costs in this large market. *

Where Opportunities Lie
Compared to markets like China and India, ASEAN is in many ways a more complicated mix of opportunities and practices. While almost all the countries have large populations and a growing middle class, the growth sectors that corporations can focus on could vary greatly by market.

Indonesia, for example, has an abundance of natural resources and a need to expand its infrastructure in transportation and other sectors. Malaysia has opportunities for companies in large-scale infrastructure products such as power plants and trains as well as in the oil and gas sector. Thailand, in contrast, is an automobile manufacturing hub and also has significant opportunities in food, energy and communications.

Corporations moving into or expanding in Southeast Asia use various practices to succeed in this diverse environment. Some corporations go in and set up a business to explore the opportunities. Others set up operations and create more streamlined processes than they have in their home market. Still others use industry-specific practices, such as commodities companies acquiring oil and gas businesses, or consumer goods companies leveraging their comparative advantages to sell their products.

Accelerating Growth
In the past, many multinationals relied on big boosts from governments in ASEAN to support their market entry. Now, however, the economic climate has changed and there are vastly different models, rules, guidelines and incentives. Navigating the multifaceted industry sectors and regulatory environments or documentation requirements can be a challenge even for experienced corporations, let alone for corporations entering a new market for the first time.

Many corporations find that they benefit tremendously from leveraging a global bank to help navigate this complex environment. A small number of global banks have a long-standing presence in key markets that has enabled them to build an experienced team of professionals with local expertise who can share industry standards, best practices and the best models for operations. These banks can guide corporations through the protocols, help set up transaction services and assist in streamlining their operations. The bank can also share best practices on issues such as taxation and licensing.

A global bank can also advise the corporation on the right locations for a regional treasury center and a shared service center as well as on treasury structures and cash management. Some companies may set up a treasury management office in Singapore, establish a shared service center in Malaysia or Thailand and have operations in another country that focuses on their core competencies. Their bank can help them maximize the opportunities. When local regulations restrict repatriation of cash, for example, a global bank can help look for alternatives to taking money out, find local business opportunities for using the cash, and identify instruments locally that enable the best use of the funds. Companies in Southeast Asia going international can also benefit from the expertise of a global bank. A number of these companies have focused on pursuing opportunities and then realized later that they need greater transparency and control. They may also face cost pressures and want to bring costs down. Many ASEAN companies that go international also lack treasury automation, simply because they are not as exposed to it. Their bank can advise them on requirements, operating practices and automated solutions that can significantly enhance treasury and cash management practices.

For multinationals from other regions, as well as for Southeast Asia-based corporations, leveraging the resources of a global bank can accelerate growth.

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Raof Latiff Abdul
Head of Treasury Services for ASEAN
J.P. Morgan Treasury Services
E-mail: raoflatiff.abdul@jpmorgan.com

* Source: India And ASEAN Economies To Become The Next China For (Manufacturing) Foreign Direct Investment (FDI); International Business Times; 25 January 2013; http://www.ibtimes.com

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