The rise of the Southeast Asian (SEA) region is unquestionable, with the majority of the regional executives increasing their focus towards the region, not only due to the robust increase in demand but also its attractiveness as a potential manufacturing hub for all of APAC. However, discussions with corporate headquarters still remain highly country-focused, requiring regional executives to proactively “make the case” to move towards creating a medium-to long-term regional strategy for SEA.
1. Regional Mindset With A Country Specific Focus
a. Appreciate National Differences: Companies should not expect to have similar experiences across this region; each individual country will require in-depth analysis due to its varying economic maturity and wealth
b. Adopt A Scalable Regional Strategy: Executives should adopt a regional mindset, developing a long-term expansion strategy that accounts for the country-level differences but simultaneously leverages upon synergies and creates scale
Understanding country-level differences is paramount to forming a regional strategy when the same region has the world’s largest producer of rice, largest call-center outsourcing provider, largest producer of hard-drives, and largest coal exporter. See graph below to see the variations in the key economic contributors for the major ASEAN countries (as of 2011):
2. Communicate Strengths of the Region Back to Corporate
a. Region Provides for an Attractive Investment Climate – Many SEA countries are very MNC friendly and aggressively promote this feeling by providing long-term investment incentives to stimulate strategically important industries. Highly attractive investment incentives programs such as the Economic Transformation Program by Malaysia, MP3EI by Indonesia, Public-Private Partnership by the Philippines, and Zone-Based Investment Incentives by Thailand have become a popular tool to attract FDI dollars into the region
b. Easier to Manage than India – In terms of demand, the ASEAN region and its member countries share similar characteristics with India. However, doing business in SEA is widely agreed to be easier than doing business in India, which features: unpredictable policy making, high levels of bureaucracy, increasing corruption, differing tax regulations, and an acute lack of infrastructure improvements
c. Profitability Game – Not Just a Top Line Growth Story – Companies have found SEA to not only have strong growth potential, but also the potential for higher margins compared to India and China.
i. SEA is still relatively less crowded in terms of competition, both from MNCs and local companies. Relative cost of inputs remains lower in the region, especially for medium-to low-end manufacturing facilities.
ii. The region’s strong consumption appetite, both from its growing middle class and the government, makes its growth somewhat resilient.
iii. The region offers dual advantages for MNCs; it functions not only as a source of domestic consumption demand, but also as a production hub for exporting to the immediate region and beyond.
Executives needs to quickly adopt a regional-mindset, setting for themselves a clear vision for growth in the ASEAN region and planning for a future where the region not only functions as a leader for APAC but maybe for a scale which would allow for global leadership. Many large MNCs have already begun their quest for building businesses that have a common vision and strategy across the region.