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Exploring the Diverse Landscapes of ASEAN ASEAN is quietly emerging as a major economic player alongside China and India, with consistent and sustainable growth, enormous potential both as consumer and sourcing market, and a commitment to international trade.

Exploring the Diverse Landscapes of ASEAN

by Helen Sanders, Editor

“The voyage of discovery is not in seeking new landscapes but in having new eyes.”
Marcel Proust

Amidst all the hype and fanfare that has greeted China’s economic explosion, ASEAN is quietly emerging as a major economic player alongside China and India with consistent and sustainable growth, enormous potential as both a consumer and sourcing market, and a commitment to collaboration and international trade.

Mahesh Kini, Asia Pacific Head of Cash Management for Corporates, Deutsche Bank outlines,

Mahesh Kini

“ASEAN has become a focus for both corporations and banks, with considerable acceleration over the past 12-18 months. At Deutsche Bank, we consider ASEAN as one of the three key blocs in the region, alongside China and India, a model which is also mirrored by many of our corporate customers. While in some cases, companies have a specific focus on particular markets, such as Indonesia, there are advantages to devising business strategy at a regional level, particularly as the combined scale justifies investment as opposed to an individual country level.”

Unlike China or India, the ASEAN countries lack cultural, regulatory, economic or political homogeneity. Exchange controls also apply in most cases. This creates significant challenges for treasurers seeking to manage liquidity on a regional basis, as well as achieving consistency in payments and collections and managing FX risk.

A diverse landscape for investment

The focus on ASEAN countries is not new, particularly given the region’s colonial heritage. However, while China and to some extent India have been growth targets over recent years, ASEAN countries are now becoming a more important region for investment and trade. With some exceptions, such as Singapore and Indonesia, individual markets may not yet be large enough to justify substantial investment by foreign multinationals (although this is changing) so in many cases, they are looking to invest on a regional level which offers the critical mass required to justify investment. However, this is not easy given the diversity that exists between ASEAN countries. Sandip Patil, Regional Head, Payables and Receivables, Asia Pacific, Treasury and Trade Solutions, Citi highlights the growing regional connections and co-operation,

“Each country in ASEAN has its own identity with distinct clearing systems, banking landscape, tax and regulatory environment and business culture. However, there are strong trading links across the region, with large volumes of intra-regional flows, which is encouraging greater collaboration.”

In addition to diversity between countries, the motivation for companies doing business there, and the countries to which various industries are attracted, can also differ significantly. Victor Penna, Head of Treasury Solutions, Transaction Banking, Standard Chartered Bank notes,

“We are seeing some interesting investment flows in ASEAN as companies seek to diversify their risk; for example, Japanese companies are increasingly investing in countries such as Vietnam and Indonesia to offset their investment in China.”

Mahesh Kini, Deutsche Bank highlights the particular potential of Indonesia,

“Indonesia is a key ASEAN market due to the scale of its consumer market and high spending capacity. The country weathered the global financial crisis well and continues to grow. A large number of international companies have now established factories and assembly lines in Indonesia.”

Victor Penna, Standard Chartered Bank agrees,

“Indonesia presents particularly interesting opportunities. Before the 1997 crisis, which hit the country very hard, Indonesia had been seen as the key market for potential growth in Asia. Since then, China has dominated, but Indonesia has recovered: it is once again poised to be the next major growth market in the region. For example, as costs in China increase, Indonesia’s attraction as a manufacturing base and source of natural resources (such as agriculture and mining) becomes more compelling, depending on future government policy. Of equal if not greater interest is the vast scale of Indonesia’s consumer market.”

Other countries too have particular attractions, as Mahesh Kini, Deutsche Bank adds,

“The Philippines is now an investment grade country and offers considerable potential for the future, but the opportunities are not yet at the same level as Indonesia’s.”

Similarly, Mahesh Kini, Deutsche Bank explains,

“Thailand continues to be attractive to a variety of industries, particularly the auto industry.”

Scaling the regulatory peaks

A key challenge when doing business in ASEAN is the restrictive regulatory environment in many countries, and the differences between them, which makes it difficult to identify and implement opportunities for harmonisation and consolidation, particularly for liquidity management. Mahesh continues,

“While doing business in Singapore is very straightforward, other ASEAN countries are typically more challenging, not least due to the diversity of regulation, tax rules, banking and clearing infrastructure as well as culture across the different countries. The speed and direction of change adds further complexity. For example, in Malaysia, a recent regulatory change now enables US dollars to be moved freely into and out of the country, which has allowed banks to provide automated cash pooling solutions to corporates, who can fulfil the related regulatory requirements. This is not permitted in all ASEAN countries. Consequently, corporate treasurers’ key expectation of their banks is that they will advise them promptly of regulatory developments, and be proactive in recommending what changes need to be made to cash and liquidity structures to take advantage of new opportunities or avoid non-compliance, for which the penalties are typically very substantial.” 

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