The ASEAN member states are an economic powerhouse with a combined GDP of over $2.6 trillion and a population of more than 625 million people and growing.
The following 10 countries make up ASEAN (Association of Southeast Asian Nations): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. The organization promotes economic, cultural, and political development in the region. The result has been an increase in economic growth, particularly in technology, bioscience, and automotive and aerospace industries.
In January 2016, ASEAN established the ASEAN Free Trade Area agreement (AFTA), which would create a common market of the Southeast Asia countries similar to the European Community (EC).
The United States invests in ASEAN countries more than any other market in Asia, including China. Some experts have predicted that Southeast Asia will overtake China as the world’s industrial leader. This change could be on the horizon in the next 10 to 15 years.
While Southeast Asia presents many business opportunities, there are some challenges for investors to consider. ASEAN is a diverse group of nations, and companies may find it difficult to navigate the complexities of starting and operating a business.
Advantages to doing business in Southeast Asia
A high level of economic growth
The United States has invested more in ASEAN countries than Brazil, Russia, China, and India combined. Part of the reason is the high level of economic growth. The region has a strong GDP, even after having been negatively impacted by a slowdown in the Chinese economy. The ASEAN region’s GDP growth estimate for 2017 is 4.8 percent, which may be even higher if China’s economic outlook improves.
A growing middle class
As Southeast Asia’s population has increased, so has its middle class. In Indonesia alone, the middle class is expected to reach 140 million people by the year 2020. The region overall is expected to become a leading consumer hub, with an increased demand for brand items and luxury goods.
Southeast Asia’s infrastructure has struggled in the past, but ASEAN countries are making strides in addressing problems by increasing spending. Vietnam is adding urban railways and an international hub airport and is expanding regional airports. Indonesia plans to spend more on infrastructure, having reaped the benefits from lower oil prices. The Philippines government has announced that it is committed to increasing infrastructure spending from 3 percent to 5 percent of their GDP.
According to ASEAN’s Business Outlook report, one-third of executives expect the improvements to increase ASEAN’s importance for worldwide operations and revenues over the next two years.
A young workforce
Asia is home to one of the largest and youngest workforces in the world. It includes 3 billion people, which is 52 percent of the global workforce. The median age in the Philippines, Singapore, Malaysia, and Indonesia is under 35.
Challenges of doing business in Southeast Asia
According to the ASEAN Business Outlook Survey, corruption continues to be one of the more significant challenges to conducting business in Southeast Asia. Enforcement of law is often hit or miss, and bribery is relatively common, even when clients are part of the public sector.
One major exception is Singapore, ranked the eighth least corrupt country in the world according to the Transparency International’s Corruption Perceptions Index.
Intellectual property concerns
There are relatively weak intellectual property (IP) regimes in some Southeastern Asia countries, which creates problems for companies – particularly those in the development and manufacturing sectors. Enforcement of IP laws and regulations has been a recurring problem, and there is conflict between IP offices in different countries.
Cooperation has improved since the 1995 signing of the ASEAN Framework Agreement on Intellectual Property Cooperation. That agreement allows for global IP agreements and increases local resources for enforcement and registration. Patent libraries are also becoming more extensive and easier to access.
Business relationships as a whole take longer to build and develop in Asia compared to the West. Personal friendship and trust are cornerstones of business relationships in the region, so face-to-face meetings are far more common than phone calls and emails. Those planning on doing business in Asian countries can expect to invest in significant face time.
Consideration for business contacts is important. Potential investors must take care not to make business associates feel ashamed or embarrassed. Refusing meals or rejecting an appropriate gift may be perceived as a slight. Blaming others for mistakes in public is frowned upon. Failure to understand cultural differences like these can undermine a business deal or business relationship.
It can sometimes take years for a company to accrue enough local knowledge to operate without needless difficulty. This interval can be greatly shortened by partnering with experts who have deeper awareness of local laws and regulations. This is doubly important when it comes to the more challenging aspects of expanding operations in this region.
If you are considering entering the Southeast Asian market, it is critical to have an experienced partner with a global footprint. CT has a worldwide network of offices and partners who will make sure your local needs are met, accurately and on time.
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