What Makes Managing Talent a Challenge in ASEAN?

This is part two of a three-part series on Talent Management in ASEAN. View part one here.

ASEAN’s Market is Characterized by Scarcity  

ASEAN’s talent market exhibits the classic signs of an emerging market suffering from an increasing demand for talent and lack of supply.  Various studies have come to the same conclusion—the talent landscape across ASEAN can be characterized by overall scarcity; as reported by 70% of the respondents in a Deloitte survey. The region’s talent shortage is creating a vicious cycle that is likely to exist for the short-to-medium run. The lack of a steady talent supply and increasing demand are leading to competition for the same resources, which in turn results in challenges in attracting and retaining the right employees.

Development will be a Top Internal Priority for MNCs 

The distinctive characteristics of the ASEAN region have created unique management challenges that could only exist in very few parts of the world. It is growing at a pace that is much faster than that at which talent can be developed, its complexity (managing 10 countries) requires experienced professionals that don’t exist in the market, and its composition of as many cultures and languages as an entire continent erects further cultural complications. The focus for most MNCs (as shown in the table below) is going to be on developing the next generation of executives who can take up regional (not just national) leadership positions and will strategically execute plans set out by corporate teams.


ASEAN Talent Management Puzzle – Key Challenges MNCs Are Likely To Face

  • Regional Talent – ASEAN’s significant diversity causes regional leadership positions to be much more complex to handle. Moreover, given low mobility in the region, many executives only have strong market knowledge of their home country and have limited regional knowledge.
  • Attraction- Given the shortage of high-quality talent, expectations are growing from quality candidates for not only competitive compensation packages but also working conditions and benefits that not all MNCs are ready to provide.
  • Retention- Most organizations in ASEAN experience high levels of turnover predominantly at junior and operational levels. At these levels, salaries are comparatively lower, and extrinsic factors play an important role.
  • Regional Competition – ASEAN-based companies have been growing quickly; they did not go through any major job cuts during the last financial crisis, they are able to offer several mobility opportunities, and the size of the responsibility/portfolio is often comparable to what is offered by developed-country firms.

ASEANS_talent_management_puzzleWarning: Don’t Fall Into the ‘Buying’ Trap

Why make investments in talent and leadership if competitors can poach the best employees? Poaching rather than developing talent is ultimately a shortsighted strategy; it sends an unhealthy signal to employees that they need to change jobs in order to advance their careers. Companies that employ such a strategy will eventually lose their competitive edge, but local companies may want to follow it

In FSG’s latest work on the subject, titled Effectively Managing Talent in Southeast Asia, we highlight 10 issues that MNCs will likely face in ASEAN and 10 tactics that can used by MNCs to address those challenges.

FSG clients can access the full report here. Not a client? Contact us for more information.

Shishir Sinha

Asia Pacific

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Urgent Needs for Talent Management in ASEAN

Talent-related Challenges are on the Rise in ASEAN

Numerous reports consistently highlight skill deficits as a major ASEAN concern. The Economist Intelligence Unit (EIU) also noted that the lack of labor and talent was causing significant issues for employers in Indonesia, the Philippines, Thailand, and Vietnam. In a recent survey, the International Labor Organization (ILO) on ASEAN revealed that skill shortages were inhibiting growth in several key sectors, such as trade, hotels, telecommunications, and IT. A vast majority of the companies recently surveyed in ASEAN revealed that they are facing severe issues with talent attraction and retention. According to the Hay Group, between 75% and 96% of firms in ASEAN are having trouble attracting the right type of talent. Given the lack of investment in high-quality tertiary education and training programs, issues associated with talent are here to stay.

Talent Management Urgency in ASEAN

Proactive Management is the Need of the Hour

The majority of multinationals in ASEAN, 61% according to one survey, expect the size of their workforce to grow alongside their thriving businesses. Although business planning often incorporates multiple variables that can affect growth, workforce planning in the region isn’t proactive and doesn’t account for talent supply-demand gaps. MNCs can’t afford to put addressing this need on hold for the following reasons: (a) As development of regional talent could take up to 10 years, starting early is important; (b) Many fast-growing and ambitious regional companies have more pulling power, making them just as attractive, if not more, as a choice of employer; (c) Because education standards in the region remain relatively low, investing early in the training process and sponsoring tertiary education is recommended.

Why is Proactive Talent Management Necessary Today?

In FSG’s latest work on the subject, titled Effectively Managing Talent in Southeast Asia, we highlight 10 issues that MNCs will likely face in ASEAN and 10 tactics that can used by MNCs to address those challenges. Clients can access full reports here.

This article is part 1 of three-part blog series on Talent Management in the ASEAN region. Check back next week for part 2.

For a full report on Effectively Managing Talent in Southeast Asia, FSG clients can visit the client portal.  Not a client? Contact us for more information.

Shishir Sinha

Asia Pacific

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Rising Competition from ASEAN-based Corporations

As the ASEAN region begins to mature, the power, reach and influence of its indigenous companies have begun to increase dramatically.  We’ve witnessed similar rises of local and regional companies in other parts of the world — East Asian companies in the 1980s-1990s, Multi-Latinas over the last decade and mostly recently we are seeing increasing competition from Chinese firms.

ASEAN’s resilient performance over the past decade has allowed many of its local companies to rapidly expand across the region and beyond, giving birth to numerous ASEAN-based corporations.

Asean Local Competition

Under the Radar

Companies from ASEAN often do not receive much attention from Western analysts who instead focus on China and India. However, ASEAN firms are a force to be reckoned with; keeping pace with the region’s growth, the number of ASEAN companies on Forbes’ list of Global 2000 companies has more than doubled in the past seven years. Moreover, ASEAN has more companies on the Forbes’ Global 2000 list than India, Brazil, or Russia. The region is also home to 227 companies with more than $1 billion in revenues, making it the seventh-largest host for such companies, or 3% of the global total.

ASEAN countries and companies have continued to invest within the region at a steadily growing pace, with 2012 seeing twice the amount of intra-ASEAN FDI, in dollar terms, compared to 2008 (pre-crisis). The strengthening of intra-ASEAN investment can be attributed to a number of factors, including (a) the maturity of a growing number of companies in ASEAN who are venturing abroad, (b) regional integration, which provides future opportunities to scale, (c) improved financial capacities of ASEAN companies, and (d) home-country measures that encourage overseas FDI through institutional and informational support.

Western MNCs Should Monitor the Business Climate

Hailing from a new group of countries and leveraging competitive advantages that Western firms have not seen before, emerging-market multinationals have shaken up many stagnant, mature industries in developed countries. While not mature enough to rock Western markets, the rise of ASEAN corporations is going to lead to an increased fight for resources (both natural and human), heightened competition for several fast-growing segments, and the reduction of prices alongside faster innovation in ASEAN. 

MNCs should explore all potential partnerships with regional firms; ASEAN-based companies understand the market better, tend to have deeper distribution networks, and lower-cost operations. Emerging-market multinationals are born in a new world, one that is highly globalized and integrated, where internationalization will happen much faster than experienced by MNCs, making them much more of a threat to long-established businesses.

For more information on the rising competition of ASEAN-based corporations, FSG clients can access the full report on the client portal.

Shishir Sinha

Asia Pacific

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Manufacturing Attractiveness Index of the ASEAN Countries

Southeast Asia has experienced a strong CAGR of 5.5% in terms of its manufacturing output over the last decade and is now responsible for almost 4% of the global manufacturing output. This growth has been funded both by domestic companies as well as foreign investors; ASEAN surpassed China in terms of the FDI inflow in 2013 and the manufacturing sector received a large chunk of the funds. In fact, more than 30% of all FDI that has flown into ASEAN between 2005 and 2010 has been towards manufacturing, and the sector is likely to continue to be one of the biggest beneficiaries of the growing interest from foreign investors. The major reasons for this drive in investments can be summarized through the ASEAN’s four C’s: Consumption (growth), Cost (low), Commodities (abundant), and Community (single ASEAN trade bloc).

FSG’s Country-Level Manufacturing Attractiveness Index
As costs rise elsewhere and the addressable market becomes larger in ASEAN, companies should explore the viability of moving production to the region using a “total factor performance” analysis. It is important to make sure that the analysis looks beyond the simple math of labor-cost and considers total factor performance (labor, transport, leadership, material, components, energy, and capital)

FSG has created an industry-agnostic, manufacturing attractiveness index of the five major ASEAN countries based on the assessment of 30 key indicators under 6 key major groupings. See bar-graph below for the results of our analysis:

  • Labor conditions: average wages, minimum wages, engineer’s salaries, redundancy costs, literacy rate
  • Transport infrastructure: Quality of roads, quality of ports, quality of railroads, quality of air transport, logistics competence
  • Utilities (Support infrastructure): Quality of electricity supply, electricity production, energy production, broadband penetrations, mobile penetration
  • Regulatory environment: Investment freedom, tax rate, openness to foreign investment, prevalence of trade barriers, intellectual property rights
  • International trade conditions: Efficiency of import-export, number of days to import and to export, cost to import and export
  • Risk Factors: Gini coefficient, corruption, equity risk premium, banking sector risk, natural disaster risk

ASEANs Country Level Manufacturing

For companies conducting a similar analysis, couple of points to note before embarking on the exercise:

  • Make use of Weights: This benchmarking assumes equal weights for all parameters; however, companies should make adjustments according to their business needs to create the most accurate comparison
  • Conducting A Time Series Analysis: The benchmarking exercise should be done annually to measure change in the market’s dynamics

Country Profiles of the Major ASEAN Players and Their Key Provincial Regions of Manufacturing

1.       Malaysia

  1. Established industrial base: MNCs entered Malaysia as early as the 1970s, conducting manufacturing assembly in the country as a cheaper alternative to Singapore. The early entry of Western companies, access to raw materials (oil), and its established supply chains have allowed Malaysia to become one of the most competitive manufacturing locations in the region with top quality infrastructure
  2. High sophistication: Compared to its ASEAN peers, Malaysia has steadily moved up the value chain and is now mostly involved in higher value-added manufacturing and assembling, attempting to closely follow the footsteps of its neighbor, Singapore
  3. Cost barrier: With continuous progress and increasing sophistication, the cost of labor has also risen; engineers and manufacturing labor are the most expensive in the region

2.       Thailand

  1. Detroit of Asia: Accounting for over 12% of the country’s GDP, the automotive sector in Thailand has played a large part in cementing the country’s role as a key manufacturing location in the ASEAN region. Thailand has benefited heavily from sustained Japanese investments and is now the most industrialized nation in the region
  2. Rise of the Northeast: While most MNCs are unlikely to be exploring opportunities in Thailand beyond the central area, local firms are expecting the Northeastern region to perform better in the future, as it has access to a large consumer base, closer proximity to China, more attractive government incentives, a geographical area not prone to flooding, and mostly non-arable land

3.       Indonesia

  1. Manufacturing laggard: Despite obvious advantageous in terms of its location and relative wages, Indonesia has continued to remain a small player in regional production networks. Its labor market rigidities, a history of political uncertainty, and protectionist measures have kept MNCs at bay, but these trends are likely to change soon
  2. Rising interest because of costs and customers: Rising demand from ASEAN’s largest market has led several big-name MNCs to invest in the country; P&G began operations at its diaper production facility in 2013, and Foxconn, the world’s largest contract manufacturer, has committed a US$ 1 billion investment in order to set up its manufacturing facility

4.       Philippines

  1. Long-time semiconductor affair: The Philippines began to witness investments from semiconductor MNCs back in 1970s, when Western companies avoided the better established locations of Hong Kong, Taiwan, and South Korea, which were feared to be affected by the ongoing Cultural Revolution in China. Till date, the industry has a stronghold on the Philippines; almost 50% of the country’s network products (parts and components, and final assembly) exported are semiconductors, with another 27% related to computer manufacturing
  2. Philippine Economic Zone Authority’s (PEZA):  PEZA is an ISO 9001:2008 rated government agency responsible for being the one-stop-shop for investors looking to set up in the Philippines. The agency’s lack of corruption and relative efficiency have allowed for the 286 economic zones it manages, under which there are more than 3,000 companies and over 800,000 skilled and semi-skilled workers. The advantage companies find when dealing with PEZA is that it is a single entity, making stakeholder management simpler while reducing external intervention

5.       Vietnam

  1. Concentration: Vietnam’s most important industrial zones are concentrated in a remarkably small number of provinces. The majority of Vietnam’s manufacturing is located in the Southeast and the Red River Delta; together, these regions account for almost 75% of the country’s industrial output
  2. Cheap labor and proximity to China are Advantages: Samsung announced plans to invest US$ 4.5 billion in two plants in Bac Ninh and Thai Nguyen as part of its plans to relocate production from China. Both factories are expected to produce 250 million mobile phones per year. Vietnam serves as an excellent source of cheap labor (the cheapest among the ASEAN five) and is relatively close to two other manufacturing economies, China and Taiwan

Highlighted areas account for more than 75% of the manufacturing output in their respective countries

Manufacturing Map

For more information on the topic, you can download the podcast in which we discuss (a) the rise of ASEAN as a manufacturing hub, (b) diagnose the viability of movement of industries into the region, and (c) decipher the impact of the AEC

Shishir Sinha

Asia Pacific

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What Does The Rise of Manufacturing in ASEAN Mean for Multinationals?

While the rise of Southeast Asia has been discussed widely over the past few years due to its strong consumption demand, the production aspects of the region remain relatively unexplored with many companies not having examined ASEAN’s manufacturing capabilities, its ability to achieve economic integration, and the comparative strengths of the individual members as production units. FSG’s research shows that manufacturing is likely to play a significant role in ASEAN for years to come

The Rise of Manufacturing in ASEAN

Southeast Asia has experienced a strong CAGR of 5.5% in terms of its manufacturing output over the last decade and is now responsible for almost 4% of the global manufacturing output. This growth has been funded both by domestic companies as well as foreign investors; ASEAN surpassed China in terms of the FDI inflow in 2013 and the manufacturing sector received a large chunk of the funds. In fact, more than 30% of all FDI that has flown into ASEAN between 2005 and 2010 (see pie-cart below) has been towards manufacturing, and the sector is likely to continue to be one of the biggest beneficiaries of the growing interest from foreign investors. The major reasons for this drive in investments can be summarized through the ASEAN’s four C’s: Consumption (growth), Cost (low), Commodities (abundant), and Community (single ASEAN trade bloc)


However, even though the majority of the ASEAN countries have moved out of the agrarian state and have seen this growth in manufacturing, many are still in the early industrialization phases; meaning that the manufacturing sector is going to continue to see strong growth over the next 10 to 20 years (see graphic on the evolution of countries below) and will play a significant role in the development of the region


Assess the Direct Impact of the Rise of Manufacturing

  1. Serving the market: As costs rise elsewhere and the addressable market becomes larger in ASEAN, companies should explore the viability of moving production to the region using a “total factor performance” analysis. It is important to make sure that the analysis looks beyond the simple math of labor-cost and considers total factor performance (labor, transport, leadership, material, components, energy, and capital)
  2. Business customers (B2B) movement: Companies serving other manufacturing and production types of businesses should be assessing what types of industries are likely to invest heavily into Southeast Asia and which are not likely to consider moving beyond China

Gauge the Spillover Effects from the Rise of Manufacturing

  1. Productivity impact: The rise of manufacturing is going to positively impact productivity within the region, which has not seen a large improvement over the past decade. Manufacturing makes outsized contributions to trade, research and development (R&D), and productivity. The sector generates 70% of exports in major manufacturing economies, both advanced and emerging, and up to 90% of business R&D spending. Such productivity growth provides additional benefits, including considerable consumer surplus
  2. Rise in consumption will impact all industries: As the less industrialized countries of Indonesia, Vietnam, the Philippines, Myanmar, and Cambodia move from agrarian societies to manufacturing ones, companies should expect consumption dynamics to evolve. As people move from the less predictable farming sector to the fixed-wage manufacturing sector, they tend to experience strong income growth, increasing their capacity to consume. Even companies not exploring manufacturing opportunities in the region need to be monitoring this trend

Establish a Strategic Role for the ASEAN Region in Your APAC Portfolio

  1. Evaluate a “China Plus” strategy- China’s rise to manufacturing prominence over the past two decades has been staggering. However, rising costs, more sophisticated consumers, and fundamental macroeconomic realities mean that current approaches to manufacturing are losing their relevance. As the imperative for companies in China will be to boost productivity, refine product-development approaches, and tame supply-chain complexity, ASEAN has appeared on the horizon as a viable alternative for companies looking to expand their manufacturing footprint into relatively lower-cost locations. ASEAN countries provide cheaper labor, investor-friendly governments, and are part of established supply chains
  2. Compare the competitiveness of ASEAN (to China and India) – China is unlikely to lose its dominant position as the “factory of the world” anytime soon because of its well-established infrastructure, existing manufacturing facilities, ability to scale quickly, and strong involvement in established global supply chains. However, certain low value-added industries are likely to consider moving out of the country or at least setting up their next facility in Southeast Asia, where the cost of labor can be less than half of that in coastal China. ASEAN countries provide access to several raw materials, and certain locations have strong linkages to trade infrastructure
  3. Explore ASEAN’s complementarity to China- ASEAN countries are also likely to be playing a complementary role to China within several industries that depend on Asia for producing parts and final assembly. Given China’s established role as one of the most productive assembly locations in the world, due to its ability to scale quickly and availability of infrastructure, many companies produce their parts and components in cost-effective locations within the ASEAN region, conduct the final assembly in China, and then have the finished product shipped to the end customer. The ASEAN-China free trade agreement has helped companies create such fragmented supply chains

In FSG’s latest report on the region, titled ‘ASEAN’s Role in Manufacturing’, (a) we explore the rise of ASEAN as a manufacturing hub, (b) diagnose the viability of movement of different types of industries into Southeast Asian countries, (c) conduct a location analysis of the various manufacturing sites in ASEAN, and (d) decipher the impact of the ASEAN Economic Community on manufacturing decisions. FSG clients may click here to see the full report

Shishir Sinha

Asia Pacific

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Global Courtship of ASEAN

Free Trade Agreements have become the flavor du jour and Southeast Asia is not being left behind on that trend. The ASEAN countries are now involved in negotiations for two very different trade agreements: the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) while continuing to pursue their own trade liberalization attempts through the ASEAN Economic Community (AEC).  Below is an outline of the key components of the Free Trade Agreements and what MNCs can expect in 2014:

Global Courtship of ASEAN

Key Insights for MNCs: Understanding the AEC vs. RCEP vs. TPP  

ASEAN Economic Community (AEC)

  • AEC is not just about lowering tariffs; infrastructure improvements, better intellectual property rights protection, harmonized investment laws, and easier movement of capital and skilled labor are part of the agenda
  • All member states will gain economically from the AEC, and real income is expected to increase significantly. Overall, exports will outpace imports in the manufacturing sector, easing integration into global supply chains
  • Growth is likely to be inequitable among member countries; companies should conduct in-depth studies to understand individual market dynamics

Regional Comprehensive Economic Partnership (RCEP)

  • RCEP can be thought of as an extension of the AEC; it will deepen ASEAN’s relationship with its six FTA partners
  • RCEP involves a lot of consolidation; it will build upon guidelines that already exist while working toward fixing the inconsistencies in regulations that exist, both with FTA partners and within the individual ASEAN countries
  • RCEP is dealing with several trade harmonization issues and is therefore concentrating more on “border-based” matters

Trans-Pacific Partnership (TPP)

  • While similar to the RCEP in pursuing trade harmonization, the TPP’s major difference is in its attempt to address issues that companies have to deal with once they want to set up an entity in a country. The TPP goes far beyond the “border-based” matters
  • Proposed regulations in the TPP have a very high standard, but that is necessary, because it still has to go through several rounds of negotiations. Starting with lower standards might leave the final product at a subpar point
  • Certain ASEAN countries might find the TPP appealing, because it would force them pass locally unpopular regulations that can benefit the country in the long run. Vietnam would have to reduce preferential treatment of its state-run-enterprises (SOEs). Participating in the TPP will be lot more complex than joining the RCEP. The TPP is not a group effort, but one where individual countries must decide if they have the political will to undertake the comprehensive domestic overhauls required for membership

What Should Multinationals Expect During 2014?

 ASEAN Economic Community (AEC)

  • The ugly truth is that the AEC 2015 is just the beginning, not an end; expecting all policy targets to have been met and support systems to be smoothly functioning by 2015 would be an unrealistic hope. Negotiations are likely to continue way beyond 2015 as the ASEAN area attempts to meet its original agenda of creating a political-security and socio-cultural community

Regional Comprehensive Economic Partnership (RCEP)

  • RCEP has been designed to deepen the relationship between the ASEAN countries and its six regional partners. Subsidiaries of Western MNCs based within the ASEAN region are likely to benefit more directly. MNCs supplying to other MNCs or to Chinese, Japanese, and Korean companies would benefit from the lower trade barriers and improved logistics within the region

Trans-Pacific Partnership (TPP)

  • While the TPP was planned for completion at the end of 2013, as a result of the US government shutdown and complexity of negotiations when Japan joined the group, the likelihood of completion might stretch beyond the end of 2014, closer to the next US presidential elections in 2016. US President Barack Obama will be working hard in 2014 to be given “Trade Promotion Authority” (TPA). Under TPA, Congress provides authorization to the president to negotiate trade agreements such as the TPP. The president can negotiate and conclude an agreement, but without TPA, Congress is free to amend the agreements during the approval and implementation process. Parties would be very reluctant to conclude a TPP deal if they thought the US Congress would be able to amend it

Shishir Sinha

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Thailand’s economy is struggling but will not suffer another 1997 Asian Financial Crisis

Thai FlagThailand’s economy has been struggling this year.  Industrial production has slowed as growth in eight of the country’s top ten export markets has deteriorated, and domestic demand has stagnated as an expiring tax rebate for cars has weighed on consumption.  Unless there is a rebound in China, the US, or Europe over the coming months, the economy is likely to continue limping along slowly.

Thailands top ten export partners

Thailand’s slowdown, together with the recent capital outflows from emerging markets, has aroused fears that the country may suffer a repeat of the Asian Financial Crisis.  After all, that crisis was marked by falling exports and capital outflows as well.  However, it’s important to remember that Thailand’s collapse in 1997 was largely due to a massive real estate bubble, an untenable currency peg, and high levels of short-term foreign currency-denominated debt.  Together, these three factors pushed the economy into a downward spiral when trade slowed and hot money flowed out of the country.

Today, Thailand is free from this triple-threat.  The country does not have a massive real estate bubble, inflated by years of capital misallocation.  The baht floats, so it is no longer vulnerable to speculative attacks from international investors.  And Thailand no longer has huge amounts of short-term foreign currency-denominated debt.  In sum, the country is not in danger of suffering another ’97-style crisis.

With this in mind, companies should not let themselves be distracted from monitoring the established risks to Thailand’s economy: political turmoil in the wake of the king’s eventual death, another round of severe flooding in the event of record rainfall, and a crisis in China, Europe, or the US.  These risks may be familiar, but their potential impact has not diminished.  Companies should ensure that their contingency plans for those risks are up to date instead of preparing for a repeat of 1997.

Adam Jarczyk


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Distributors Are the Way to Go: Indirect Channels Highly Dominant in the ASEAN-5

Why Is It Paramount to Understand The Optimal Management of Distributors in ASEAN?ASEAN-5 Benchmarking

As in most emerging market regions, multinational corporations (MNCs) operating in the ASEAN-5 are heavily dependent on distributors, making optimal management of these partners key to survival and growth in these highly dynamic markets.

A combination of the three factors below makes it imperative for regional heads to concentrate on improving internal capabilities to complement the unsophisticated nature of the market:

  1. Dominance of Distributors: Most MNCs will be using distributors for their sales in the ASEAN markets, with the indirect channels bringing in 71% of revenues, as compared to 65% in the APAC region overall. Companies will only use their own sales team for handling key clients in relatively well-established geographical locations (national capitals)
  2. Few Established Players: On average, companies tend to use 2–4 distributors but often state that they don’t have enough established partners to work with; 41% of the respondents (based on FSG’s survey) found scarcity of finding alternative distributors to be a key issue
  3. Hands-On Approach Critical: Given that there aren’t many established partners, companies have to find local entrepreneurs with potential and grow them into successful businesses by training and supporting their activities


Distribution in the ASEAN-5: Fairly Similar Model Across the Region

When comparing the same industry in the majority of the ASEAN markets, the go-to-market strategy should be fairly similar. However, on-the-ground tactics can differ based on the needs of the individual market and company.

  • Example: In Indonesia, if the firm’s goal is to achieve geographical expansion, then having a few sets of distributors becomes important in order to have some to manage Jakarta, and others to manage outside of Jakarta (Java), where credit management tactics can differ vastly

Common Model of Relationship in ASEAN


Using Local Sources Effectively Can Go a Long Way in Helping You Find Distributors

Selecting the right local partner can be the difference between success and failure for most companies expanding within the ASEAN region. Following an analysis of the distribution landscape, companies can identify potential partners through some of the following sources:

Finding Alternative Distributors

Shishir Sinha

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Truly Understanding ASEAN: Country-Level Analysis Not Enough

Continuing the discussion from my previous post on ASEAN strategy, here are some additional points to consider:

1. Country-Level Analysis Not Enough:

a. As the region matures and companies increase their focus on it, executives need to conduct in-depth provincial analysis in order to understand where the specific demand-side opportunities lie and where there is the ideal supply-side support

b. In a market where affordability is a key challenge faced by all MNCs, executives ought to conduct their opportunity analysis on a provincial basis, to focus their investments towards the top choices

c. While provincial data is not available for many indicators, companies can begin with macroeconomic analysis by looking at gross domestic product, per capita wealth, population, and some expenditure patterns


2. Keep Your Focus on the Hot Spots: 25% of the Provinces Hold 75% of the Wealth

a. Wealth in Southeast Asia remains highly concentrated thus companies looking to expand in the region should focus their efforts on the top-tier provinces, which make-up for more than 75% of the GDP of the entire region

b. Depending on the specific province, companies will have to adopt different tactics in order to access end customers, who are likely to have varying consumption patterns as a function of their location and source of wealth

c. Companies could also conduct consumption pattern studies to get a better idea of their expenditure habits (use expenditure or food vs. non-food figures)

Wealth in Southeast Asia

*Source: Frontier Strategy Group Analysis; Individual Government Statistical Publications


Shishir Sinha

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Adopt a Regional Mindset with a Country-Level Focus for ASEAN Strategy

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):

Key Economic Contributors of Individual Countries (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.


Shishir Sinha

Asia Pacific

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