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International businesses have growing confidence in ASEAN

Research commissioned by HSBC shows that international businesses from nine major economies are increasingly optimistic about their growth prospects in Southeast Asia. They expect sales in the region to grow by 23.2% over the next 12 months – versus 20.1% from last year’s survey and four to five times the rate of GDP growth expected in Southeast Asia. This highlights growing confidence in the region on the part of international companies. 

The HSBC Global Connections survey also finds that businesses from countries closer to Southeast Asia, such as those in the rest of Asia Pacific and the Middle East, have a more advanced presence in Southeast Asia and a greater degree of ambition when it comes to regional expansion than their peers from Europe and the US. 

“These findings confirm what we have been seeing from our own customers: that businesses around the world are increasingly confident about scaling up in Southeast Asia,” said Amanda Murphy, Head of Commercial Banking for South and Southeast Asia at HSBC. “We are as excited as our clients about Southeast Asia and focused on connecting international businesses from across our global network with opportunities in this dynamic region.” 

Growth ambitions 

The survey reveals a marked difference between the M&A ambitions in Southeast Asia of Asia Pacific respondents and those from other regions. Twice as many respondents from China (65%) are more likely to significantly increase inorganic growth in Southeast Asia by 2024 than those from Germany (45%), although respondents from all markets expect activity to increase over the next four years and the gap between Asian and other respondents narrows over time. 

Respondents already present in the region plan to focus on growing in their known markets. Over one-third (36%) of companies operating in Singapore expect to prioritise growth there over the next two years, followed by 27% of those with Malaysian operations and 24% with operations in Thailand. Businesses from all markets except Germany will most likely prioritise Singapore among their current markets, reflecting the country’s enduring attraction as a regional business hub and financial centre. 

Regarding fresh opportunities, Indonesia and Malaysia are the most popular choices for companies aiming to expand into a new ASEAN market over the next two years. A quarter of firms without an Indonesian presence and a quarter with a Malaysian presence report plans to expand in those markets during that time.  

ASEAN attractions 

The survey suggests that international businesses continue to see ASEAN primarily in terms of its supply chain connectivity rather than as a consumer market, even though GDP per capita for Southeast Asia has grown from US$1,250 in 2000 to US$5,800 in 2023, according to the International Monetary Fund. 

The region’s skilled workforce (27%), growing digital economy (26%) and competitive wages (25%) are the top three attractions, while the growing middle class ranks ninth in terms of importance. However, businesses identify talent as a challenge and a draw: the cost of training (36%) and lack of skilled personnel to drive implementation (36%) are identified as top challenges for businesses seeking to digitise their operations in ASEAN. Also, the ability to hire talent with the right level of expertise is the top challenge to becoming more sustainable in the region. 

When asked which technologies ASEAN is leading the way in, most respondents identify e-commerce (31%) and digital payments (28%), reflecting the widespread adoption of digital platforms and mobile wallets across many countries in the region. 

“Southeast Asia is clearly an attractive manufacturing base, with increasingly advanced supply chains and a highly skilled workforce attracting global firms to the region,” commented Murphy. “But the consumer story is also one to watch for international businesses as digital adoption and domestic spending power grow.” 

Presence and trade 

Businesses from mainland China, Hong Kong, India, Australia and the GCC, on average, lead counterparts from the UK, France, Germany and the US by a margin of: 

  • 63% versus 45% having achieved organic growth in ASEAN. 
  • 62% versus 43% having developed supply chains in the region. 
  • 41% versus 24% having pursued inorganic growth through mergers and acquisitions.

Asia Pacific and GCC respondents are also making greater use of Free Trade Agreements (FTAs) to increase their trade with ASEAN than those from Europe and the US, according to the survey. Respondents from mainland China, Hong Kong, India and the GCC are more likely to use the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership than those from Europe and the US by an average of 78% versus 59%.

Vietnam's appeal

HSBC’s research shows that Vietnam’s economic resilience and competitive wages (both 28%) rank foremost in attracting international firms. Its skilled workforce (27%) has been identified as one of the most attractive attributes for foreign businesses, pointing to the country’s appeal as a manufacturing base. The same percentage is attracted by Vietnam's growing consumer market, highlighting the appeal of increasing consumer prosperity.

The country's growing digital economy (23%) is also a key selling point for international business expansion. Many respondents said they were attracted by its high smartphone penetration rate and vibrant start-up sector. 

“With a combined population of over 600 million people with an average age of 32 and a GDP growth rate averaging 5%, ASEAN represents an exciting market especially as it is set to become the world's fourth largest economy by 2035,” added Tim Evans, CEO of HSBC Vietnam. “This growth is driven by the three ‘Ds’ of dynamism, digitalisation and demographics. Vietnam which has become known for its rapid economic growth also stands out as one of the top performers in the ASEAN region given its strong economic resilience during and after the Covid-19 pandemic. This resilience coupled with its hard working skilled work force and competitive cost structures continues to attract strong FDI flows into the country.”

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