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Investing in ASEAN 2023

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Understanding sustainable growth in

Southeast Asia

Amanda Murphy, Head of Commercial Banking, South and Southeast Asia, HSBC 

The HSBC Navigator: Southeast Asia (SEA) in Focus report is a pioneering study of how global companies plan to expand their business operations. Amanda Murphy, Head of Commercial Banking, South and Southeast Asia, HSBC, examines its findings and identifies three dominant trends that will underpin the region’s long-term growth.


Our survey canvassed the views of more than 1,500 international businesses across six major economies that are doing business in Southeast Asia. The region is home to a young, increasingly affluent, tech-aware, educated population willing to spend. Moreover, HSBC Global Research expects the six markets of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam to post economic growth of between 3.6% and 6.7% this year. 

The businesses surveyed are also confident about the region’s economic prospects. Indeed, as many as nine out of ten plan to expand their presence, with three in five anticipating organic growth of 20% or more over the next 12 months. Equally encouraging, these firms are emerging from a pandemic and operating in a rapidly changing environment. One that is characterised by a core group of drivers referred to as the three Ds: demographics, digitalisation, and dynamism.


Demographics - powered by the people

The ASEAN bloc, which encompasses ten Southeast Asian economies (including the six featured in our study), has a gross domestic product (GDP) of over US$2.6 trillion, and by 2050, the bloc is expected to become the world’s fourth-largest economic area. At the same time, its combined population of more than 600 million people is the world’s third largest labour force, ranking behind India and China. Within its member states are 31 cities with more than one million people, and almost half of the total population (49.5%) live in urban areas. 

This is encouraging, but there are roadblocks. Finding the right talent remains problematic for some foreign businesses operating in the region, with almost a third of respondents (30%) citing a lack of skilled workers as one of the biggest challenges they face. To put this into context, concerns about recruitment were only just behind worries about supply-chain issues (31%) and in second equal place with regulatory concerns. 

And with sustainability factors demanding greater focus, 32% of firms noted an inability to hire employees with environmental, social, and governance (ESG) expertise as a barrier to becoming more ethically focused. 

Digitalisation – making the numbers add up

Southeast Asia is also home to a fast-growing population of digital natives operating in an incredibly innovative climate. Some economies have quickly recognised the shift towards digitalisation. Over the past few months, for example, Malaysia has confirmed its 5G rollout plan, and the central bank has already awarded five digital bank licenses. The Monetary Authority of Singapore (MAS) – the country’s de facto central bank – issued four licenses at the end of 2020 - two Digital Full Bank licenses and another two Digital Wholesale Bank Licenses. A year earlier, the MAS had indicated that it would issue five licenses in total to non-bank players, allowing them to operate in Singapore with a minimal physical presence. In Indonesia, seven digital banks are already operational, with another seven awaiting licenses.

Meanwhile, the Philippines issued six licenses, but only two are up and running. In contrast, Thailand is still catching up, whereas Vietnam is even further behind. Because there is no licensing framework for digital banking, aspiring digital banks need to partner with existing lenders instead.

The HSBC study shows that digitalisation ranks at the top of corporate agendas, and companies are happy to spend money to embrace the technology required to transform their businesses. Specifically, half of the respondents said that they intend to invest 5-10% of their operating profit in boosting their digitalisation strategies, while more than a quarter (26%) revealed they plan to invest more than 10%. 

This is not to say that companies find this evolution easy, as more than a third (34%) want help developing cybersecurity programmes, 32% require digital payment solutions, and 31% want their banking partners’ support in creating e-commerce and digital platforms.

Dynamism – let’s get this business started

The entrepreneurialism of Southeast Asia has produced a vibrant start-up scene that rivals any in the world. This has not gone unnoticed by the firms surveyed, with 89% indicating plans to expand into the region’s markets over the next two years. Concurrently, more than half (55%) expressed a desire to boost their inorganic growth “significantly”, while 61% expect organic growth to increase by 20% or more over the next 12 months.

The determination to participate in Southeast Asia’s start-up culture is made more compelling by a statistic brought to light by the analysis. As many as four in nine respondents were unaware of or had no plans to harness: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), two significant

free-trade agreements that involve Southeast Asia. Once knowledge of these accords grows,

forward-thinking businesses will inevitably look beyond their core markets for opportunities in neighbouring territories.

For balance, it’s also worth pointing out that regional trade isn’t flawless. Despite a reduction in tariffs, ASEAN still has a number of trade barriers, especially across the services sector. According to the EU-ASEAN Business Council, non-tariff barriers have increased by almost 60% since 2015, overshadowing much of the excellent work on tariff reduction. 

Ultimately, the analysis reminds us that the key to unlocking growth in Southeast Asia is understanding the dynamics of each market and grasping how businesses across individual economies can connect and work together. 

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To read more about investing in the ASEAN region, download the full publication...

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