Borderless Business: The Intra-ASEAN Growth

The Southeast Asian region’s growth is among the most exciting across the globe. With rising middle class and the increasingly well-educated workforce, complemented with abundant supply of natural resources, the rapid urbanization of this 10-nation bloc significantly boosts the progress of other regions. Not only is ASEAN highly connected through free trade agreements with major superpowers like the US, China and the EU, intra-regional trade and investments are also surging, with a myriad of growth opportunities for local and international players.

With ASEAN playing a big role in regional and global production value chains, Singapore came out to be the most attractive markets for investments and business expansions, according to a new report released by Standard Chartered, a British multinational banking and financial services company. 

Singapore, a major business hub, owns the largest source for intra-ASEAN FDI and accounts for a majority share in 2019. About 80% of Standard Chartered’s ‘Borderless Business: Intra-ASEAN Corridor’ survey respondents selected the city-state as the country offering the best expansion opportunities within the bloc, reads the report.

Thailand followed at 60%, Vietnam stood in third place at 59%, Indonesia got 52%; Malaysia and the Philippines got 49% and 27%, respectively.

Furthermore, over 85% of survey respondents foresee at least a 10% growth in sales or production in ASEAN over the next 12 months, amidst the pandemic — though this is also considered among the top three risks for businesses in the region.

It is ASEAN’s diverse industrial landscapes that make it an ideal destination for companies to establish hubs and invest in the region. As a matter of fact, the global FDI inflow to ASEAN increased ~35% from $118 billion in 2015 to $159 billion in 2019. Intra-ASEAN FDI is also significant with a 13.8% share of the total FDI.

Nearly 70% of the survey respondents said access to the large and growing ASEAN consumer market is the key driver for focus on ASEAN and major economies offering expansion opportunities. Access to global markets enabled by a network of free trade agreements (59%), availability of abundant and skilled workforce (49%) and presence of a mature and reliable supplier base (40%) were also main factors businesses considered.

“The potential for intra-ASEAN trade is enormous. Not only are the 10 member countries located within close geographical proximity, they are also enjoying rising income levels and rapid adoption of technology by consumers as well as businesses,” said Andrew Chia, Cluster CEO of Standard Chartered’s Indonesia and ASEAN Markets.

ASEAN’s remarkable growth in the past decades has brought it on track to becoming the world’s fourth largest single market by 2030. The growing working population, which is estimated to reach 40 million by 2030, will generate new market opportunities, especially as the region takes advantage of technological innovations. 

However, Standard Chartered said the region’s economic progress has not been homogenous across member countries. With this, ASEAN cannot rely on the same growth strategies it used over the past 50 years to guide its future trajectory, especially as new threats have risen recently.

Growth watchlist

Standard Chartered detailed some of the main key sectors that are driving the future of the Intra-ASEAN corridor, spurred by growing population density and increasing demands.

• Healthcare and healthtech 

The region’s healthcare industry is home to several production hubs, with pharmaceutical products in Singapore, Indonesia and Vietnam taking the lead. The availability of state-of-the-art medical devices in Malaysia and Thailand has also highlighted the significance of medical tourism, which is now one of the major economic contributors in Singapore, Malaysia and Thailand. 

Initiatives such as the ASEAN Medical Device Directive, which aims to harmonize the medical device regulatory framework across the region, are expected to drive even deeper linkages among member states in the healthcare industry by facilitating cross-border trade of products and services.

Furthermore, a new segment is on the rise: healthtech. While telehealth, digital therapeutics and remote patient monitoring and analysis are still relatively new to Southeast Asia, many local startups in the region have started working on making healthtech widely available and easily accessible. And thanks to investors pouring in funds for this sector, expansion of products and services beyond their manufacturers’ home markets is on the right track.

• Electric vehicle segment

Thailand, Indonesia, Vietnam and Malaysia are the region’s automotive hubs, offering diverse yet complementary comparative advantages. Vietnam, for one, contributes greatly to the manufacture of automotive parts, and home to VinFast, which is set to launch its very first smart electric vehicles to the domestic market at the end of 2021 and globally in 2022.

Strengthening the region’s main automotive markets will create an integrated production cluster that is sure to boost ASEAN’s ambitions of becoming an automotive production and export hub. Taking full advantage of the ASEAN Economic Community (AEC), the ASEAN Free Trade AREA (AFTA) and the Regional Comprehensive Economic Partnership (RCEP) will help open opportunities for trade linkages and export.

• Construction and real estate 

The real estate sector in ASEAN has witnessed considerable growth in recent years, supported by growing urbanization and trade liberalization. Between 2015 and 2019, the sector received FDI worth $56.3 billion, of which 23.2% was intra-regional. As the region starts to recover from the pandemic, the construction industry is expected to regain a foothold. In this regard, the construction industry, both residential and commercial, is expected to grow at a CAGR of 11.9% from USD105.5 billion in 2020 to USD184.9 billion in 2025.

Government efforts to attract foreign investments as well as reassessing policies will also further propel growth in this sector. Vietnam in 2020 eased restrictions on foreign ownership and investment on residential housing.

• Food and beverage

Household spending on food and beverage in ASEAN is expected to further accelerate from 2020 to 2025 with a projected CAGR of 7.3%, following a 4.9% CAGR growth from 2014 to 2019, driven by increasing urbanization and higher consumption power of the growing middle class. This has also attracted increased investments in manufacturing both by local and international industry players, thanks to the region’s improving business climate, low manufacturing costs and maturing logistics infrastructure. 

The industry is also seeing rising demand from health conscious and proactive consumers, who prefer products that foster physical and mental wellbeing. Appetite for alternative protein and plant-based products is forecasted to increase by 200% in the next five years, in Thailand alone.

From a distribution perspective, F&B companies looking to expand in ASEAN should pay attention to e-commerce as a significant channel for sales, as a result of the increasing digital adoption across the region.

• Renewable energy

ASEAN’s urbanization and growing consumption have led to an increase in electricity demand, with the region now among the fastest growing in the world at a CAGR of ~6% over the past 20 years. Last year, the region’s electricity consumption reached 994 terawatt-hours (TWh) and is projected to reach 1,287 terawatt-hours by 2025. 

To meet these energy needs in a sustainable manner, the ASEAN Plan for Energy Cooperation 2016-2025 (APAEC), endorsed in 2014, has set a target to increase ASEAN’s renewable energy component to 23% of ASEAN’s energy mix by 2025.

Energy generated from renewable sources (excluding biomass and waste) was 214 TWh in 2020 and is expected to grow to 271 TWh by 2025 at a CAGR of 4.8%. Looking ahead, this trend is expected to bring forth a spectrum of opportunities for regional cooperation through APAEC Program Areas such as ‘ASEAN Power Grid’ and ‘Renewable Energy’, requiring new investments to increase installed power capacity in the renewable sector. Among renewables, solar energy is expected to be a significant growth segment, growing at a projected CAGR of 15.9% and is already garnering investments from across ASEAN.

• E-commerce and digital platforms

The Southeast Asian region is highly known for having preserved its traditions and culture (with ethnic tribes and centuries-old rituals still prevalent) amidst an ever-changing society. But that does not mean it hasn’t joined the world in embracing e-commerce. The region is even one of the biggest markets for digital services, with about 400 million internet users.

Lazada, Shopee and Tokopedia, which offer services across retail, travel, media, transport and food, are among the leading e-commerce platforms in the region. Shopee, owned by Singapore-based Sea, had an average of 281 million monthly visits in 2020 across the region. Alibaba-backed Lazada, meanwhile, generated approximately 137 million monthly visits.

This trend was accelerated last year as a result of COVID-19, leading to a significant gross merchandise value (GMV) of USD104 billion in 2020 that is forecasted to grow at a CAGR of 24% to USD309 billion by 2025.

And now that ASEAN companies are gaining greater understanding for digital platforms and cloud-based services (which then leads to better grasp of data analytics, AI, machine learning and internet of things), they are expected to also see the opportunity these offer to their businesses. 

In Vietnam, one of the region’s most tech-savvy markets, a new National E-commerce Development Plan envisions that 55% of the total population will be shopping online by 2025, with average annual online spending per consumer rising to $600.