The Time for Regional Expansion is Now

Why Businesses are Gravitating towards South East

Asia as a New Growth Destination
2
Contents

Introduction 5

The Guiding Light: Optimism 7

Building Regional Gravity with Foresight 11

Does Scale Matter? 14
Travelling the Distance 15

Reducing Barriers for Greater Good 21

Fostering Commitment 21

Why Partnerships Matter 27

Gravitating towards Adaptation: 31

Emerging Business Models

The Time to Act is Now 37

The Way Forward with Accenture 42

About this Study 42

3
The secret of success in life is to be
ready for opportunity when it comes.1

4
Introduction
South East Asia including Brunei,
Cambodia, Laos, Indonesia, Malaysia,
Myanmar, the Philippines, Singapore,
Thailand and Vietnam is emerging
as a prime business destination in
Asia. The region offers multi-national
businesses new markets in which
to pursue their growth aspirations,
while presenting major domestic
corporations with a familiar sphere
for expansion.
After China and India, South East
Asia is generally regarded as the third
pillar of Asia. It is also becoming
more unified as the regions nations
continue to move towards their goal
of building a more cooperative and
integrated Economic Community
by 2015 through the Association of
Southeast Asian Nations (ASEAN).2
In the recent Accenture study
Destination South East Asia: A Joint
Pathway to Future Growth?3 we
postulated that the regional economic
growth trajectory will be influenced by
businesses in two ways. First, by the
extent to which businesses respond
to the opportunity to meet the rising
consumption of the regions population
of more than 600 million people.
Second, by the ability of businesses
to become truly regional and achieve
scale across the national borders of
the ten ASEAN member countries.
In this thought leadership publication,
we explore the question of how
both multi-national and domestic
businesses are responding to the
expansion opportunities in South
East Asia. Our findings are based on a
survey of more than 400 businesses
operating in Indonesia, Malaysia,
the Philippines, Singapore, Thailand
and Vietnam, as well as in-depth
interviews with regional business
leaders, industry associations and
officials from regional governments
and the ASEAN organisation.
Our findings suggest the private
sector will help accelerate economic
growth across South East Asia
as businesses seek expansion
opportunities into new and often
neighbouring markets. South East
Asia is perceived to be a long-term
destination that will remain on the
periphery of an Asian strategic agenda
for a majority of businesses outside
of the region but at the centre of
expansion plans for native businesses
seeking growth closer to home.
While many remain unconvinced it
is possible to achieve regional scale
in South East Asia, businesses are
planning for, or have already started
expanding across multiple countries
within the region. They are cautious
but largely optimistic. Whether that
optimism is well placed will depend
heavily on how the public and private
sectors throughout the region can
work together to reduce todays
barriers and increase certainty for
business expansion and, in turn, faster
economic progress.
We believe businesses that position
themselves now for growth in
South East Asia will be rewarded
by finding themselves in the middle
of a new centre of gravity within
future high-growth markets. South
East Asia has the clear potential to
become an alternate hub to China
within the Asian region. It offers
new opportunities for international
companies and can act as a launch pad
for local businesses seeking to become
regional or global leaders.
Businesses that are gravitating
towards expansion into South
East Asia should focus on four
key imperatives:
Adopt a regional mindset
Develop strong partnerships
Adapt from the core, and
Move with agility.
With optimism high about the regions
future and business expansion already
under way, now is the time to act. The
question for companies is, are they
ready to make their next move
in South East Asia now?
5
If you believe you can, you probably can.
Belief is the ignition switch that gets
you off the launching pad.4

6
The Guiding Light: Optimism
A cohesive South East Asian region is
becoming a magnet for large domestic
and global businesses, not only
because of its proximity to large Asian
markets but due to strong economic
growth prospects and a confident and
large consumer market (see Figure 1).
Consumer goods and services
businesses are especially focused on
the regions significant retail market
and sizeable young population, while
organisations in service industries
are particularly interested in the
opportunity to follow and serve
business customers in more markets.
Businesses are also gravitating towards
South East Asia due to the availability
of a highly productive and skilled
workforce in the region, and a greater
openness to direct foreign investment.
In just one example, small and
medium enterprises from Baden-
Wrttemberg state in Germany see
South East Asias low wages, young
population and high education levels
as key differentiators for the region.
The group considers Vietnam to be
the next China, while Malaysia is
seen as an attractive destination
for high-technology projects.5
Our research suggests that businesses
across South East Asia, particularly
multi-national corporations and those
in the financial services sector, are
optimistic about the future economic
growth of the region. Furthermore,
businesses in Vietnam and Indonesia
are more confident about future
economic growth of the region than
businesses from other countries.
But is this optimism strong enough?
Although 80 percent of the businesses
we surveyed expect that most
economies in South East Asia will
grow in the next five years, the
growth prospects in other Asian
markets (especially China and
India) remain equally, if not more
attractive. This is creating a dilemma
for many businesses in terms of
where best to invest their time and
effort today, and how to position
themselves for the long-term.
While some are adopting a wait-and-
see approach, organisations with
foresight have started addressing
this dilemma by strengthening their
presence in South East Asia.
7
P&G is committed to touch and improve the lives of more
consumers, in more parts of the world, more completely.
In Asia, we touch over 2 billion people a day and we would
like to add another half billion by 2015. Definitely, ASEAN
and other developing markets can play a big role
in achieving these goals.
Procter & Gamble

Figure 1

South East Asia Advantages for Businesses

(% of businesses)

Strong economic growth prospects 62%

Increasing consumer confidence and 52%

spending power
Business customers are expanding in 50%
the region

Low cost of doing business 49%

Offers a highly productive workforce 47%

Increased availability of skilled talent 46%

Favourable intra-ASEAN trade policies 43%

Offers a platform to build regional 41%

scale before expanding globally

Base Size: 407

Source: Accenture SEA Business Expansion Survey, 2011

8
9
Continuity gives us roots; change gives
us branches, letting us stretch and grow
and reach new heights.6

10
Building Regional Gravity with Foresight
Seeing South East Asia as attractive
for growth and of long-term strategic
importance, companies are taking a
great interest in building a presence
in the region. Some even regard the
region as a new centre of gravity
for their Asian operations.
More than half (58 percent) of
surveyed businesses have a presence
in at least two countries in the region.
Businesses with a strong regional
footprint today tend to originate from
Singapore, Thailand, Vietnam and
Malaysia (see Figure 2).
In particular, companies in the
wholesale trade, financial services, and
transport and storage industries have
a considerable regional presence (see
Figure 3). This reflects their view that
South East Asia will be an important
strategic growth market in the next
three to five years (see Figure 4).
Multi-national corporations are likely
to have a more prominent footprint in
the region today, and a more forward-
looking and strategic focus (see Figure
5). Larger businesses originating from "We made a conscious
within South East Asia also tend to
have a prominent footprint, often decision to focus on
in markets they are close to or most Asia, ASEAN and South
familiar with.
Asia firstbecause we
Given their global footprint, multi- understand the region
national corporations (MNCs) tend it's about understanding
to have a more distributed revenue
stream, whereas native businesses how business works.
remain highly dependent on domestic Axiata
markets. For example, large local
corporations derive only 13 per cent
of their revenues from within South
East Asia, compared to nearly 70 per
cent from the domestic markets (see
Figure 6).
While South East Asia is still on the
periphery of a strategic agenda for
many businesses, based on their
current revenue mix and footprint in
the region, it is the businesses with
foresight and courage to act today
that are likely to position themselves
effectively for a more certain future
in Asia.
11
 Figure 2

Current Regional Footprint in South East Asia Country Perspective

(% of businesses with single or multiple country presence in SEA)

100%

Singapore

Thailand
75%

Malaysia
Vietnam
Multiple Country Presence

50%
Philippines Indonesia

25%
0% 25% 50% 75%
Single Country Presence

Base Size: Total = 407, Indonesia = 51, Malaysia = 86, Philippines = 50, Singapore
= 97, Thailand = 76, Vietnam = 47
Source: Accenture SEA Business Expansion Survey, 2011

Figure 3 Figure 4

Current Regional Footprint in South East Asia Industry Perspective South East Asia as a Strategic Growth Market - Industry Perspective
(% of businesses with single or multiple country presence in SEA) (% of businesses)

Total 42% 32% 26% Total 43% 45% 12%

Banking / Insurance* 25% 40% 35% Oil / Gas 50% 46% 4%

IT / Telecommunications 26% 46% 28% Retail Trade 50% 43%7%

Wholesale Trade 27% 32% 41% IT / Telecommunications 50% 38% 13%

Transport / Storage 39% 31% 31% Business Services 50% 39% 11%

Retail Trade 41% 46% 13% Manufacturing 42% 47% 11%

Business Services 43% 28% 28% Construction / Property 40% 44% 16%

Manufacturing 45% 25% 30% Transport / Storage 37% 49% 14%

Oil / Gas 54% 25% 21% Banking / Insurance* 30% 60% 10%

Construction / Property 64% 20% 16% Wholesale Trade 27% 54% 19%

Single country 2 to 3 countries 4+ countries Yes, in 3 years Yes, in 5 years None

Base Size: Total = 407, Banking / Insurance = 20*, Business Services = 46, Construction
/ Property = 45, IT / Telecommunications = 40, Manufacturing = 57, Oil / Gas = 28,
Retail Trade = 46, Transport / Storage = 49, Wholesale Trade = 37
Note: * Small Sample
Source: Accenture SEA Business Expansion Survey, 2011
Base Size: Total = 407, Banking / Insurance = 20*, Business Services = 46, Construction
/ Property = 45, IT / Telecommunications = 40, Manufacturing = 57, Oil / Gas = 28,
Retail Trade = 46, Transport / Storage = 49, Wholesale Trade = 37
Note: * Small Sample
Source: Accenture SEA Business Expansion Survey, 2011

12
Figure 5

Current Regional Footprint in South East Asia Business Type Perspective

(% of businesses with single or multiple country presence in SEA)

Total 42% 32% 26%

Multi-National 20% 28% 52%

Corporations (MNCs)

Large Local Corporations

45% 36% 20%
(LLCs)

Small and Medium

54% 32% 14%
Enterprises (SMEs)

Single country 2 to 3 countries 4+ countries

Base Size: Total = 407, MNC = 98, LLC = 183, SME = 126
Source: Accenture SEA Business Expansion Survey, 2011

Figure 6

Revenue Source by Geography Business Type Perspective

(% of total revenue for 2010)

Multi-National
Corporations (MNCs) 35% 21% 20% 24%

Large Local Corporations 69% 13% 11% 7%

(LLCs)

Small and Medium

75% 11% 6% 9%
Enterprises (SMEs)

Domestic SEA Asia Global

Base Size: MNC = 98, LLC = 183, SME = 126
Source: Accenture SEA Business Expansion Survey, 2011

13
Figure 7

Percentage of businesses that believe South East Asia offers a platform to build regional scale before global expansion

All 41%

Singapore 60%

60% 50%
Malaysia

Philippines 46%

Indonesia 37%

Vietnam 32%

Thailand 9%

Base Size: Total = 407, Indonesia = 51, Malaysia = 86, Philippines = 50, Singapore = 97, Thailand = 76, Vietnam = 47
Source: Accenture SEA Business Expansion Survey, 2011

Does Scale Matter?
Many businesses do not have or are
not seeking regional scale in South
East Asia because their expansion
aspirations are currently targeted at
wider Asian or global markets.
Businesses from Singapore are most
confident about the potential to build
a regional platform in South East Asia
as the base for later global expansion
(see Figure 7). However, only half
or less of the survey respondents
from other large South East Asian
markets see the region as offering this
potential. Instead, they are targeting
Asian or global markets more broadly,
or are focused on opportunities at a
country level.
Scale opportunities are possibly We grew from a Thai company
overshadowed by the perception that
the integration of South East Asia into and intend to become a global
a single market is still in its infancy. organisation. Today we run in
This reflects the regions diversity in
terms of economic development and
ASEAN and other markets such
market sophistication. as Australia / New Zealand,
China and Middle East. We will
Even without having realised scale
to date, companies are likely to keep continue to explore bringing
expanding in South East Asia. The new brands to current
desire to grow is strong as businesses
continue to seek access to new and markets such as ASEAN
more stable growth markets. This will and existing brands to new
help them reduce exposure to volatility
markets where possible.
in their domestic economies or the
global economy as a whole. Minor Food Group
Many leaders have recognised the
opportunity in South East Asia and
have moved aggressively to establish
their regional leadership. The question
is whether other companies are ready
to travel the distance.

14
 Figure 8

Intention for Further Business Expansion in South East Asia Industry Perspective
(% of businesses with multiple country presence in the region)

90%

80% IT / Telecommunications Banking / Insurance

Wholesale Trade

70%
Transport / Storage
% of businesses in 2+ countries in SEA

Business Services
60% Retail Trade

50% Manufacturing
Current Footprint

Construction / Property Oil / Gas

40%

30%
20% 25% 30% 35% 40% 45% 50%

Expand Further
% of businesses intending to expand further
Base Size: 244
Source: Accenture SEA Business Expansion Survey, 2011

Travelling the Distance Interestingly, regional expansion is likely As competition intensifies in the
to be polarised as large businesses with critical sectors like manufacturing
Expansion aspirations are particularly home bases in South East Asia start and financial services, regional
high among those businesses with to expand into mature markets, while business expansion is expected to help
an existing footprint in the region. multi-national corporations explore accelerate economic growth through
Moreover, particular sectors are untapped opportunities in emerging job creation, capital investment and
expected to take the lead. As shown in markets such as Cambodia and Laos increased consumption (see Figure 13).
Figure 8, the next wave of expansion (see Figure 11).
among regionalised business will Indeed, the private sector is already
be driven by the oil and gas, retail, Greater business expansion activities seen as the main catalyst for
transport and storage, manufacturing, and increased competition, particularly growth in the region, with increased
and banking and insurance sectors. in the manufacturing and financial business activity being critical for the
services sectors, will also progressively economies of Indonesia, the Philippines
While geographic proximity will change the growth paths for and Thailand (see Figure 14).
continue to influence the selection businesses operating in the region (see
of expansion destinations, high- Figure 12). This will further threaten Businesses in the wholesale, retail
growth markets such as Vietnam and domestic players who are unable to trade, telecommunications and
Indonesia are expected to attract expand beyond conveniently located construction sectors are particularly
significantly more attention (see Figure neighbouring countries. The important well positioned to influence the
9). For example, banks and insurance question for the large domestic regions growth trajectory. The extent
companies will be targeting Indonesia, businesses is how to improve their to which companies will be able
Vietnam and Malaysia as they seek to ability to compete outside of the to influence the regions economic
access new groups of customers by home, and neighbouring markets. growth will depend on how quickly
leveraging well-recognised regional they grow. In turn, this will require
brands (see Figure 10). businesses to recognise and overcome
key barriers to entry into many
markets across South East Asia.
These are discussed next.

15
Figure 9

Target Countries for Current and Future Regional Footprint

(% of businesses)
40%

30%

20%

10%

0%
Singapore Malaysia Thailand Indonesia Vietnam Philippines Cambodia Laos Myanmar Brunei
Current Future
Base Size: 407
Source: Accenture SEA Business Expansion Survey, 2011

Figure 10

Target Countries for Future Regional Footprint in South East Asia Industry Perspective
(% of businesses with intent to expand in the region)

Banking / Insurance*

Business Services

Construction / Property

IT / Telecommunications

Manufacturing

Oil / Gas

Retail Trade

Transport / Storage

Wholesale Trade

20% 25% 30% 35% 40% 45% 50% 55%

% of businesses intending to expand
Cambodia Indonesia Laos Malaysia Singapore Vietnam
Base Size: Total = 407, Banking / Insurance = 20*, Business Services = 46, Construction / Property = 45,
IT / Telecommunications = 40, Manufacturing = 57, Oil / Gas = 28, Retail Trade = 46, Transport / Storage = 49,
Wholesale Trade = 37
Note: * Small Sample
Source: Accenture SEA Business Expansion Survey, 2011

16
Figure 11
Target Countries for Future Regional Business Expansion Business Type Perspective
(% of businesses)
Multi-National Corporations (MNCs)
Vietnam
Indonesia
Malaysia
Singapore
Cambodia
Thailand 6%
Laos
Myanmar
Philippines 6%
Brunei 5%
Base Size: 98
Source: Accenture SEA Business Expansion Survey, 2011
MNCs Aspirations
for South East Asia
The following examples highlight
the growth ambitions and strategic
moves being undertaken in South
East Asia by major multi-national
corporations.
General Electric in Vietnam7
GE emphasised the key role of
Vietnam in its ASEAN strategy.
The partnership with the local
conglomerate Cong Thanh Group
reflects a long-term view of the
countrys potential and takes
place at an opportune moment
when Vietnams need for energy
has increased significantly
due to its development plans.
GE has plans for transferring
technology, manufacturing and
production capabilities and
human resource development
while operating in the country.
Large Local Corporations (LLCs)
17% Vietnam 25%
12% Indonesia 22%
8% Malaysia 16%
9% Singapore 17%
11% Cambodia 13%
Thailand 13%
13% Laos 12%
11% Myanmar 9%
Philippines 10%
Brunei 4%
Base Size: 183
Hyundai in the Philippines8 Community would further boost
the prospects of BASFs business
The Philippines strong consumer
market provided Hyundai with
in the region. In addition to
its presence in Singapore and
the highest sales and volume
Thailand, BASF seeks to invest
growth rate in the region in 2010.
the most in Malaysia to increase
Not surprisingly, the company is
production capacity. A new 1
considering setting operations in
billion integrated complex is
the region to serve its growing
being planned in cooperation with
domestic market. However, this
Petronas of Malaysia to produce
investment decision will depend on
specialised chemicals.
critical factors such as the zero-
duty import privilege for export to
ASEAN neighbours, as well as the
ASEANKorea FTA, among others.
BASF across ASEAN9
BASF of Germany, one of the
worlds largest chemical firms, is
expected to invest a total of 2.3
billion in the Asia-Pacific region
during 201115. The company
considers ASEAN as the third pillar
in Asia-Pacific after India and
China. ASEANs FTA tie-up with
China and the ASEAN Economic
17
Businesses still dont see ASEAN as a regional identity, and
continue a domestic approach in conducting business in the
region. Only few big multi-nationals actually see ASEAN as a
regional market.
ASEAN Studies Centre, Institute of Southeast Asian Studies

Figure 12

Competitive Landscape: Domestic vs. Non-South East Asia Based Companies

30% Higher Representation among
Domestic Companies

25%
Domestic Companies (% of Total Number of Companies)

Banking/
20% Finance/Insurance

Retail Manuf acturing

Construction Other
15% Services

10%
Mining, Materials,
Resources

5%
Agriculture Transport, Storage,
Communication Higher Representation among
Non-SEA Based Companies
0%
0% 5% 10% 15% 20% 25% 30%
Non-SEA Based Companies (% of Total Number of Companies)
Source: Accenture Analysis of data from Capital IQ, 2011.

18
Figure 13

Expected Benefits of Regional Expansion

(% of businesses)

Create more employment

opportunities across ASEAN 64%

Stimulate investment flows 55%

across ASEAN

Increase consumption by
providing a wider variety of 50%
goods and services to the
consumers

Base Size: 407

Source: Accenture SEA Business Expansion Survey, 2011.

Figure 14

Importance of Regional Business Expansion in Accelerating Regional Economic Growth, as Compared to Government-led Regional
Integration Efforts Country Perspective
(% of businesses)

Total 49% 41% 10%

Indonesia 61% 29% 10%

Malaysia 47% 41% 13%

Philippines 54% 40% 6%

Singapore 43% 42% 14%

Thailand 55% 39% 5%

Vietnam 36% 55% 9%

More Important Same Less Important

Base Size: Total = 407, Indonesia = 51, Malaysia = 86, Philippines = 50, Singapore = 97, Thailand = 76, Vietnam = 47
Source: Accenture SEA Business Expansion Survey, 2011

19
If everyone is moving forward together,
then success takes care of itself.10

20
Reducing Barriers for Greater Good
Despite strong growth aspirations,
businesses face significant barriers in
pursuing expansion across national
borders in South East Asia. An
inconsistent regulatory framework,
increasing cost pressures, lack of
talent and limited market knowledge
pose threats to the future of business
expansion (see Figure 15).
In particular, access to talent poses
significant barriers for the banking
and telecommunications sectors,
while manufacturers face unfavourable
taxation and cost challenges.
In addition, inefficient border
administration, poor infrastructure and
a deteriorating business environment
are limiting intra-regional trade.11
Businesses perceive Cambodia,
Indonesia and Myanmar as the nations
with the highest barriers to entry,
as well as Singapore where the cost
of doing business may be high for
many businesses from less developed
countries. Multi-national corporations
need to therefore prepare to address
significantly higher barriers as they
plan their expansion into smaller and
less developed markets.
It is without doubt that increased
business expansion will accelerate
economic growth of the region.
Helping businesses in accelerating
their expansion journey is therefore
critical for the benefit of the greater
good, including better employment
opportunities, education and living
standards across the region.
Fostering Commitment
While the more ambitious
organisations may become adept in
maneuvering through the challenges,
most businesses will benefit from
a greater certainty, for example in
having more transparent regulations,
market liberalisation and greater
access to talent.
Going forward, the increasing role
of private enterprises will test the
relevance and effectiveness of
policymakers efforts to increase
regional integration. There is also an
opportunity and a need for business
to accelerate market expansion
and regional integration processes
by increasing their cooperation
and involvement with ASEAN and
governments across South East Asia.
This might involve gaining a better
understanding of issues and advocating
21
Figure 15
Barriers for Business Expansion in South East Asia
(% of businesses)
Non-conducive regulatory
environment
Challenging business environment
Talent issues
Limited market understanding
High cost/investment
Risk exposure
Limited market opportunities
Base Size: 407
Source: Accenture SEA Business Expansion Survey, 2011
policy changes more actively on behalf
of the business sector.
One way business leaders are already
converging to improve collaboration
with policymakers and ensure their
voice is heard has been the formation
of the ASEAN Business Club. This is
a body for industry networking and
advocacy.12
Therefore, it is critical to address the
question of what role the private
and public sectors will play in
helping reduce expansion barriers for
businesses in the future.
First, it will not be sufficient for
governments to execute their ASEAN
2015 vision alone. The nations of the
region must also unlock the power
of business to support economic
growth through investment and the
achievement of regional scale over
the longer term. The first step is to
increase awareness about the regional
integration efforts, since many
companies are not aware of these
initiatives. This is particularly true for
22
23%
22%
17%
13%
companies originating from within the
region (see Figure 16).
Awareness of reforms is fundamental
to organisations in more regulated
sectors such as financial services
and oil and gas, where there is a
higher reliance on government-led
regional integration efforts to aid
business expansion. The public sector
is also expected to facilitate greater
regional trade and investments for the
manufacturing and capital-intensive
sectors such as telecommunications
(see Figure 17).
While political stability and regional
integration efforts will remain a
priority in the long-term, governments
also need to implement measures
to facilitate business growth in the
short-term. The key here is to identify
initiatives where government and
businesses can work together.
46%
39%
29%
In doing this, there needs to be a
focus on expansion enablers that will
have the most impact on specific
industries (see Figure 18). For instance,
taking steps to develop a common
banking and equity framework
would be vital for the financial
services sector, and capital-intensive
industries such as telecommunications
would welcome more public-
private partnerships to invest in
infrastructure development projects.
Figure 19 shows a number of areas
in which business and government
can play the most effective roles
to promote business expansion.
These include issues such as
improving infrastructure, opening up
markets, ensuring transparency and
consistency in trade and investment
policy areas, and reforming tariffs
and customs procedures.
Reducing barriers for business
expansion will therefore take a dual
commitment and require stronger
partnerships between the private and
public sectors.
Figure 16

Importance of Regional Integration Efforts for Future Familiarity with the ASEAN Economic Community Regional
Business Expansion Integration Efforts
(% of businesses) (% of businesses)

Business Presence Perspective Business Type Perspective

Total 28% 56% Total 12% 31% 39% 18%

Single Multi-National
country 21% 63% Corporations 20% 34% 33% 13%
(MNCs)

Large Local
2-3 30% 49% Corporations 11% 33% 38% 18%
countries (LLCs)

Small and
>4 Medium
countries 37% 53% 8% 27% 44% 21%
Enterprises
(SMEs)

Critical Important Very f amiliar Somewhat f amiliar

Not very f amiliar Not f amiliar at all

Base Size: Total = 407, Single country = 163, 2-3 countries = 118, 4+ countries = 71 Base Size: Total = 407, MNC = 98, LLC = 183, SME = 126
Source: Accenture SEA Business Expansion Survey, 2011

Figure 17

Critical Business Expansion Enablers in South East Asia

(% of businesses)

Improve business environment 36%

Promote regional trade 31%

Facilitate regional investment 29%

Generate business opportunities 18%

Government incentives 17%

Increase talent availability and flow 17%

Base Size: 407

Source: Accenture SEA Business Expansion Survey, 2011

23
We are in a business olympics now with freer market
competition. Government should play the role of the coach,
so the player can win.
Investment Servicing Group, Board of Investments, Philippines

Figure 18

Economic Growth Business Expansion Enablers Financial Telecom- Manufacturing Oil / Gas
Drivers Services munications

Infrastructure Better national and cross border transportation linkages

Building connectivity to rural population

Alignment of education programs to meet demand for
specific skill-sets
Reduced corruption / non-standard business practices

Open channels for business feedback / inputs

Consumption Open market in service industries

Market understanding

Investment Transparent cross border investments policies

Consistent cross border investment policies

Active use of public-private partnerships

Common equity and banking framework

Trade Zero tariffs for imports

Removal of non-tariff barriers (settlement of rules of
origin, product standard specifications)
Simplified and standardised customs procedures

Highly Critical Enabler Critical Enabler Essential Enabler Non-Critical Enabler

Source: Accenture Analysis of SEA Business Expansion Survey, 2011, Business Interviews with Regional Business Leaders and ASEAN stakeholders

24
Figure 19

Economic Growth Business Expansion Enablers Businesses / Government / ASEAN

Drivers Industries Economic Community

Infrastructure Better national and cross border transportation linkages

Building connectivity to rural population

Alignment of education programs to meet demand for specific skill-sets

Reduced corruption / non-standard business practices

Open channels for business feedback / inputs

Consumption Open market in service industries

Market understanding

Investment Transparent cross border investments policies

Consistent cross border investment policies

Active use of public-private partnerships

Common equity and banking framework

Trade Zero tariffs for imports

Removal of non-tariff barriers (settlement of rules of origin, product
standard specifications)
Simplified and standardised customs procedures

Primary Role Secondary Role

Source: Accenture Analysis of SEA Business Expansion Survey, 2011, Business Interviews with Regional Business Leaders and ASEAN stakeholders

25
Coming together is a beginning. Keeping
together is progress. Working together
is success.13

26
Why Partnerships Matter
Partnerships are particularly important
in South East Asia due to a lack of
strong regional regulatory frameworks
and pro-business policies. In turn,
businesses growth strategies have
been highly dependent on finding
quality partners within target markets
in the region.
Mastering the art of partnering is
therefore a critical capability required
for success in the region. More
than 60 percent of businesses we
surveyed prefer to work with strong
local partners when expanding in the
region. Multi-national corporations
choose partners to gain immediate
market access and local expertise,
while native businesses are more
interested in sharing risks and
opportunities through joint ventures.
Given companies growing appetite
for investing in new business
infrastructure in identified
target markets, especially among
manufacturers (see Figure 20), it is
also important to maintain an active
dialogue with regulatory bodies.
This is true at both the country
and regional level, as both are
required to enable and accelerate
business expansion plans.
Dialogue of this sort includes entering
into national or regional development
projects and taking an active role in
public-private partnership initiatives.
Such opportunities are already
evident. For example, the Indonesian
government recently called for private
funding or public-private partnerships
to support the rollout of a national
fibre-optic broadband network.14
At the same time, industry
collaboration can play a role
in accelerating complementary
partnerships. Various ASEAN
associations have led the way
in enabling automotive and
textile manufacturers to build
scale by leveraging the regions
production hub advantage. An
example is the ASEAN Automotive
Associations initiative to increase
automotive product standardisation
to facilitate the movement of
related parts in the region.15
Clearly, partnerships matter, and they
need to be understood within the
cultural fabric of South East Asia.
Mastering the art of partnering is,
however, not the only pre-requisite for
successful expansion into South East
Asia. The ability to adapt to the needs
of the region by recalibrating existing
or developing new business models will
be as important.
27
Joint Ventures are fantastic routes to market in South
East Asia. The scale of local partners enables us to gain
immediate market access at a lower cost.
Diageo

Figure 20

Business Expansion Approach in South East Asia Industry Perspective

(% of businesses)
85%

72% 70%
69% 68%
62% 64%

56%

48% 49%
47% 45%
43%
38% 35% 40% 39% 38%
30% 32% 35%
31% 30% 29% 32%
26% 25% 24%
22%
20% 19%
12% 14%
10% 10% 9% 8% 6%
4%
0%

Total Banking / Business Construction / IT / Telecom- Manufacturing Oil / Gas Retail Trade Transport / Wholesale
Insurance* Services Property munications Storage Trade

Joint Venture New Business Setup M&A Franchise

Base Size: Total = 407, Banking / Insurance = 20*, Business Services = 46, Construction / Property = 45, IT / Telcommunication = 40, Manufacturing = 57, Oil / Gas = 28,
Retail Trade = 46, Transport / Storage = 49, Wholesale Trade = 37
Note: * Small Sample
Source: Accenture SEA Business Expansion Survey, 2011

28
29
Our very survival depends on our ability
to stay awake, to adjust to new ideas,
to remain vigilant and to face the
challenge of change.16

30
Gravitating towards Adaptation:
Emerging Business Models
Successful expansion in South East
Asia will require businesses to adopt a
regional mindset. Seventy percent of
businesses surveyed believe a stronger
regional mindset would emerge over
time as businesses expand. This
is already evident in decisions to
start adapting organisational design
among regionalised businesses,
particularly among multi-national
corporations (e.g., appointment of
regional leadership and dedicated
teams in South East Asia). Adoption
of a regional mindset with a
common vision and strategy across
all South East Asian markets will
help businesses leverage synergies and
build scale.
As businesses increase their presence
in the region the more it becomes a
new centre of gravity for them the
more they will be forced to reshape
their existing business models. Where
there is any gap between companies
regional aspirations and their ability to
execute, they will need to reconfigure
their models to strengthen their
regional footprint in the future.
Our findings indicate that businesses Market positioning a strategic
originating from within South East choice between a localised
Asia are likely to expand their range adaptation to target markets and
of offerings and customer segments. a more universal approach that
Their global competitors, on the other relies on proven practices stemming
hand, can be expected to focus on from the country of origin, or other
expanding their network of suppliers. markets outside the region.
For example, in recent years Lenovo Based on our analysis of regional
has responded to the regions growing businesses originating from within
demand for desktops and laptops South East Asia, there are four
by diversifying its sales network, emerging business models that have
increasing its agility in responding proven to be successful (see Figure 21).
to customer needs, establishing
long-term business relationships
and focusing on SMEs.17
Accenture believes that the two
key dimensions for this process of
reconfiguration, or the establishment
of new business models, are:
Regional market gravity the
degree to which businesses consider
the key markets in South East Asia
to be of strategic importance to
their growth agenda, as defined
by the perceived potential of
markets, current footprint and their
commitment to future expansion.
31
Figure 21
High
Chameleon
Regional Market Gravity
Opportunist
Low
Localised
Source: Accenture Analysis
Assimilator
Businesses that adopt the Assimilator
business model are attracted by
strong consumer demand, pro-
business policies, legal transparency
and the sophistication of specific
markets in the region (for example,
infrastructure in Singapore and
Malaysia). Such businesses have very
strong regional gravity with presence
in a large number of countries across
the region. They recognise simplicity
in diversity and leverage their
existing, proven approaches to meet
the regional market demand. These
businesses tend to focus on building
a diverse portfolio to manage risk and
reduce reliance on a single market.
Malaysias CIMB Group has
transformed itself from a Malaysian-
based investment bank into a leading
regional universal banking franchise by
embarking on an ambitious expansion
journey over the last five years. With
the help of its Think ASEAN regional
mindset, CIMB aims to achieve
its vision of becoming South East
Asias most valued universal bank.
32
Assimilator
Incubator
Market Positioning Universal
CIMB Group serves a diverse customer
base across the region, and it seeks
simplicity in diversity by leveraging which offers a comprehensive range of
regional scale and cross-border
synergies (e.g., through a shared
platform across its businesses in
all the countries). While the bank
enables strong local autonomy,
particularly in its retail business, its
offerings are increasingly adopting a
regional flavour (e.g., cross-border
transaction services, supporting
customers regional businesses,
Islamic banking). For example, a
more universal approach is adopted
to effectively meet the needs of the
affluent and corporate customers (e.g.,
CIMB Preferred) by standardising the
offerings and service model to enable
a more consistent customer experience
across all locations in South East Asia.
Through its strategic partnerships,
CIMB focuses on increasing value
delivered to its customers through
convenience, greater rewards, higher
interest rates, (e.g., CIMB Bank AirAsia
Savers Account), and a wider portfolio
of offerings to help impact the lives of
its customers beyond financial well-
being (e.g., CIMB Aviva Joint Venture
Life insurance and Takaful products).
CIMB Group is also at the forefront
of creating and liberalising the
ASEAN economic market, through
various initiatives such as CIMB
ASEAN Research Institute, the
ASEAN Business Club, and active
promotion of regional business and
investment opportunities in ASEAN.
During its expansion journey, CIMB
Group has demonstrated exceptional
ability to create value, particularly
through M&A. Among South East
Asian banks studied over a 5 year
period, Accenture analysis shows that
synergies between Niaga-Lippo and
CIMB for example, were achieved within
the first 11 months of integration.
The speed of assimilation, combined
with a strong regional customer
proposition is likely to enable CIMB
Group to achieve its goal of becoming
one of the top banks in South East
Asia, based on market capitalisation,
asset size and return on equity.
If your business strategy
is consistent, finding
synergies is easy. If it is a
diverse strategy, then it
will be challenging. What
we did was to create the
future together, to have
a common strategy.
Diageo
Chameleon
Similar to Assimilators, businesses
that adopt the Chameleon business
model have a wide regional footprint
because they recognise the strong
potential for growth in the region.
They adopt a moderate risk approach
and tend to focus on increasing their
penetration within existing markets.
These companies have distinct
strategies for each market and an
intimate understanding of their
respective cultures and consumer
needs. As the name suggests, they
closely tailor their value proposition
to the target market through close
collaboration with local partners, or by
awarding a high degree of autonomy
to the local businesses they own.
Axiata, a Malaysian telecommunications
group with significant stakes in
multiple markets throughout South
East Asia exhibits characteristics of
the Chameleon business model. For
instance, Axiata is building a strong
regional presence aiming to become a
regional champion by 2015 by piecing
together the best throughout the region
in connectivity, technology and people.
Axiata has a clear focus on high growth for Axiata is striking a balance
growth, low penetration emerging between the traditional telco business
markets in Asia. The company has model and the emerging, telco 2.0
a distinct, and in some cases first model under which operators can
mover strategy, for each market - for act as intermediaries between buyers
example, the company recognises and sellers in the telecommunications
that higher broadband and data content and services market.
quality is a priority offering in mature
markets (e.g., Singapore), while
affordable mobile voice services are
key for markets in the earlier stages
of development (e.g., Cambodia).
Through its local businesses,
Axiata demonstrates an intimate
understanding of its customers in
delivering localised offerings to 150
million mobile subscribers across
various Asian markets. Its businesses
in individual countries have enough
autonomy to focus on innovations
in the local market . The company
recognises advanced services such
as media portals and app stores will
be important for its growing regional
customer base. Although Axiata aims
to tighten its costs in the short-term,
the company remains committed to
critical investments (i.e., network
modernisation). The key to long-term
33
Opportunist
Businesses that adopt the
Opportunist business model view
the region as having a smaller upside
potential or insufficient scale at
present. These businesses are only
present in a few markets, typically
being those where they can maintain a
best in class position. The availability
of local talent, partners with a local
mindset and endorsement by the
local government are critical enablers
underpinning this business model.
Sime Darby Group, a Malaysia-based,
diversified multi-national adopts
features of the Opportunist business
model. The company positions itself
as an integral partner in Developing
Sustainable Futures in key markets - the
common Sime Darby identity permeates
the commitment to creating positive
benefits in the economy, environment
and society where it has a presence.
34
Sime Darby reaches a diversified
customer base across over 20
countries through its close-to-
customer approach. From meeting
the needs of private consumers for a
healthier choice in premium cooking
oil (i.e., Sunbeam), to distributing
high-quality industrial equipment (i.e.,
Caterpillar), the company establishes a
strong presence in local markets with
high consumer demand.
In new markets, Sime Darby tends
to rely on quality local partners that
provide complementary strengths.
Quality local partners are essential
for business development, particularly
in new markets (e.g., joint venture
with PTT Chemical under the Emery
Oleochemicals brand brings together
wider access to feedstock and
petrochemical-based markets).
The group has a global growth agenda
and takes a more opportunistic view of
South East Asia: partly due to limited
scale offered by the region, but also
due to the greater opportunities in
other high-growth markets at present.
Incubator
Businesses following the Incubator
business model seek growth pockets,
country-by-country, based on local
demand or the availability of natural
resources. Conservative in nature,
these businesses adopt a tried and
tested approach in a select number
of strategic markets by importing
existing practices from within or
outside of the region. They also
adopt a wait and see attitude, but
once certain of the growth potential,
they commit to major investments.
PTT Chemical, the largest
petrochemical company in Thailand
adopts many of the features of
the Incubator business model.
The company carries a strong
national identity as part of the PTT
Group. The company established its
petrochemical leadership position in
Thailand first before expanding into
the region. PTT Chemicals growth
journey is characterised by its search
for pockets of growth, often in
neighbouring countries in the region.
PTT Chemical adopts a very targeted
approach to regional expansion
through strong partnerships with
leading players in the region.
For example, the joint venture
with Sime Darby in Malaysia to
form Emery Oleochemicals made
the combined entity the worlds
largest Oleochemical producer.
While active in pursuing potential
expansion opportunities, PTT Chemical
remains conservative in its approach
and prefers a tried-and-tested model.
For example, the merger with its
sister company PTT Aromatics &
Refining (due to be completed by Q4
of 2011), is expected to create the
second largest petrochemical company
in the South East Asian region.
35
Courage is knowing what not to fear.18

36
The Time to Act is Now

Faced with a diverse and fragmented
environment, and with higher
priorities in China, India or elsewhere,
many companies have adopted a
wait-and-see approach to pursuing
regional expansion in South East
Asia. Accenture believes this is
no longer the right choice.
These imperatives will be critical not
only for global businesses seeking to
expand into South East Asia, but also
for large domestic businesses that are
aiming to assert a leadership position
in the region or in Asia more broadly.

South East Asia is emerging as a

distinct, potentially high-growth
region and both local and international
businesses are positioning themselves
to take advantage. This positioning
includes viewing the region more
holistically, developing public and
private sector partnerships, adapting
business models for expansion
and moving with greater agility.

37
Imperative 1
Adopt a Regional
Mindset
Adopting a regional mindset means
defining a clear vision for growth in
South East Asia: does a business aspire
to be a regional leader in South East
Asia, a market leader across all of Asia,
or a global leader with worldwide scale?
It also means developing an integrated,
long-term expansion strategy that will
create a future centre of gravity for
businesses in the region. Moving to a
regional mindset with a common vision
and strategy across all South East Asian
markets will help businesses leverage
synergies and build scale.
Financial services providers, for
instance, are leading the way in taking
an integrated approach to expansion
by developing regional identities.
This is particularly evident among
large regional banks, which are on
a quest to create strong regional
brands. Foreign banks, such as Bank
of America, are also becoming more
focused in their expansion strategies
and differentiating more between
North Asia and South East Asia.
38
Imperative 2
Develop Strong
Partnerships
To grow in South East Asia it is
essential to master the art of
partnering, even with competitors, in
order to build market presence where
unmet demand exists. It is also vital
to collaborate with the public sector
and trade associations to realise
investment opportunities at an
early stage.
For example, oil and gas companies
need to pursue ongoing dialogue
with regulatory bodies at national
and regional levels if they are to
win access to new exploration
opportunities. These firms can also
benefit from collaborating with
other, often state-owned oil and gas
enterprises by sharing standards,
information, best practices and
upstream expansion.
Imperative 3
Adapt from the
Core
Taking a regional view in South
East Asia must be matched with
the deployment of distinct business
models that will work across the
diverse markets. These models will be
uniquely local or aligned with common
regional needs. When these models
are successful, businesses will be well
placed to consolidate their position
and accelerate expansion.
For example, faced with declining
average revenue per user and
a growing commoditisation of
telecom networks, innovation will
soon become a key differentiator
for telecommunication providers.
Developing content and applications
on the home ground will be critical.
The opportunity to leverage regional
scale for content play, cross-border
mobility solutions and innovation labs
for new technology incubation need to
be considered by telecommunication
providers aiming to expand in South
East Asia.
Imperative 4
Move with Agility
Adoption of new business models
will require businesses to transform
existing, or develop new capabilities
within their operating models. These
capabilities underpinning the regional
operating models should be based
on market familiarity that is, an
understanding of the social fabric,
talent supply, government initiatives
and trade conditions.
For example, as manufacturers
start to invest in new production
plants in the region, there will be an
increasing reliance on having a nimble
regional operating model to work
within infrastructure constraints, tax
implications and trade conditions. The
regional hub concept will continue to
grow in order to increase capacity to
serve the needs of Asian customers.
The ability to reconfigure the supply
chain to stretch beyond other low-
cost locations into South East Asia
will also be critical.
39
40
While there are still significant obstacles across the
region, large businesses within the region are flexing
their wings and moving into neighbouring markets, and
global leaders are taking a more focused approach to
the region. For these businesses that have started to act
already, South East Asia is becoming a new centre of
gravity, or at least, an important second centre in Asia.
Going forward, businesses will need even greater certainty
in order to accelerate their expansion journey dual
commitment and partnership between the business
community and policymakers is critical for the benefit of
business expansion, economic growth and the wellbeing of
the 600 million person strong society in South East Asia.

41
The Way Forward
with Accenture
This thought leadership publication
indicates that for businesses that are
seeking new growth frontiers, now
is the time to accelerate regional
expansion in South East Asia. To learn
more about our original research,
and explore options for how to
position and enable your business to
successfully grow in South East Asia,
we have created a unique environment
in our Management Consulting
Innovation Centre in Singapore.
The Accenture Management Innovation
Centre is purpose-built to take you
on a journey to understand how the
landscape is changing in the context
of your organisation and industry. We
help you to crystallise the issues and
opportunities presented and then set
a plan to accelerate your organisation
on the path to high performance. You
will be able to develop new thinking
through highly interactive workshops,
the contribution of Accentures leading
subject matter experts and the sharing
of in-depth research and analysis.
42
About this Study
The findings of this study are drawn
from Accenture research and inputs
from regional business leaders, public
sector organisations and industry
associations across six countries in
South East Asia.
The research was conducted using
in-depth interviews (face-to-face or
phone) with C-level representatives of
regional businesses and senior officers
of public sector organisations; and
academia and industry associations.
We also surveyed 407 organisations,
using computer-aided telephone
interviewing (CATI) or in-person
interviews to speak to senior leaders
with regional expansion and operation
responsibilities.
The organisations comprised:
Global multi-national corporations
with headquarters outside of South
East Asia
South East Asian businesses with a
regional presence and offices in one or
more South East Asian markets outside
of their home country, including
wholly owned operations or joint
ventures
Domestic South East Asian
businesses with no offices outside
of their home country, but with
expansion aspirations in the region.
We would like to thank the following
individuals for their contributions to
the study:
Aik Meng Goh, Andrea Hoffmann,
Chow Yi, Choy Huat Low, Daniel
Huedig, Eric van Steen, Gururaj
Rao, James Chadam, Johan Khoo,
Jonathan Wright, Karina Gan, Kent
Goeking, Michael Foong, Montgomery
Hong, Nam Yew Thean, Pallavi Lal,
Paul Prendergast, Paul Ng, Ramya
Padmanabha, Robert J. Thomas, Shane
Ryan, Stephanie Gault, Svenja Falk,
Wayne Borchardt and Won-Joon Lee.
Authors
Grant Powell
Managing Director,
Accenture Management Consulting
Innovation Centre, Singapore
grant.powell@accenture.com
Dr. Vedrana Savic
Head of Research,
Accenture Management Consulting
Innovation Centre, Singapore
vedrana.savic@accenture.com
Amy Chng
Manager,
Accenture Research, Singapore
amy.chng@accenture.com
Rowena Zamora
Consultant,
Accenture Management Consulting
Innovation Centre, Singapore
rowena.p.zamora@accenture.com
References
1 Benjamin Disraeli, British prime minister,
18041881.
2 The ASEAN Economy Community is one of
three communities established by the ASEAN
organisation to enhance regional cooperation
and integration. The vision of the ASEAN
Economic Community is to create a highly
competitive single market by 2015 that
promotes equitable economic development
for Member States, as well as facilitating
their integration with the global community.
3 Destination South East Asia: A Joint Pathway
to Future Growth?, Accenture, May 2011.
4 Denis Waitley, American speaker and writer.
5 Germanys Baden-wuerttemberg State
charmed by business opportunities in ASEAN
region, Philippines News Agency, November
2010.
6 Pauline R. Kezer, American legislator.
7 GE regards Vietnam as key market in
ASEAN, The Saigon Times Daily, February
2011.
8 Hyundai mulls an ASEAN auto plant, cites
RP as most important country, Manila
Bulletin, March 2011.
9 ASEAN: Chemical company BASF makes
investment plans for ASEAN, Thai News
Service, February 2011.
10 Henry Ford, American industrialist,
18631947.
11 Border administration & infrastructure
major barriers to trade in ASEAN countries,
India Infoline News Service, June 2010 in
reference to WEF Report Enabling Trade in
the Greater ASEAN Region.
12 ASEAN Business Club to Support the AEC,
ASEAN Economic Community Blog, May
2011.
13 Henry Ford, American industrialist,
18631947.
14 "Jakarta Declaration for Meaningful
Broadband", Digital Divide Institute, April
2011.
15 In-depth Interview with ASEAN Automotive
Association Representative, June 2011.
16 Martin Luther King Jr, American clergyman
and civil rights activist, 19291968.
17 Lenovo Tapping into the ASEAN Market,
Sinocast LLC, September 2009.
18 Plato, 428 BC-348 BC.
43
About Accenture Management
Consulting Innovation Centre
The Management Consulting
Innovation Centre serves as a research
hub where industry experts debate,
develop and publish insights with
specific relevance to the Asia Pacific
region to help organisations innovate
and outperform their competition.
The Centre also brings Accentures
thought-leadership and ideas to
life through highly interactive and
facilitated workshop experiences.
These experiences help organisations
explore solutions and develop a course
of action for their most important
business issues that will accelerate
their path to higher performance.
Copyright 2011 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.
11-0730
About Accenture
Accenture is a global management
consulting, technology services
and outsourcing company, with
more than 223,000 people serving
clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities across
all industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help
them become high-performance
businesses and governments. The
company generated net revenues
of US$21.6 billion for the fiscal
year ended Aug. 31, 2010. Its home
page is www.accenture.com.