It is easy for executives to underestimate Southeast Asia’s market potential, especially when compared to that of China and India. By doing so, however, executives run the risk of losing the opportunities available in the region.
The economic size of the 10 Association of Southeast Asian Nations (ASEAN) member countries combined is larger than that of Brazil and Russia, and will compare to the size of India’s economy in the coming years. Most ASEAN governments are consistently implementing policies to attract investment and improve the business environment. Several countries in the Southeast Asian region have surpassed India and China in the World Bank’s ease-of-doing-business rankings.
ASEAN will continue to present opportunities for multinationals in the years to come, and cannot be ignored as a key market for success in the Asia-Pacific region. As a result, executives need to be aware of the key drivers of the ASEAN economy and capitalize on its emerging trends to succeed in the region.
Four key drivers that will determine growth in the Southeast Asian region are:
- Growing consumer market: Domestic spending in ASEAN will continue to grow as rising income levels allow consumers to upgrade their lifestyles and consumption choices. Companies should cater to the rising consumer class by focusing on branding and localizing strategies to establish a strong foothold in the market
- Improving regional integration: Measures to increase regional integration, such as China’s Belt and Road Initiative, the ASEAN Economic Community, and the Regional Comprehensive Economic Partnership are expected to enhance trade and investment flows to ASEAN. This will improve infrastructure and provide multinational companies with easier access to the Southeast Asian markets
- Increasing manufacturing activity: Manufacturing output in the region is likely to expand—supported by an improving regulatory environment and low costs—as domestic and export demand continue to grow. Certain industries are likely to experience stronger growth as compared to others. Executives should, therefore, implement effective strategies to cater to these high-growth sectors
- Slowing Chinese economy: The Chinese economic slowdown will have a mixed impact on the Southeast Asian region. Trade will be negatively impacted due to ASEAN’s dependence on Chinese demand for its exports. However, investment in the region may improve in the medium-term as MNCs reduce their exposure to China and consider investing in other markets in the region.
The four drivers mentioned above will support economic growth in the Southeast Asian economies in the years to come. As a result, Companies should evaluate how these trends affect the assumptions they have made in their strategic plans for the region.
This is part one of our two-part series on our outlook for the emerging Southeast Asian region. Watch out for our next blog on the actions companies should take to succeed in the region.
For our latest updates and insights on ASEAN, FSG clients can access the latest ASEAN Regional Outlook for 2018.