By Vijay Eswaran, Founder and Executive Chairman of QI Group
In 1967, five countries—Singapore, Malaysia, Indonesia, Thailand and Philippines—came together to form the Association of Southeast Asian Nations. Collectively known as the ASEAN 5, the number has since doubled to 10, with the additions of Cambodia, Myanmar, Laos, Brunei Darussalam, and Vietnam.
Over the years, ASEAN has managed to weather both the Asian financial crisis of 1997 and the global economic crisis in 2008 to become the 6th largest economy globally. Balancing economic growth and the livelihood of its people, however, remains a challenge.
Despite the global Covid-19 pandemic, ASEAN is still an attractive investment destination. According to the World Economic Forum, the region’s share of global FDI rose from 11.9% in 2019 to 13.7% in 2020, while the intra-ASEAN share of FDI in the region increased from 12% to 17%. Additionally, the longer-term trend shows that the value of international project finance in ASEAN has doubled from an annual average of $37 billion in 2015–2017 to an annual average of $74 billion in 2018–2020.
With ASEAN on its way to becoming the world’s fourth largest economy by 2030, the vast potential of fully harnessing the collective might of ASEAN is there for the taking, but there needs to be a way to proceed.
Grasping the Opportunities
The Covid-19 pandemic has shown that ASEAN can work well together. In the Hanoi Plan of Action on Strengthening ASEAN Economic Cooperation and Suppy Chain Connectivity in Response to the Covid-19 Pandemic, its members came together to collaborate on the flow of essential goods and services, enhancing the resilience of its supply chains and sourcing in the region.
One of the opportunities that ASEAN can continue to grow collectively is its middle class. According to a joint study by Deloitte, Singapore’s Economic Development Board, and the US-ASEAN Business Council, ASEAN is already home to more than 650 million people who generate a combined gross domestic product of about $3 trillion. The percentage of the people categorised as middle-class is expected to more than double from 24 per cent to 51 per cent—or 334 million—in 2030, with a disposable income of over US$300 billion.
ASEAN in itself is not a single entity but made up of diverse cultures, each with its own unique identity. Successful businesses understand the region’s increasingly affluent customers want the best of both global offerings, as well as retaining their unique culture, and this means adapting business practices to suit different markets in the region.
This approach, known as “glocalisation,” holds the key to success for any business looking to benefit from the burgeoning Asean middle class. It is imperative for firms to really understand what it means to “go glocal” in Asean, and that means looking beyond the big-picture changes in demographics and wealth to consider how factors such as urbanisation, culture, and even a pandemic like Covid-19 are shaping the emergence of the region’s middle class.
A good example of this is BreadTalk, which from a single outlet in Singapore’s Bugis Junction became a global food and beverage player with 11 different food brands, employing more than 7000 people in 1000 shops in ASEAN and around the world.
The rising Asean middle class will be embedded in both culture and the digital ecosystem, meaning that it will not be a one-dimensional middle class. For example, the digital economy enables the middle class to juggle their identities as family members and as micro-entrepreneurs.
Going Digital
Another way that ASEAN can fully embrace its potential is through the adoption of tools and technology for digital transformation. This includes digital infrastructure development (5G networks and data centres), cloud computing, cybersecurity, artificial intelligence, and smart manufacturing in the region.
According to Nikkei Asia, the pandemic accelerated the adoption of technology and growth of technology in ASEAN. 60 million Southeast Asians have become digital consumers: people who have used at least one service online, from groceries and food delivery to online entertainment and finance. There are now 350 million digital consumers across Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
These digital consumers are dominated by the youth aged 16 to 24, who spend more than 10 hours a day on inter-connected devices, with social media being the leading choice of digital usage.
This correlated to the findings of a survey of 68,000 people from six ASEAN countries conducted by the World Economic Forum and Sea, which found that the youth in the region had adjusted to lockdown restrictions by increasing their digital footprint. Nearly nine out of 10 young people said they had increased their use of at least one digital tool during the pandemic, while almost half (42%) had picked up at least one new digital tool. Young people in the region also reported making greater use of online shopping, food delivery services, e-banking and e-wallet apps.
To harness the potential of digitalisation for the benefit of businesses and consumers, ASEAN has developed strategic frameworks and initiatives to guide its digital integration journey, including the ASEAN Digital Integration Framework and its Action Plan (DIFAP), which functions as the overall blueprint for ASEAN’s digital integration efforts and charts out digital priorities across a wide range of areas such as trade facilitation, data flows, electronic payments, entrepreneurship, and talent.
However, there are still barriers to adoption, including affordable access to the internet and digital devices in some of the more rural areas in the region. Yet, it is expected that more than 1 billion people will receive digital access by 2025.
The Way Forward
ASEAN has made remarkable progress in the last 55 years. However, a lot more needs to be done to reduce the economic and social disparities between its member nations.
Governments must work together with the private sector to ensure that ASEAN’s true potential across the different sectors are fully utilised by developing innovative strategies and business models to address the ever demanding consumer base, while also overcoming the region’s challenging characteristics in a more efficient manner.
The World Economic Forum’s Centre for the Fourth Industrial Revolution Network has shown that public-private cooperation is instrumental for businesses and governments to develop cooperative ecosystems to advance digital transformation and innovation. Governments have an important role in incentivising investments in research and development, while the private sector will drive Industry 4.0 transformation through investing in digitalisation of manufacturing, using advanced manufacturing solutions, building smart factories, and establishing R&D facilities, technology hubs, and centres of excellence in the region.
ASEAN can be proud of what it has achieved, but global trade and consumer markets are constantly evolving and ASEAN needs to acknowledge this and develop business environments that are conducive to local production, intra-ASEAN trade and serving local customers. If ASEAN manages to act accordingly, one can only imagine the benefits that this growth will bring to the region, and its people, at all levels.
