Southeast Asia has emerged as a clear winner in the rebalancing of global trade and supply chains.1 Multinationals from Asia and beyond have been relying more on the region as a key production base for a range of sectors, in a shift that spiked with the shock of the Covid-19 pandemic and has accelerated amid ongoing geopolitical uncertainties. 2
As a result, the 10 members of the Association of Southeast Asian Nations (ASEAN) are set to benefit from three macroeconomic tailwinds:
- Diversified supply chains: Businesses are increasingly looking to ASEAN for supply chain diversification, including firms from within the region, from China and elsewhere in Asia, or multinationals more broadly.3
- Robust growth outlook: Economic growth across Southeast Asia continues to expand steadily,4 with GDP expected to rise 4.6% year-on-year in 2024 compared with a global average of 2.4%, according to IMF data.5
- Manufacturing upgrades: Driven by advances in technology and the global push towards sustainable development goals, investments are pouring in to expansion projects in electronics, semiconductors and other high-tech goods.6
Many of the easy gains from this supply chain realignment have already been realised. The next phase of growth for Southeast Asia’s manufacturing sector will be more challenging to navigate – but potentially more rewarding – as markets across the region look to move up the value chain.
While a cheap and abundant supply of labour has helped the emerging economies of ASEAN to attract low-cost and labour-intensive manufacturing, the focus for many is quickly shifting to higher value-added industry. That includes countries expanding their manufacturing footprint in sectors like electronics, semiconductors, machinery, electric vehicles and batteries, and pharmaceuticals.
The early signs are encouraging. Emerging economies across Southeast Asia reported total trade in goods of USD3.6 trillion in 2023, up from a pre-Covid high of USD2.8 trillion in 2019, according to ASEAN data.7 In some countries, the move up the value chain is happening quickly as global trade shifts: in Vietnam, total exports were worth 93.8% of GDP as of 2022, up from 54.2% in 2010. 8
According to a forecast from the Boston Consulting Group, the ASEAN region could generate up to USD600 billion a year in additional manufacturing output, increase annual foreign-direct investment (FDI) in manufacturing by up to USD22 billion, and create up to 140,000 new jobs a year. 9
Ripe for homegrown innovation
The electronics and electrical industry is by far the biggest recipient of FDI in ASEAN, helping lift total investment to a record of USD224 billion in 2022. 10 International businesses such as Samsung and Apple are not only expanding production in Vietnam,11 but are also building R&D hubs in the country. 12 Malaysia, where GDP growth of 8.7% in 2023 was the highest among ASEAN countries, has emerged as a major target for business growth in semiconductors, with global giants such as Intel and Infineon having committed to investing billions in the country.13 In a bid to leverage this trend, the government plans to train and upskill 60,000 Malaysian engineers to position the country as a semiconductor R&D hub.14
In Thailand, which has already established strengths in packaged foods15 and the production of automobiles for major global brands,16 the pharmaceuticals industry is shifting from primarily producing generics to developing treatments of its own.17 The Philippines is making an aggressive push for foreign investment, which could shore up its strengths in business process outsourcing and the manufacturing of electronics and technology components.18 And Indonesia is on its way to parlaying its massive nickel reserves – which are key to global electric vehicle (EV) supply chains – to become a major producer of EVs and EV batteries in its own right.19
Sizeable investment will also be needed to fuel the energy transition and meet sustainable development goals in ASEAN, which collectively has the world’s fourth largest energy demand, after China, the US and India.20 Half of the world’s largest companies have made net zero commitments, and will also be looking to green their value chains.21 Southeast Asian nations will therefore need to adopt viable pathways to transition their energy systems to continue attracting investment from multinationals and building their share in global trade.
A coming consumption boom
ASEAN’s consumer market has a bright future. The region’s increasing prominence in global supply chains and its move up the value ladder is driving urbanisation, boosting wages and widening the pool of domestic savings. Consumption accounts for around 60% of ASEAN GDP and has been key to the region’s post-pandemic recovery.22 In the first quarter of 2024, the expansion of private consumption largely offset the tempering of export growth amid a challenging external environment.23
By 2030, when 70% of ASEAN’s population – which currently stands at over 670 million24 – is expected to have attained middle-class income levels, the consumer market could reach USD4 trillion. 25 Demand will grow for a wide range of products, from electronics to automobiles, and services such as education, healthcare and leisure. 26
As the region’s consumers increasingly embrace digitalisation,27 a fast-growing share of consumption will occur within its vibrant digital economy, which is now led by e-commerce, digital financial services, transport and food delivery platforms, and online travel and media. 28
According to a joint report by Temasek and Google, among others, the digital economy in the six largest economies of the region – Indonesia, Thailand, Singapore, Vietnam, Malaysia and the Philippines – was worth an estimated USD218 billion in gross merchandise value in 2023 and is on track to reach USD600 billion by 2030. 29
Pursuing business growth opportunities in this environment demands smart banking solutions and a deep understanding of the region’s local markets. HSBC’s TradePay, which is being rolled out in selected markets in 2024, is a digital trade finance offering that brings just-in-time financing to ASEAN supply chains with loan processing speeds of under a minute.30 HSBC’s network in the region already serves 2.5 million retail clients and 30,000 businesses – and captures over 93% of ASEAN GDP and international trade. 31
Meanwhile, the expansion of domestic and international businesses in ASEAN in pursuit of these opportunities is expected to drive demand for legal, financial and advisory services.32 Businesses wishing to offer these services in ASEAN can leverage the region’s educated workforce, digital literacy and extensive regional connectivity. The appeal of ASEAN’s skilled labour pool is considerable: it ranked as the region’s most compelling feature for international businesses in a 2023 HSBC survey. 33
Accessing ASEAN’s opportunities
ASEAN is well on track to becoming the fourth-largest economy in the world by 2030.34 Businesses that want to capture the resulting opportunities by entering or expanding in the region need to consider multiple factors when navigating the regulatory environment and cultural nuances across its 10 member states.
This includes having a thorough strategy for business growth, including market selection and localisation, as well as insight into how to leverage the region’s patchwork of trade agreements and investment incentives.
With over 135 years on the ground in ASEAN, HSBC can support clients through its extensive network in the region and across the globe, providing support on local market dynamics and supply chains, while also bringing international connectivity.35 And our recently launched USD1 billion ASEAN Growth Fund is designed for businesses scaling up rapidly in six markets in the region – Indonesia, Singapore, Malaysia, Thailand, the Philippines and Vietnam. 36
The opportunities emerging in ASEAN are among the most exciting in the world, but companies looking to profit from them can face daunting challenges if they embark on this journey unprepared. Having the right banking partner is a good place to start.
