With a population of over 650 million and a rapidly expanding middle class, Southeast Asia presents significant growth potential for companies operating in the region. The Regional Comprehensive Economic Partnership (RCEP), signed by the 10 Asean countries and five key trading partners including China, will further enhance Asean's potential and attract more investors when the pact takes effect in January.
Among those investors are American businesses that have weathered the impact of the Covid-19 pandemic and a growing burden of trade and other geopolitical challenges. With an increasing need to target new international corridors to achieve revenue growth, optimise costs and mitigate business risks, Asean has the potential to become a major growth partner for US companies in the coming years.
Now the world's third most populous economy, Asean is expected to be home to 723 million people by 2030 with 67% in the middle class (defined as those with daily expenditure of up to US$100). The number of high- and upper-middle income households is also projected to double to 60 million.
Besides the potential increase in demand for quality products, Asean also offers a strong supply-side proposition to US companies with an expanding workforce that is projected to record the second-largest growth worldwide with 37 million people to be added by 2030.
Moreover, Asean is emerging as among the largest markets globally for digital businesses. About 80% of the population is expected to be online by 2030, with the digital economy adding an estimated $1 trillion to Asean's gross domestic product (GDP) by then.
"Thanks to a sizeable market, increased adoption of new technology and a rapidly expanding middle class, Asean continues to be full of exciting business opportunities for US companies across various sectors," said Steven Cranwell, CEO for the Americas of UK-based Standard Chartered.
As US companies push ahead with their growth ambitions, their ability to diversify production to increase supply chain resilience, align with consumer expectations and government priorities -- such as environmental, social and governance (ESG) practices -- and partner with local industry players, financial institutions and government agencies will influence their growth in this dynamic region, he added.
Standard Chartered's recent survey of senior executives at 40 American companies focusing on the US-Asean Corridor found that nearly 60% of those polled are focusing on expansion in Singapore to capture sales and production opportunities, followed by Indonesia and Thailand with shares of 45% and 43%, respectively.
Among those keen to tap Singapore, 57% consider the city-state the most desirable place to set up their regional headquarters for sales and marketing and corporate functions, while 43% expect Singapore to be their regional research and development (R&D) and innovation centre.
Executives cited access to the large and growing Asean consumer market (70%), availability of an abundant and skilled workforce (53%) and diversification of production footprint (40%) as the most important drivers for expansion into Asean.
Forty-three percent of the respondents indicated they plan to increase investments in Asean over the next three to five years to take advantage of the opportunities that the RCEP will bring. Over half (52%) of US companies with an existing production presence in Asean plan to further increase capacity by at least 10% in the next 12 months.
According to the Standard Chartered report, Borderless Business: US-Asean Corridor, household spending on consumer goods in the Asean-6 markets (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) is projected to expand at a compound annual growth rate (CAGR) of 7.4% to reach $820.5 billion by 2025. Representing the largest portion of consumer spending with an 85% share in 2020, food sales are projected to reach $695 billion by 2025.
"An attractive growing market for consumer goods, medical devices and pharmaceuticals, the region offers US companies significant opportunities to expand their production and supply networks," said Heidi Toribio, regional co-head of client coverage for corporate, commercial and institutional banking in Asia at Standard Chartered.
Many consumer goods companies are increasingly looking to enhance production in the region, to improve their understanding of local needs and be able to adapt to changing conditions with greater agility, said the report that was issued in September.
US companies have historically been spreading their supply chains across global markets -- only to make these networks more complex and exposed to disruptions. With supply chain challenges worldwide magnified by the pandemic, US companies now need to re-evaluate their existing footprint and build more resilient networks in Asean for the future.
Asean's proximity to China makes it a favourable choice for US businesses looking to diversify their supply chains. In addition, the region's production and supplier landscape has grown in strength, backed by significant efforts from member countries to improve their business environment.
"Shifting from a 'just-in-time' to a 'just-in-case' approach will be key to managing supply chains in Asean. Such an approach helps develop greater safeguards as opposed to being driven only by cost and efficiency metrics," the report said.
Strengthening the US-Asean alliance has been a strategic policy goal, formalised in the US-Asean Strategic Plan of Action (2021-25). The plan encourages collaboration across multiple sectors including energy, science and technology, food and agriculture and digital infrastructure.
It seeks to achieve this by facilitating trade and investment, supporting small and medium enterprises (SMEs), building workforce skills and harmonising industry standards. In particular, the development of renewable energy has emerged as a key area of cooperation -- with the US government's Asia EDGE initiative to help modernise Asean's energy infrastructure and develop clean energy sources.
Key programmes under the initiative, such as Clean Power Asia, have helped mobilise over $7 billion in renewable energy investments in Southeast Asia from 2016 to 2021.
Building a stronger digital ecosystem in Asean has become another focus -- driven by initiatives such as the Digital Connectivity and Cybersecurity Partnership (DCCP), the report pointed out. The DCCP aims to promote exports of US information and communication technology goods and encourage favourable conditions for US tech investments abroad.
"Within Asean, it is focused on promoting international standards for cross-border digital trade, strengthening regulations for cybersecurity, and supporting initiatives to expand broadband infrastructure," noted the report.
As of 2020, Asean was home to 12 technology unicorns -- companies with a market valuation of at least $1 billion -- such as Grab, the GoTo Group and Lazada, and most countries now have programmes to incubate their startup ecosystems.
With the pandemic further expediting the shift toward online services, opportunities are rising for US digital companies (business-to-business and business-to-consumer) to cater to Asean's changing needs. Cloud computing spending in the Asean-6 countries is expected to rise by 21% per year by 2025, and this growth will offer major investment and business opportunities.
"Strengthening Asean's digital infrastructure such as by building new data centres or data cables will also be key with leading US technology firms such as Microsoft and Google already making significant investments in recent years," added the report.
Despite their optimism, the executives polled recognise that there are risks in the region to be tackled. The top three identified risks are geopolitical uncertainty and trade conflicts (73%), the slow revival of the economy and drop in consumer spending (65%) and the ongoing Covid pandemic or other health crises (63%).
Over the next 6-12 months, the respondents said the most significant challenges they anticipate are adapting their business models to industry practices and conditions in Asean (68%), understanding regional regulations, payment methods and infrastructure (60%), as well as building relationships with suppliers and adapting supply chain logistics (55%).
To promote resilient and rebalanced growth and to mitigate these risks and challenges, the executives identified entering new partnerships or joint ventures to increase market presence (68%), investing in leadership and talent development (53%) and executing digital transformation programmes (48%) as the most important areas for their companies to focus on.
To support their growth, these companies say they are seeking banking partners with one-stop corporate financing and capital-raising services (50%), foreign-exchange hedging and comprehensive multi-currency settlement services (48%) and a comprehensive cross-border network and understanding of the local markets (48%).