EAC YOUR LOCAL EXPERT

IN SOUTH EAST ASIA (ASEAN)

South East Asia (ASEAN)

Southeast Asia (ASEAN)

Thanks to its low manufacturing costs and its growing markets, Southeast Asia has developed into an increasingly lucrative production location for globally active enterprises. Furthermore, thanks to closer ties between governments in the region, business models of the format “China+1” are steadily gaining in importance and offer new business opportunities. Thanks to a wealth of experience gained on a wide range of projects, EAC is well acquainted with the characteristics of the markets in Southeast Asia and can support its clients in a wide range of activities in the countries in focus.

Vietnam

Due to weaker economic growth and markedly higher labor costs in China, attention is increasingly focusing on Vietnam as a lucrative business location for international companies. One important reason for this development is the high growth rate forecast for the country – the economy is projected to grow an average of 6.5 percent a year until 2024, making Vietnam one of the countries in the region with the best outlook. In addition to the very promising expectations for economic growth, Vietnam is also attractive because of the high level of education of its young population and significantly lower unit labor costs than the former ‘workbench’, China. Furthermore, Vietnam, with more than 90 Mio inhabitants, has a domestic market with excellent prospects and the political environment is considered to be stable over the long term. The geographically beneficial location as a link between China and Southeast Asia is a further attraction for investors. In this context, the Vietnamese Government is pursuing investor-friendly policies with the objective of appealing to the broadest possible spectrum of foreign companies. After the first wave of predominantly textile companies flooding into the country several years ago, manufacturers of industrial goods have now also learnt to appreciate the country and its qualities. Furthermore, in the course of the industrialization process, foreign construction, energy and power companies can support the development of infrastructure and profit from the immense growth potential of the country. Currently, around 300 German companies from various industries are active in Vietnam. A free trade agreement between Vietnam and the EU was signed in June 2019. It will remove more than 99% of tariffs once in effect, further increasing the attractiveness of Vietnam for European companies.

Malaysia

Another country with an outstanding investment environment is Malaysia. Thanks to the efforts of the country’s government, Malaysia has succeeded in stepping out from the shadow of merely being the country neighboring Singapore and transformed itself from a simple exporter of natural resources into a flourishing manufacturing location. Among Malaysia’s many assets is its excellent infrastructure, the fact that English is the language of business, attractive incentives for investment and an investor-friendly legal environment with respect to foreign capital participation. The country is strategically extremely well situated, being a member of the ASEAN and having access to important Asia-Pacific consumer markets in China, Japan and Australia. The Malaysian Government is on track to reach its goal of turning the country into a high-income nation before 2024. Investors in high-tech sectors are particularly welcome and the Malaysian Government is increasingly focusing its efforts on these industries. As a result, there are now extraordinary opportunities for machinery and plant engineering, medical technology, environmental technology and aerospace. Furthermore, the Malaysian Government has intensified its efforts to build up consumer goods manufacturing and the service sector. Malaysia is already considered to be an important location in Asia for the IT and communications industries.

Thailand

Thailand is one of the motors of the Southeast Asia region and, compared to its neighbors, is already comparatively well-developed. Despite the devastating tsunami of 2004, the business sector has remained relatively stable, which is also due to the constant stream of tourists into the country. Besides tourism, which accounts for 22 percent of the nations’ GDP, Thailand can boast a broadly diversified industrial base. In contrast to the tense political situation, Thailand is considered to be monetarily and fiscally stable. This is reflected in a better rating than other ASEAN nations in the ‘World Bank’s Doing Business Report’. Also, foreign investment, which had stalled in the past, is steadily recovering. The Thai economy is strongly focused on the automotive, chemical, electronics and engineering industries. Based on growth projections, foreign firms have the best investment opportunities in these sectors. In particular, the automotive industry in Thailand has shown strong growth and is now number 11 in the world.

Singapore

Singapore’s situation within the ASEAN is unique. The city-state is predominantly free of corruption, and, in addition, offers a highly industrialized market economy, as well as almost perfect international connections. The Singaporean government is first and foremost interested in further globalization of the economy, is involved in numerous international organizations (e.g. WTO, ASEAN, APEC) and has signed free-trade agreements with a broad range of partner countries. For many foreign firms, Singapore is a financial, logistics and transport hub. In addition, the country offers outstanding opportunities for the industry. A special characteristic of doing business in Singapore is the requirement to cooperate with so-called Government-Linked Companies (GLC’s). These companies are principally active in telecommunication, utilities and the public transport sector. In addition, the economy is focused on electronics, machinery, plant engineering and oil refining industries, as well as, increasingly, the biotech sector. In view of the rise of China and the rapid development of other ASEAN, Singapore is striving to maintain its competitiveness. The resulting extremely liberal import tariff and trade policy is a particular incentive for foreign investors and is certainly one of the reasons why there are already more than 1,700 German firms located in Singapore.

Indonesia 

In terms of population, Indonesia is already one of the world’s top countries. With more than 250 Mio inhabitants, the country is now the fourth most populous nation on earth. Besides the immense pool of potential customers, Indonesia is attractive because of the wide range of natural resources available and the stable political situation – in spite of its ethnic diversity. Indonesia’s middle class has been growing steadily for many years and is also gaining increasing purchasing power. The young population is increasingly brand aware and focused on product and service quality. Foreign exporters who would like to cater to this demand suffer, however, from the disadvantage of comparatively high import duties that the country imposes on a broad range of goods. In order to avoid these, many foreign firms have decided to produce locally. In view of the wealth of natural resources, it also often makes sense to locate additional elements of the value chain in Indonesia. In particular, automotive and consumer goods industries can benefit from steadily growing local markets. Another area that will increasingly come into focus in the next few years is infrastructure. The lacking interconnection between conurbations and the growing demand for power across the country offer outstanding opportunities for foreign investors in these sectors.

The Philippines

Another of the up-and-coming nations of Southeast Asia are the Philippines. Among the country’s foremost assets is its pro-western disposition. As a result of its history, over 90 percent of the population is Christian, English is widely spoken, and the American lifestyle is very popular. The predominantly young population is pushing for progress. In addition, the economy benefits from a strong base of domestic consumption thanks to more than 90 Mio inhabitants. In particular in infrastructure, further large projects are expected, with the expansion of road, rail wind and water supply networks. Furthermore, the Philippine government is placing great emphasis on the utilization of renewable energies. The country is one of the fastest growing of the ASEAN with growth rates forecasted to remain above 6% in the foreseeable future.

ASHISH KUMAR, EAC Partner (MUMBAI)
ASHISH KUMAR, EAC Partner (MUMBAI)