Majority of Companies See Southeast Asian Integration as a Business Opportunity Amid Intensifying Competition

While the majority of companies see the integration of the 10 member states of the Association of Southeast Asian Nations (ASEAN) as a business opportunity, they also expect competition to intensify, according to a new report by The Boston Consulting Group (BCG).

The region’s governments have set a goal of achieving a free flow of goods, capital, and labor within the ASEAN Economic Community (AEC) by the end of 2015.

Although it is unclear whether the AEC goals will be achieved on schedule, around 80 percent of companies surveyed by BCG said that they regard ASEAN integration as a business opportunity and that it will accelerate growth in their industries.

The majority of companies based both within and outside the region are actively preparing to capture the opportunities.

Around half the companies surveyed said that they expect to have a strong presence in at least five Southeast Asian economies within the next five years, compared with one-quarter that have such a presence now.

This high level of optimism is particularly impressive given the fact that only 25 percent of executives surveyed said that they are confident the region’s governments will continue to push the integration agenda forward.

“Companies are not waiting for further action from governments, which have already implemented most of the measures needed to promote integration,” said Vincent Chin, a BCG senior partner and the head of the firm’s Southeast Asian operations.

“Through investments and business activities, the private sector is already working to bind the region together.”

The initial six members of ASEAN—Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand—first agreed to form a regional trade bloc in 1992. Since then, these nations have eliminated tariffs on virtually all goods traded within the bloc, and interregional trade and investment have risen dramatically.

ASEAN now also includes Cambodia, Laos, Myanmar, and Vietnam. If the ten economies were combined into one, it would rank as the seventh largest in the world and would be projected to pass Germany as the fifth largest by 2020.

Bracing for competition to intensify

In addition to eying opportunity, companies are bracing for competition to intensify. Eighty percent of companies said that they expect tougher competition in their industries as a result of integration, and 67 percent believe that integration will attract more companies from outside Southeast Asia.

“Whether they plan to compete across the region or to just defend their turf, most Southeast Asian companies will have to raise their game,” said Michael Meyer, a BCG partner and a coauthor of the report. “They will need to upgrade their organizations and acquire new capabilities.”

The majority of companies said that they are taking action to expand their regional footprints. But companies’ priorities varied according to their size and where they are based.

The actions most frequently cited by multinationals, for example, are to gain a clearer understanding of the nuances of specific Southeast Asian markets and to adapt their business models to local conditions.

By contrast, big globally minded companies based in Southeast Asia are placing greater emphasis on building international organizational capabilities.

Top priorities include recruiting foreign talent, gaining expertise in managing mergers and acquisitions, and improving their regional supply chains.

“Many leading Southeast Asian companies already have a strong understanding of markets in the region and can readily apply their strategies to other rapidly developing economies,” said Bernd Waltermann, a BCG senior partner and the leader of the firm’s Globalization and Growth topic. “But they need to internationalize and improve their operational capabilities to compete with the best in the world.”

One strategy that Southeast Asian companies should avoid is to lobby their governments to become more protectionist in response to rising competition, such as by raising nontariff barriers, which the authors warn could be short-sighted and counterproductive.

As Chin noted, “Instead, both the governments and companies should focus on improving their competitiveness, because the race for advantage across the region is already well under way.”


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