One of the biggest trends of the past 30 years has been the development of global supply chains. When they began they were typically linear, with Chinese manufacturers catering to the demands of Western consumers. Today’s global supply chains are increasingly complex and interconnected and span an ever increasing share of the world.
One of the beneficiaries of more dispersed trade flows has been ASEAN, so called since 1967 when Indonesia, Malaysia, the Philippines, Singapore and Thailand signed the ASEAN Declaration.
Clyde & Co has been closely following developments in ASEAN for more than 25 years and has today released a new report, 'ASEAN Insights – a report for business on the regional policy and regulatory environment' on the opportunities and challenges that the region and those operating in ASEAN markets face.
"ASEAN’s growing urbanisation and middle class translate into massive opportunities for businesses through accelerating economic growth, improving productivity and raising demand," says Clyde & Co Partner David McElveney.
Collectively, ASEAN is an economic powerhouse. Considered as a single market, it is the fifth largest economy in the world. Growing at approximately 5% a year, it may rank as the fourth largest economy by 2030. It is currently home to approximately 650 million people, with a combined estimated GDP of USD 2.9 trillion.
“One of the greatest challenges facing businesses when developing an ASEAN strategy is implementing plans that can take advantage of what is collectively, a large population base and rapidly expanding middle class, whilst recognising the vast distances and differences - both economic and cultural - that characterise the region,” says Clyde & Co partner Ian Stewart. "However, gaining traction across the region requires a nuanced strategy that takes account of regulatory and market conditions."
As Clyde & Co's report outlines, ASEAN is well placed to progress further, especially against the backdrop of the current US and China dispute that is disrupting longstanding trade patterns.
Clyde & Co Partner Benjamin Hirasawa says: "Due to political, economic, legal, or other considerations, several of these countries such as Indonesia, Vietnam, Cambodia, and especially Myanmar, are just beginning to tap their enormous potential.”
In a recent Clyde & Co survey of business leaders (October 2018) client demand and growing domestic demand were cited as the two main drivers for expansion into ASEAN jurisdictions in the next 12 months.
ASEAN has been attracting significant Foreign Direct Investment (FDI) since the 1980s. In 2017 Indonesia was the leading destination for FDI in ASEAN, followed by Vietnam, Malaysia and Thailand (see graph below). According to the Clyde & Co survey results, more than half of all respondents indicated that they were looking to invest in Malaysia in the next 12 months.
FDI trends 2016-2017
"As Chair in 2018, Singapore has made significant in-roads in negotiating and promoting free trade. It has also strengthened regional economic cooperation and integration, which is key for ASEAN to realise its full potential," says Clyde & Co's Asia Managing Director Chong Ik Wei. "Like all nations in the region, Singapore must compete for FDI dollars, but it is an example of what good governance policies can do to encourage investment. It is likely we will see neighbouring power houses Indonesia, Malaysia, Thailand and Vietnam each vie now for investment opportunities in light of the situation between China and the US in the coming 6-12 months.”
In recent years, China has emerged as a major investor to ASEAN nations, in part in an attempt to avoid tariffs on goods such as solar panels introduced by the US and EU (the latter since withdrawn), but also through bona fide investments in areas such as appliances and the automotive sector.
If ASEAN is to achieve its full potential its members must further harness the opportunities of foreign investment from regional and multinational companies, and better manage the regulatory challenges that currently exist, as outlined in the report.
From our regional headquarters in Singapore and through our network of offices across Mainland China, Hong Kong and Australia, Clyde & Co has advised clients on contentious and non-contentious matters across all ten ASEAN markets.