Accenture Opportunities for Regional Business Expansion

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Destination South East Asia:A Joint Pathway to Future Growth?

Opportunities for RegionalBusiness Expansion


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Contents

Introduction 4

A Guide to South East Asia 6

The Regional Landscape 6

Top Destinations: Sources of Growth 12

Local Attractions: Building on Complementary Strengths 14

The South East Asian Consumer 16

Social Fabric: Young, Educated, Diverse 16Evolution of a Consumption Culture 19

The Road Ahead: Growth Paths for the Region 22

The Role of the Free Market 24

Conclusion 25


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Ones destination is never a place butrather a new way of looking at things.

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Introduction

Well known for its beaches, rice fields,

rainforests, cultural and culinaryattractions, South East Asia is not onlya popular tourist destination, but a fastevolving economic community. Thisdestination is a showcase of distinctcultural, social and political identitiesencompassing 10 nations: BruneiDarussalam, Cambodia, Indonesia,Laos, Malaysia, Myanmar, Philippines,Singapore, Thailand and Vietnam.

These 10 countries are formallyknown as the Association of South

East Asian Nations (ASEAN) aregion on a journey towardsbecoming an integrated andprominent economic powerhouse.2

By 2020, the region is expected tobe among the worlds 10 largesteconomies and the fourth largestin Asia. The demographic fabric willconsist of more than 650 millionpeople, most of whom will be middleclass, educated and aged below 30,

with rising disposable incomes anda strong appetite for consumption.A growing consumer market andsignificant economic integrationefforts across the 10 South East

Asian nations is giving birth to a new

regional business destination. Butwill that destination be attractiveenough for business expansionand under what conditions?

South East Asia remains aheterogeneous region which continuesto face several challenges on its

journey towards becoming a unifiedeconomic powerhouse. In this paper,Accenture explores the attractions of acohesive South East Asian region as anew source of business opportunities.

Our research indicates that severalopportunities exist within nationalas well as regional borders as SouthEast Asian nations continue to buildand grow their economies. Theserange from meeting investmentdemands in less developed nationsor leveraging existing advantages incertain sectors such as high value-add manufacturing, to opportunitiesthat are driven by increasing

consumer demands or complementarystrengths across the region.

By recognizing sometimes opposing,

yet complementary strengths, theSouth East Asian economies can seizethe window of regional growthopportunity. This paper suggests thatthe future growth of this buoyantregion will be influenced by theappetite of businesses to recognise thepotential of rising consumption power,and regional scale opportunities.However, the conditions for expansionof regional and global businesses willvary widely across South East Asiannations and significant improvementswill be required to enable stronger freemarket activity.

Market-driven intervention acrossnational borders will play a criticalrole in furthering economic growthacross the region. To accelerate thisprocess, a shared effort betweenASEAN governments and businessesto identify, chart and co-develop a

joint pathway can potentially act as animportant catalyst for regional growth.

The journey has already begun: are youready?


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The whole object of travel is not toset foot on foreign land; it is at lastto set foot on ones own countryas a foreign land. 3


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A Guide to South East Asia

The RegionalLandscapeEstablished in August 1967, theAssociation of South East AsianNations (ASEAN) is a political,economic and cultural organisationof 10 member countries [see table1]. In recent years, these nationshave embarked on a journey towardsgreater cooperation and integration,recognising that a cohesive region

can achieve a higher potentialand create a strong economicposition in Asia and beyond.

Table 1: ASEAN Member Nations

Brunei Darussalam

Cambodia

Indonesia

Laos

Malaysia

Myanmar

The Philippines

Singapore

Thailand

Vietnam


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Indonesia Thailand Malaysia Singapore Philippines Vietnam Myanmar Brunei Cambodia Laos

2010

-2020

CAGR

2020 South East Asia Combined GDP = US$1,901 Bn

$0

$100

$200

$300

$400

$500

$600

$700

US$ Bn

0%

1%

2%

3%

4%

5%

6%

7%

8%

5.5%

4.8%4.3%

4.6%

6.8%

4.9%

1.7%

6.5%

2.8%

4.5%

2010 Real GDP 2020 Real GDP 2010 - 2020 CAGR

South East Asia GDP CAGR = 5%

Source: Accenture Analysis of data from IHS Global Insights, 2011.

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Accenture analysis indicates that amore cohesive South East Asian regioncould reinforce its competitivenessamongst the worlds top 10 economieswithin 10 years. By 2020, the regionsreal GDP is projected to reach US$1.9trillion, albeit at a modest growth rateof 5 percent [see figure 1].

The regions economic and businesslandscape is dominated by Indonesia,Malaysia, the Philippines, Singapore,Thailand and Vietnam, knowncollectively as the ASEAN 6. Allnations across the region displayhealthy growth prospects, andthe ASEAN 6 will continue to playdominant roles in driving economicgrowth in the future.

To accelerate the transition to a singlemarket and production base by 2015,the ASEAN Economic Community[see table 2] was formed in 2007 topromote regional cooperation andintegration.

Development of a regional economyis a journey of many challenges,most notably the lack of an effectivesupra-national authority; strongnationalism; persistent politicaltensions and instability; wide disparityin social-economic progress; andambiguity in building an ASEAN

identity. These challenges will posesignificant risks and possibly delay theplanned economic initiatives aimed ataccelerating regional growth.

Greater attention needs to be given tothe role of market-driven intervention,and particularly the expansion ofbusiness activity in driving futuregrowth across the national borders ofthe region.

Accenture believes the journey to astronger economic community can benavigated more effectively throughincreased market liberalisation.

Transitioning high-growtheconomiesThe landscape of this region is likean archipelago a chain of uniqueislands, each richly inhabited by acomplex identity. As one navigatesthrough this landscape, the passagewill be marked with high contrastsand many transitions. Each nationis at a different stage of economicdevelopment, from less maturemarkets such as Laos and Cambodia,to developing economies suchas Indonesia and Thailand, fastdeveloping Malaysia, and the highlyadvanced economy of Singapore.

[Figure 2] illustrates the currentstage of development4 across the 10

economies in South East Asia and theexpected growth prospects. Manynations, including Cambodia, Laos,Myanmar, the Philippines and Vietnam,remain at the factor-driven stage,and are highly dependent on naturalresources, mainly unskilled labourand capital investments to stimulategrowth and increase competitiveness.

Figure 1: South East Asia Real GDP, 20102020


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1.5%

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 37 47

Nominal GDP per capita, 2010 (US$000s)

2. Efficiency Driven 3. Innovation Driven

Singapore

Brunei

MalaysiaThailand

Indonesia

Vietnam

Philippines

Laos

Cambodia

Myanmar

RealGDP

2010-2020

CAGR

TransitionfromS

tage1to2

TransitionfromS

tage2to3

Bruneis economy is categorisedas one in Transition 1-2 due toits dependency on oil and gas.

1. Factor Driven

Note: Stage of economic development is based on World Economic Forums Global Competitiveness Report 2009-2010

Source: Accenture Analysis of data from IHS Global Insights, 2011.

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The ASEAN Economy Community, theASEAN Political-Security Communityand the ASEAN Socio-CulturalCommunity are the three pillarsestablished by the ASEAN organisation

to enhance regional cooperation andintegration in building an ASEANcommunity by 2015.

The vision is to create a highlycompetitive single market thatpromotes equitable economicdevelopment for member states, aswell as facilitating their integrationwith the global community.

Key development areas include:

A single market and production base

Liberalise and facilitate the free flowof goods, services, investment, capitaland skilled labour

Accelerate regional integrationacross 12 priority sectors

Enhance trade and the long-termcompetitiveness of ASEANs food,agriculture and forestry products/commodities

Towards a competitive economicregion

Lay the foundation for competition

policy, and consumer protection

Strengthen intellectual propertyrights [IPR] protection

Develop transport (maritime, land,air, transport facilitation and logisticsservices), ICT and energy infrastructure

Equitable economic development

Develop small and mediumenterprises (SMEs)

Facilitate effective cooperation

and mutual assistance to narrowthe development gap of Cambodia,Laos, Myanmar and Vietnam (CLMV)countries

Integration into the global economy

Negotiate free trade agreements andcomprehensive economic partnershipagreements with major tradingpartners

Source: ASEAN Economic Community Scorecard:Charting Progress Towards Regional Economic

Integration, ASEAN Secretariat, March 2010; ASEANEconomic Community Blueprint, ASEAN Secretariat,January 2008.

Table 2: The ASEAN Economic Community

Figure 2: South East Asia Economics Stage of Economic Development, 2010


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0.9%

1.6%

1.2%

0.9%

1.4%

1.7%

0.8%

0.0%

0.5%

1.0%

1.5%

2.0%

0

50

100

150

200

250

300

Indonesia Philippines Vietnam Thailand Myanmar Malaysia Cambodia Laos Singapore Brunei

2010-2020

CA

GR

2010 Po pulatio n 2020 Po pulatio n 2010 - 2020 CAGR

1.6%1.6%

0.5%

Mn

Source: Accenture Analysis of data from IHS Global Insights, 2011

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Malaysia and Thailand have

transitioned into the efficiency-driven stage of development, whereefforts have been channelled towardsdeveloping more efficient processes toimprove overall productivity levels forboth nations. Singapore, the regionsmost advanced economy with thehighest GDP per capita, is consideredto be an innovation-driven economy.It relies on sophisticated productionprocesses and innovation to producenew and unique products so thathigher wages and the associatedstandards of living can be sustained inthe long term.

A countrys stage of economicdevelopment is also reflected bygovernment priorities and investmentsin specific sectors. For example, infactor-driven economies such asIndonesia, the Philippines and Vietnam,government agenda are focused oninvesting in infrastructure to facilitateeconomic growth and directing

resources to improve education andhealth, as well as to reduce poverty.Malaysia has defined 12 economicdevelopment areas with a strong

focus on the services sector to shift

towards an increasingly efficienteconomy that would generate higherproductivity and income levels. Theproductivity agenda is strongest in aninnovation-driven economy such asSingapore where government spendingis focused on continuing education toenhance its innovative capabilities.

Greater regional cooperation andintegration could aid South EastAsian nations in accelerating theirvoyage to the next stage of economic

development. For example, timelyintra-regional supply of skilled labourand capital by more mature marketsto factor-driven emerging economiescould assist in increasing economicoutput for the region.

Labour workforceproductivityThe region is projected to supporta combined population of over 650

million by 2020, accounting for 8.6per cent of the global populace.Population growth is expected acrossall South East Asian nations, signifying

continued evolution of a large

consumer market and potential labourworkforce [see figure 3].

Despite the availability of a largelabour force base, particularly inthe ASEAN 6 which will be hometo 300 million workers by 2020,improving labour productivitywill become more critical.

The highest population increasesare expected in the less developednations, putting pressure on their

ability to improve economic outputand competitiveness.

For the South East Asian region tomaintain its historic GDP growthrate since 2000, the InternationalLabour Organization [ILO]5 estimatesthat productivity growth needsto accelerate from 3.3 per cent in20002006 to approximately 4.1 percent in 20072015. In particular, thereis strong pressure on Cambodia, the

Philippines, Singapore and Thailand toimprove their productivity rates.

Figure 3: South East Asia Population Growth, 20102020


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0%

5%

10%

15%

20%

25%

30%

Europe NAM South EastAsia

Japan ME andAfrica

SouthKorea

China ANZ Taiwan India HongKong

Rest of theWorld

Source Country Breakdown(3yr Cumulative FDI Stock)

Source: Accenture Analysis of data from fDi Markets, 2011.

2004-2006 2007-2009

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In response to this need for greater

labour productivity, South East Asiangovernments have been investingheavily in education in recent years.Most notably. education spendingaccounted for one of the largestbudget expenditures in 2010 acrossthe ASEAN 6.

Capital investmentCapital investment is a key drivingfactor in expediting economic growth.Over the last decade, the region has

capitalised on its highly productivelabour force to attract foreigndirect investment, particularly in themanufacturing sector.

One way to reduce the regionsexposure to investment fluctuationsarising from global economiesperformance is to stimulateintra-regional capital flows. Suchinvestments have more than doubledin contributing to the overall foreign

direct investment inflows into theregion, from 6 per cent during 20042006 to 16 per cent during 2007-2009[see figure 4].

Greater capital availability in the

region would help expand high-potential industry sectors. Accenturebelieves that the regions moredeveloped economies could becomecentral investment engines forneighbours that rely on capitalinflows. Already, Malaysias foreigndirect investments in neighbouringnations has grown to account for morethan half of the total intra-regionalinvestment inflows during 20072009.

Figure 4: South East Asia Foreign Direct Investments


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Figure 5: South East Asia GDP Breakdown

$0

$200

$400

$600

$800

$1,000

$1,200

1970 1980 1990 2000 2009

In US$ Mn

Household Consumption Expenditure Investment

Government Consumption Expenditure

GDP

Net Exp orts

Source: Accenture Analysis of National Accounts Main Aggregates Database,

United Nations Statistics Division, 2011.

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The real voyage of discovery consistsnot in seeking new landscapes but inhaving new eyes.

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23%34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2009

South East Asia ExportDestination Breakdown

Extra-regional Exports Intra-regional Exports

20%24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2009

South East Asia ImportSource Breakdown

Extra-regional Imports Intra-regional Imports

Source: Accenture Analysis of data from Euromonitor International, 2011.

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Top Destinations:Sources of GrowthTo achieve economic growth acrossthe region, the South East Asiannations need to collectively addressthe development gaps between larger

and smaller economies. Instead oftreating differences as a hindrance,the region could seek out and leveragecomplementary strengths to potentiallyaccelerate regional growth prospects.

An integrated South East Asianeconomy is heavily dependent onconsumption to drive economicgrowth, more so than its counterpartsin other economies globally. In 2009,consumption accounted for 58 per

cent of the regions GDP, compared to23 per cent for investment, 11 per centfor government expenditure and 8 percent for net exports [see figure 5].

However, in the past 10 years , therole of investment and trade instimulating economic output hasbecome increasingly prominent. Since2003, the region attracted foreign

direct investment at pace with China,the worlds top destination for foreigncapital. Despite suffering a dip duringthe 2008-2009 global financial crisis,foreign direct investment levels haveslowly rebounded in 2010, reflectingglobal confidence in South East Asianeconomies growth prospects.

Inter-connectednessTrade has been integral to South EastAsia since the beginning of the SpiceTrade in Asia. The region has enjoyedtrade growth over the last decade andshowed relative resilience during therecent financial crisis. However, thereis a strong reliance on imports drivenby consumption demand. While thelarger South East Asian economiescontribute the most to total tradevalue, there is potential for export-driven growth from the resource-richsmaller economies. Facilitating tradeagreements between ASEAN as asingle unit with major trading partnerscould strengthen the negotiatingpower of these individual nations.

The region can further boost economicresilience by leveraging geographicproximity to increase intra-regionaltrade and maximise the free flow ofgoods, services, investment and talentbetween nations.

Initial regional integration efforts

by the ASEAN Economic Communityhave already facilitated the ASEANFree Trade Agreement [AFTA] that iscritical in increasing trade f lows withinthe region. Notably, intra-regionalexports have increased over the lastdecade, accounting for 34 per cent oftotal South East Asia exports in 2009compared to 23 per cent in 2001.Import trends also reflect an increasingdependency on neighbouring countriesin the region [see figure 6].

While tariff levels are decreasing,the region has to be vigilant andprepared for potential hindrances tothe integration process, for examplefollowing through on commitmentsto agreements, the use of non-tariff barriers and independentactions of individual nations toprotect national interests.

Figure 6: South East Asia Exports and Imports


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Source: Accenture Analysis of National Accounts Main Aggregates Database, United Nations Statistics Division, 2011.

Agriculture, Hunting, Forestry,Fishing

Mining, Utilities

Manufacturing

Construction Wholesale, Retail,Restaurants, Hotels

Transport, storage,communication

Other Activities (Financial &Business Services

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

0% 5% 10% 15% 20% 25% 30%

2009 Sector Value-add Contribution to GDP (%)

Size of Bubble 2009 Value-Add Contribution (US$)

SectorValueWeightChange1989-2009(as%

ofGDP)

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Shifting sector advantageWith the exception of Singapore,the South East Asian nations havetraditionally relied on their rich naturalresources to drive economic growth.The relative size of these sectors (i.e.agriculture, mining and utilities) in

certain economies, such as BruneiDarussalam, Cambodia, Laos, Malaysiaand Myanmar will continue to offeropportunities for investors.

The push for infrastructureimprovement region-wide toimprove ease of doing businessand productivity will alsodrive investments, particularlyin construction, transportand communications.

Our analysis reveals that the region isincreasingly shifting its comparativeadvantage from the primary sectortowards export manufacturing andhigh value-add services [see figure7]. The potential of the regionsmanufacturing sector, across theASEAN 6 nations, positions it as analternative production destination

to China for regional and globalbusinesses. Given the regions varyinglevels of manufacturing sophistication,we expect to see a build up of an eco-system in which certain economieswill continue to focus and improvetheir core manufacturing capabilitywhile others will continuously

advance towards higher value-addmanufacturing. In parallel, Malaysia,the Philippines and Singapore arebuilding a strong services sector bydriving investments and businessactivities in industries such as financialservices, information technology,tourism and business services.

The increased focus and facilitationfor specialised manufacturing hubsand regional services industries could

enable South East Asia to diversify itsfuture economic growth model.

Figure 7: South East Asia GDP Sector Value-add Contribution

A man travels theworld in search ofwhat he needs andreturns home tofind it.

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Sub-regional growthclustersTaking into consideration the relativesector strengths and developmentpriorities across the 10 economies,Accenture has identified severalgrowth opportunities at the sub-regional level. Three sectoral growthclusters deserve attention:

1. Agriculture

Opportunities for joint intra-regionaldevelopment could involve takingadvantage of growth clusters acrossspecific economies. For example,transforming South East Asias foursmallest economies (Brunei, Cambodia,Laos and Myanmar) into the regions

agricultural hub could increase exportcapacity, while improving long-termfood security across the region.

Furthermore, the Brunei Darussalam-Indonesia-Malaysia-Philippines EastASEAN Growth Area (BIMP-EAGA)initiative will be implemented inmid-2011 to strengthen collaborationin agriculture and fisheries acrossthe four countries. As part ofthis initiative, the countries willconsider trade facilitation measures

and food regulation and controlstandards to help reduce the cost offood products and increase intra-regional trade in agriculture.

If productivity trends remain at 2008levels, the region is expected toproduce US$27 billion in additionalagricultural output by 2015.However, if average annual growthin agricultural labour productivitywere to accelerate by just 1 per centover 200715, the region wouldgenerate an additional $10 billion peryear by 2015. A boost in agriculturalproductivity would contribute toeconomic growth, lower food pricesand improvement in rural incomes.7

2. Manufacturing

Establishing a single productionbase across the ASEAN 6 couldstrengthen the regions manufacturingcapabilities. The manufacturingsector accounts for at least 25 percent of Thailands output in 2009

and contributes to around 20 percent of Indonesia, Malaysia, thePhilippines, Singapore and VietnamsGDP. Intra-regional collaborationpresents opportunities for utilisingmanufacturing complementarities,e.g. inputs for specialisedmanufacturing can be producedand supplied by low-cost locationswithin the region. Reliance onimports from outside of the regioncould be significantly reduced.

3. Services

Other intra-regional growthopportunities exist in the matureservices markets such as Singapore,Malaysia and to an extent, thePhilippines. These economies arebuilding strong financial and businessservices industries, and will offeropportunities for greater specializationthat can be exported to the rest of theregion. For example, Singapore, with

its strong education and biotechnologyhubs, can provide training and R&Dexpertise across the region. The regioncould also leverage the Philippinesstrength and economies of scale in theprovision of outsourcing services.

The examples of sectoral growthclusters across specific economiesprovide opportunities for jointdevelopment that can be appliedto advance the regional economicdevelopment journey.

Local Attractions:Building onComplementaryStrengthsSouth East Asian businesses andglobal multinational corporationswith interests in the region do nothave to venture far to f ind highpotential new destinations. Severalcomplementary strengths existacross South East Asian economiesthat provide a foundation for strongeconomic growth, and thus potentialfor increased business activity:

1. Continuing cooperation between

South East Asian nations will furtherdrive intra-regional trade, facilitatecapital flows and strengthen economicreciprocity, all of which are crucialto the regions development. Labourproductivity, in particular, willdetermine the speed and ease ofregional economic advancement.

2. Adopting a diversified economicgrowth model would strengthen theregions long-term competitiveness.A collective view and focused effort

in stimulating potential sectoralgrowth clusters across specificeconomies provide joint developmentopportunities that can accelerateregional growth prospects.

3. The region is clearly aware of itspotential as an emerging economicpowerhouse, with governmentsactively pursuing a regionalintegration agenda that will cleara path to a single market.

The South East Asian macro-economiclandscape provides vast opportunitiesfor regional business expansion,which are expected to fuel privateconsumption a key economic driver.But the true potential lies in thehighly diverse and rich social fabric ofthis region that signifies a continuedevolution of a large consumer market.Understanding this complex market isa pre-requisite for businesses to assessthe benefits of future consumerism in

South East Asia for business growth.


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The great difference between voyagesrests not with the ships, but with thepeople you meet on them. 9


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Thousand

People


2000 2010 2015 2020

0

20,000

40,000

60,000

80,000

100,000

120,000

0-9 10-19 20-29 30-39 40-49 50-59 60-69 70+

Years old

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The South East Asian Consumer

Social Fabric:Young, Educated,DiverseThe South East Asian region is arich and highly diverse collectionof distinct cultural values andnational identities, both of whichwill influence the developmentof a new consumer mindset.

Consumers will play a critical role indriving economic growth in the region.Demographic shifts, including risingpurchasing power, a younger, bettereducated population and increasedurbanisation, will create a consumermarket with distinct needs and strongbuying power. The fusion of differentsocial fabrics will open the door fornew business opportunities.

Youthful populationThe regions population is projected toreach more than 650 million peopleby 2020, half of which will be agedunder 30 [see figure 8]. Althoughfamily-oriented social structures willcontinue to dominate the South East

Asian landscape, an increasing number

of people will choose to form a familyat a later life stage. The regions largeyounger population will have profoundimpact on future consumption acrossthe region.

Figure 8: South East Asia Population by Age Group


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0

10,000

20,000

30,000

40,000

50,000

60,000

NumberofHouseholds(000s)


>

US$100,0

00

>

US$75,0

00

>

US$65,0

00

>

US$55,0

00

>

US$45,0

00

>

US$35,0

00

>

US$25,0

00

>

US$15,0

00

>

US$10,0

00

>

US$5,0

00

>

US$2,5

00

>

US$1,0

00

2000 2010 2015 2020

Annual Household Disposable Income Category

Middle Class Income Segments

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Income class transitionsExpected future growth in consumerexpenditure indicates increasingmaturity of the consumer marketacross South East Asia. Consumerexpenditure growth will substantiallyexceed historical levels, reaching

US$1.5 trillion by 2020. Disposableincome levels are expected to increase but the relative gap across theeconomies will remain.

Transition of households from low tomiddle class10 income segments willbe the catalyst for future domesticconsumption [see figure 9].

The relative size of the middle classwill help create aggregate purchasingpower that will exceed that of the

smaller premium income households.By 2020, middle class householdsacross South East Asia will have anaggregate purchasing power of atleast US$0.75 billion as compared toUS$0.5 billion offered by householdswith greater than US$75,000 in annualdisposable income.

Despite the healthy growth of themiddle class, low-income householdswill continue to be the backbone of

the regions economy. This dominantsegment represents businessopportunities that may be realisedby adopting innovative and simple

business models similar to those thathave proven to be successful in otheremerging markets (e.g., China, India).

The growing affluence of theupper-middle class in more matureeconomies such as Malaysiaand Singapore will become

increasingly important for theregion in driving demand for high-value products and services.

Distinct purchasing needsand expectationsWith their growing purchasing power,consumers across the region willhave a greater appetite for education,household goods and services,communication and entertainment

[see figure 10].

Demand for premium products andservices are expected to be drivenfrom consumers in more maturemarkets due to their higher incomelevels. For example, consumers inMalaysia and Singapore have ahigher affinity to spend on high-endconsumer electronics and householddurables, medical and health-related products, higher education,entertainment and travel.

A large young population will makeeducation the fastest-growing

expenditure category across SouthEast Asia. Those aged below 20will drive demand for primary andsecondary education. More than 380million people are expected to attainat least primary education by 2020,boosting literacy standards across theregion. An increased number of adults

in the region are also expected topursue higher education.

The prevalence of larger households(four to five people) will continue todrive demand for essentials such ashousing, transport and food. With over40 per cent of the regions populationcontinuing to live in rural areas, therewill be a higher demand for mobilecommunications, although poorinfrastructure in rural Indonesia, the

Philippines, Thailand and Vietnam mayconstrain wired connectivity.

Consumers are also expected to investin health and financial security dueto the lack of a strong social securitysystem in some countries.

In summary, consumers in developingeconomies will direct a large portionof their disposable income towardsimproving general living standards,whereas mature markets will show a

growing propensity to save and buildwealth for the future [see figure 11].

Figure 9: ASEAN 6 Number of Households by Annual Household Disposable Income


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1%

2%

3%

4%

5%

6%

7%

8%

9%

0% 5% 10% 15% 20% 25% 30% 35% 40%

ExpenditureGrowth

(10Y2020

CAGR)

Savings Ratio, 2020 (Percentage of Disposable Income)

Singapore

Vietnam

Indonesia

MalaysiaPhilippines

Thailand


Size of Bubble Average Household Disposab le Income (US$)

$0

$50

$100

$150

$200

$250

$300

$350

$400

US$ Bn

2010-2020 CAGR:

10.2%

2010-2020 CAGR:

8.2%

2010-2020 CAGR:

6.6%

2010-2020 CAGR:6.5%


2000 2010 2015 2020

FinancialServices

Clothingand

Footwear

Communications

Alcoholand

Tobacco

Leisureand

Recreation

HealthGoodsand

MedicalServices

Education

Hotelsand

Catering

HouseholdGoods

andServices

Transport

Housing

FoodandBeverages

Insurance

Others

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Figure 11: ASEAN 6 Savings Ratio relative to Expenditure Growth, 2020

Figure 10: Consumer Expenditure by Category, 20002020


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Attributes

Relevance LowHigh

Singapore VietnamThailandIndonesia M alay sia Philippines

Expenditure Growth

Income Growth

Average DisposableIncome Size

Propensity to save

Household Income

Distribution

Potential Market Size

Age

Education

Mobility

Connectivity

Urbanisation

Source: Accenture Analysis

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Figure 12: ASEAN 6 Consumer Attributes

Evolution of aConsumptionCultureWith the continuing role ofconsumption in driving economicgrowth across South East Asia, it iscritical to gain a better understandingof the common consumer attributesacross the region. Understandingthese attributes will assist businesses

in tailoring their products andservices to meet the expectationsof different consumer segments,and test the extent to which similarsegments can be targeted usinga common business model.

Based on common demographic andlifestyle shifts observed across theregion, Accenture has identified adistinct set of attributes that canbe used to describe the South EastAsian consumer of the future. These

attributes include age, education,mobility, connectivity, urbanisation(where they live), income growth,average disposable income size,

propensity to save, expenditure

growth, household income distributionand potential market size expected by2020 [see figure 12]. Based on theseattributes, we predict the evolution ofseven key consumer segments in theregion by 2020:

Premium SilversThey may be aged 60+ and retired, butPremium Silvers are still leading full,healthy lives. Their high disposableincome allows them to cultivate

new hobbies and stay active in thecommunity. They may be affluentbut they spend their money wisely,preferring to buy things that offergood value. As they get older, PremiumSilvers are increasingly reliant onmedical services and products.

Though small in size, this segmenthas high disposable income. Wellrepresented across ASEAN 6 nationsby 2020, and particularly in Singapore

and Malaysia.

GiversGivers are aged 35-50, upper-middle class consumers with a busyprofessional life. They tend to bemarried with young children with livesrevolving around work and family. Mostof their leisure time is spent with familyand their spending too is focused onthe long-term welfare of the family.They focus on saving for the future.

This sizable segment with highdisposable income is represented

across ASEAN 6 nations by 2020,with relatively higher concentration inMalaysia and Indonesia.

OpportunistsOpportunists belong to the hardworking, above 35 years of ageconsumers who live in rural or cityfringe areas. Most of them are marriedand have children. With low / noeducation, they tend to rely on lowerincomes (


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Consumer profiles andbehaviours are verysimilar across certainASEAN countries, for

example, betweenLaos and Cambodia,and Singapore andMalaysia. We havesimilar tastebudsand a strong eatingout culture.Lerssak Boonsongsup, Group Director

of Global Supply Chain Management,Minor Food Group

By 2020, the Opportunists will remainthe dominant segment across ASEAN,with high concentration in Indonesia,the Philippines and Vietnam.

New RoyalsThese are young singles earning a

healthy income from their high-flying,white collar jobs. New Royals are agedbetween 20 and 35 and well educated.Their independence allows them toseek new experiences through travelor employment opportunities. Personalenrichment is a significant buyingmotive with high brand affinity andlatest introductions.

Given their propensity to spend, thispremium segment will be significantby 2020. New Royals can be foundacross ASEAN 6 nations by 2020,with relatively higher concentration inIndonesia and Malaysia.

Trend SeekersTrend Seekers are young singleswho are brand conscious and aspireto be part of the in-crowd. Withan average-paying job but highpropensity to spend, they may haveto rely on credit to fund purchases at

times. Aged between 20 and 35, theytend to place importance on followingthe latest fashion trends.

Even with a lower income threshold,Trend Seekers will be an attractivesegment given their relative size.Though dominant in Indonesia, thissegment has fair representationacross Thailand, Malaysia, thePhilippines and Vietnam as well.

Value SeekersThe Value Seekers are aged 35-60consumers who live in rural or cityfringe areas, rising up to becomethe new middle class. Most of themare married and have children.Although not highly educated,they are determined to provide abetter life for their children. Withsome disposable income on hand,they tend to look for bargains andgood value for money purchases.

The second largest segment by2020, Value Seekers can be foundmainly in Indonesia, Thailand,

Vietnam and the Philippines.

Young ConnectorsTechnology dominates the lives of

Young Connectors and they spend aconsiderable portion of their incomeand time on entertainment and media.As students aged 15 to 24, this moneycomes from allowances or part-time

jobs. They use mobile devices toconnect to social networking sites sothey can stay connected with friends.

This sizable segment is largelydominated by Indonesia, thePhilippines and Vietnam given theirhigher concentration of youngerpopulation of these countries by 2020.

Increasingly, large businesses in theregion are tailoring their productsand services to meet the needs and

expectations of the South East Asianconsumer. For example, Malaysian-based bank CIMB has provided anavenue for consumers such as theGivers and Value Seekers to startsaving and investing for the future.Without the Sharia-compliant bankingproducts, the Muslim communities inthe region were not able to participatein banking activities for commercialand religious reasons previously.

To meet the growing demand foraffordable air travel amongst theyoung and sophisticated travellerssuch as the New Royals, Air Asialaunched its low-fare, long haulproposition in 2007 with greatsuccess. The companys continuedfocus on customer needs and valuecreation is becoming more relevantto the South East Asian consumersas they seek to enrich their lives byexploring new travel destinationswithin the region.

This is only the beginning: theevolving consumer power and identityacross the region provide attractiveopportunities for businesses that areready to understand the differencesand leverage similarities of the SouthEast Asian consumer of the future.


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21

If you want to succeed you should strikeout on new paths, rather than travelthe worn paths of accepted success.

11


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22

The Road Ahead: Growth Paths for theRegion

Youve done the grand tour of South

East Asia and seen the major regionalattractions. As a seasoned traveller,what you really want to do is uncoverthe hidden gems the sights andexperiences that are yet to bediscovered by the masses.

In business as in travel, the key tosuccess is the ability to recogniseopportunities and capture those fasterthan competitors. Two emergingforces are set to shape the futureof economic growth in the South

East Asian region: market focus andeconomic development imperatives.

Market Focus - Economic growthin the region can be spurred byimproving individual nations globalcompetitiveness through furtherinvestments and specialization inthe respective economies. In parallel,a market focus that transcendsnational borders will enableSouth East Asia to build regional

competitiveness by leveragingon complementary strengths.

Economic Development Growth

priorities differ based on each SouthEast Asian nation current stage ofeconomic development. Less maturemarkets need to focus on buildingbasic infrastructure and institutionalframeworks to lay a strong foundationfor sustainable growth. The growthagenda is applicable for moredeveloped nations where increasingproductivity and efficiency will enablethe respective economies to progress.

ASEAN businesses arelikely to expand tomeet Chinas demandneeds. Strong oil andcommodity prices offerother stimulants forregion-centric or nicheexpansion. Political

and economic stabilityfor countries in theregion is a precursorfor ASEAN businessexpansion.Alan Hamzah Sendut, Chief StrategyOfficer, Sime Darby Berhad


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Based on these forces, four growthpaths are projected [see f igure 13].

1. InvestmentaccumulationInvestment accumulation involvesaccelerating infrastructuredevelopment and social welfareinvestments to increase economic andsocial stability. For example, Vietnamand the Philippines are looking tobuild basic social services for the poor,while Indonesia requires infrastructureto improve transportation andcommunication. Opportunities existin construction, transportation andlogistics, basic healthcare, educationand financial services sectors. Criticalsuccess factors include access to

foreign capital; a commitment tobuilding well-developed transportationand communications infrastructure;investments in the provision of basiceducation and health services; and theestablishment of a stable and qualityinstitutional environment.

2. Domestic specialisationThis growth path involves leveragingmature sector capabilities to increaseexports and improve competitivenessagainst other Asian counterparts.For example, Singapore is likely toleverage a highly skilled workforce to

continue developing a high value-addmanufacturing sector. The Philippinescould build on its business processoutsourcing capabilities to becomethe regional hub for these services.Opportunities exist in low-costand specialised manufacturing, oiland gas, refineries, and IT services.Success depends on a commitment totechnology investments and on-goinginnovation; access to labour withspecialised skills (either by building

domestic talent or importing skills);and improving labour productivityto create cost advantages within thedomestic economy.

3. Regional scaleRegional scale requires buildingdeeper ties with neighbouringeconomies through investmentin complementary capabilities toimprove productivity. An exampleof this is the implementation of

the BIMP-EAGA in mid-2011 tostrengthen collaboration in theagriculture and fisheries industriesacross relevant countries. Regionalscale opportunities exist in agricultureand manufacturing. For theseopportunities to come to fruition,there must be true economicreciprocity based on intra-regionalstrengths; a commitment to buildinga regional industry support network;and a commitment to joint technology

investments and on-going innovation.

4. ConsumerismAn opportunity exists to leveragethe purchasing power and commonneeds of consumers to fuel regionaldomestic demand, while investingin services to strengthen regionalcomparative advantage. Keydevelopments in this area include theimplementation of a cross-bordertrading platform for retail investors

in Singapore, Malaysia, Thailand andthe Philippines; and the developmentof a common tourism curriculumand competency standards fortourism professionals. Opportunitiesexist in tourism, financial servicesand telecommunications. However,there needs to be a commitment toservicing the ASEAN consumer as asingle market; and liberalisation ofthe services sector to encourage moremarket competition.

Accenture believes the futureeconomic growth of the South EastAsian region will require measures tostrengthen domestic consumption;improve the investment climate andsocial infrastructure; develop thefinancial system; and deepen regionalintegration and cooperation.

Source: Accenture Analysis

Investment

Accumulation

Domestic

Specialisation

Consumerism

Regional

Scale

Grow

Build

RegionalDomestic

Figure 13: Future Economic Growth Paths for South East Asia


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Philippines

Singapore

Indonesia

ThailandVietnam

Malaysia

Myanmar

Cambodia Laos

Brunei

0

1

2

3

4

10 30 50 70 90 110 130 150 170 190

Ease of Doing Business Ranking

Risk

Rating

Increasingri

sk

fordoingb

usiness

Increasing regulatory complexity of doing business

5

Note: Myanmar is not included in theEase of Doing Business ranking and isgiven the lowest ranking for the purpose ofthis exercise due to its unclear regulatoryframework.

Source: Accenture Analysis of IndividualCountry Reports, IHS Global Insight, 2011;Ease of Doing Business, The World BankGroup, 2011.

24

The Role of theFree MarketWe believe the regional growthtrajectory will be influenced by theappetite of businesses to recognisethe potential of rising consumption,

and scale opportunities acrossnational boundaries. Dependingon businesses growth models, thebusiness expansion potential variesacross the four growth scenarios.

Businesses can play prominent rolesin driving economic growth acrossthe South East Asian region. Forexample, the Japan-based Fuji SealGroup has decided to strengthenits presence in South East Asia by

capitalising on Vietnams low-costmanufacturing environment. Thecompanys estimated US$15 millioninvestment validates Vietnamsincreasing competitiveness as amanufacturing hub. BeginningMarch 2012, its manufacturing andsales base in Vietnam will be well-positioned to respond to the growing

demand for shrink labels, packagingmaterials and packaging machinesin Vietnam and across the region.

Of course, the diversity of the regionmeans conditions for expansionwill vary widely [see figure 14].The ASEAN 6 offers the best

opportunities, albeit at different riskpoints, due to their mature economic,political and social structures.

Regional expansion will require activeenablement, particularly in the areasof talent availability, political andsocial stability and pro-businesspolicies, to name just a few.

Businesses looking to expand inSouth East Asia will have severalgrowth paths to consider. While somemay choose to focus on a particulareconomy initially, we expect to seea regional footprint to be developedover time.

Figure 14: South East Asia Business Expansion Opportunity Landscape


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Conclusion

The South East Asian region is at

crossroads: by taking the right pathnow the region will be well on its wayto becoming a formidable economicpowerhouse by 2020. Early indicatorsare promising: stable real GDP growth;substantial (and growing) consumermarkets; strong labour forces;and steady economic and markettransitions across its 10 economies.

Accenture believes the growth of theregion will be a function of deeperregional cooperation and integration

from a policy perspective, and market-driven intervention by businessesthat aspire to expand their footprintacross the national borders. Ouranalysis indicates that South EastAsian nations can and should leveragecomplementary strengths to accelerategrowth, shift comparative advantage,and make the best use of capital andlabour resources.

The preparations for this journey have

already begun. The South East Asiannations have initiated taskforces suchas the ASEAN Economic Communityto facilitate regional integrationactivities. Cross-border initiatives

such as the BIMP-EGA agriculture

development program and the ASEANTrading Link platform are furtherevidence of the regions commitmentto intra-regional development.Governments are also directingexpenditure to those areas that arecritical to their nations economic andsocial development.

The South East Asian nations alsoneed to focus on establishing a centralproduction network that leveragesthe intra-regional strengths in

labour productivity, technology andknowledge transfer. Furthermore, if theservices sector is liberalised, businessactivities are expected to accelerateand there will be substantial impact ondomestic consumption in the medium-long term.

The regions growing consumermarket and emerging intra-regionalproductivity strengths should be ofgreat interest to businesses that are:

Looking to target under-penetratedconsumer markets

Ready to expand the offerings and

capabilities across the national borders

Aiming to improve cost andoperational efficiencies

Diversifying their portfolios byexpanding into new growth areas.

To realise the opportunities thatexist across the borders of SouthEast Asian nations, businesses mustplay a proactive role in planning andembarking on their own journey.

Expanding in South East Asia todaycould accelerate regional economicdevelopment and create a strongcommunity where regional consumersare served by regional businesses.

Regulators need to enable regionalbusiness expansion by further openingdomestic markets to market-driveninterventions, to increase regionaldevelopment and growth in the future.

Its often said that the future

belongs to those who can imagine it.Businesses on a growth journey woulddo well to consider South East Asia astheir next growth destination.


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References1 Henry Miller, author, 18911980.

2 For the purposes of this paper,Accenture refers to these 10 countriesas members of a future integratedeconomic community (ASEAN), notonly countries that are geographicallyclassified as South East Asia.

3 G.K. Chesterton, author, 18741936.

4 The World Economic Forums Global

Competitiveness Index defines threedistinct stages where individualeconomies can be categorized basedon Nominal GDP per capita and FactorDriven Measurement (determined bythe share of mineral goods in totalexports, where countries with over70% of total exports in a 5-yearperiod are mineral products, can beclassified as strongly factor-driven).Please reference World EconomicForum The Global CompetitivenessReport 2010-2011 for more details.

5 Labour and Social Trends in

ASEAN, 2008, International LabourOrganization

6 Marcel Proust, novelist, 18711936.

7 Labour and Social Trends inASEAN, 2008, International LabourOrganization

8 George Augustus Moore, novelist,18521933.

9 Amelia Barr, novelist, 18311919.

10 Euromonitor defines the middleclass income segment as householdswith annual disposable income ofUS$5,000-15,000.

11 John D. Rockefeller, industrialist,18391937.


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Copyright 2011 AccentureAll rights reserved.

Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.

About AccentureAccenture is a global managementconsulting, technology servicesand outsourcing company, withmore than 215,000 people servingclients in more than 120 countries.Combining unparalleled experience,

comprehensive capabilities across allindustries and business functions,and extensive research on the worldsmost successful companies, Accenturecollaborates with clients to helpthem become high-performancebusinesses and governments. Thecompany generated net revenuesof US$21.6 billion for the fiscalyear ended Aug. 31, 2010. Its homepage is www.accenture.com.

About AccentureManagement ConsultingInnovation CentreThe Management ConsultingInnovation Center serves as a researchhub where industry experts debate,

develop and publish insights withspecific relevance to the Asia Pacificregion to help organisations innovateand outperform their competition.

The Centre also brings Accenturesthought-leadership and ideas tolife through highly interactive andfacilitated workshop experiences.These experiences help organisationsexplore solutions and develop a courseof action for their most importantbusiness issues that will acceleratetheir path to higher performance.

About the AuthorsGrant Powell

Managing Director,Accenture Management ConsultingInnovation Centre, Singapore

[email protected]

Dr. Vedrana Savic

Head of Research,Accenture Management ConsultingInnovation Centre, Singapore

[email protected]

Amy Chng

ManagerAccenture Research, Singapore

[email protected]

Accenture Opportunities for Regional Business Expansion

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