12 August 2016

Southeast Asia emerges as consumer powerhouse

Kevin Martin

Head of Retail Banking and Wealth Management Asia-Pacific, HSBC

Don't underestimate the ASEAN consumer.

Yes, there are only about half as many of them as there are in China or India. And the typical shopper in the ten-member Association of South East Asian Nations is not as wealthy as Mr. or Ms. Europe. But as a whole, ASEAN's 620-plus million inhabitants are an increasingly powerful source of global demand, and a potential game-changer for companies that are looking for growth in a tough and uncertain global environment.

Mr. and Ms. ASEAN have come a long way in a short time.

Spanning countries as diverse as Singapore, Vietnam and the Philippines, the region has gone from being primarily a hub for manufacturing cars, electronics and other goods to being a market for those very goods. Much like “Made in China” became “Made for China,” “Made in ASEAN” is rapidly becoming “Sold in ASEAN.”

Visit the airports in Bangkok, Manila and Jakarta nowadays, and you'll find them bustling with Malaysians, Indonesians, Thais and Filipinos who just a decade or two ago could not have dreamed of enjoying an international holiday.

There are three Louis Vuitton stores in Kuala Lumpur alone, and one each in Ho Chi Minh City, Hanoi, Manila and Surabaya1.

GDP per capita, which as recently as 2007 was little more than USD 2,300, has grown by about 78% and now tops USD 4,100.2 Clearly that remains well below the USD 55,000 in the United States, or the nearly USD 48,000 in Germany, but it compares favourably to India (USD 1,580) and approaches China (USD 7,590). Three ASEAN countries already have a per-capita GDP exceeding China's.3

ASEAN is not an easy market to tap. Companies need to adapt their business models to breathtaking diversity: ASEAN spans a wide array of religions, cultures and languages, multiple political systems, and vastly varying levels of economic development. GDP per capita in Singapore, for example, is roughly 50 times that of Cambodia, and 16 times that of Indonesia.4 Internet penetration in Singapore is excellent; in Myanmar, it is almost non-existent.5 A one-size-fit-all business approach is not a recipe for success.

At the same time, the region is sprawling and physically disjointed: the 250 million inhabitants of Indonesia alone are spread out over thousands of islands. Infrastructure links in many parts of South East Asia remain underdeveloped or overloaded.

All this means that ASEAN's enormous potential - and Mr. and Ms. ASEAN's consumption power - is often still not fully appreciated.

Yet the region's economy - USD 2.6 trillion in total - is already the seventh-largest in the world;6 by 2050, it could be the fourth-largest.7 Accenture estimates that annual consumer spending will rise to USD 2.3 trillion by 2020, roughly 80 percent more than the 2012 level.8 The number of middle class households in ASEAN will top 120 million by 2025, roughly doubling compared to 2010.9 This will help boost spending on anything from white and brown goods, to travel and entertainment, to insurance and education.

A number of factors support ASEAN's growth prospects.

Infrastructure links are improving. China's Belt and Road initiative, for one, is expected to inject political momentum and financing into many projects in the coming years.

The recently-formed ASEAN Economic Community is gradually liberalizing the flow of goods, services and capital, smoothing cross-border activities for companies doing business within this dynamic region. Full implementation of the liberalisation reforms envisaged under the AEC could lift regional GDP by 5 percent by 2030, by our estimates.10

Meanwhile, Mr. and Ms. ASEAN are not just growing in numbers, but also becoming more urbanised and wired. Some 100 million more people are forecast to migrate from the countryside to cities across South East Asia over the next 15 years,11 while the number of internet users is expected to soar from 260 million now to 480 million by 2020 - meaning 3.8 million new users per month -- according to recent research by Google and Temasek.12

This increasing connectivity is making it possible for large swathes of South East Asia's population to access goods and services that were once beyond their financial and physical grasp.

Take financial services. The World Bank estimates that about two-thirds of people in Indonesia, the Philippines and Vietnam, and about 20 percent of those in Malaysia and Thailand, currently have no banking relationships.13 Improving internet connectivity and the introduction of digital banking technologies (mobile banking, virtual teller machines, voice biometrics, thumbprint identification etc) will in coming years allow tens of millions people to access savings, loans, investment and insurance services for the first time - enabling consumption, and putting a vast consumer base within the e-commerce reach of companies around the world.

ASEAN is not an easy market, and like many economies in the world right now, its more immediate economic outlook is challenged by slowing growth in China, Brexit and general uncertainty in Europe, and volatility in the commodities markets. But Mr. and Ms. ASEAN and their physical and virtual wallets represent a rare bright spot in the global economy - and a prize worth going for.


  1. http://us.louisvuitton.com/eng-us/stores/thailand
  2. http://www.asean.org/wp-content/uploads/2015/12/AEC-at-a-Glance-2015.pdf and http://www.asean.org/storage/2015/11/ASEAN_Statistic_Leaflet_2015.pdf
  3. http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
  4. http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
  5. http://data.worldbank.org/indicator/IT.NET.USER.P2?view=chart
  6. http://www.asean.org/wp-content/uploads/2015/12/AEC-at-a-Glance-2015.pdf
  7. http://www.mckinsey.com/industries/public-sector/our-insights/understanding-asean-seven-things-you-need-to-know
  8. https://www.accenture.com/t20150523T033705__w__/us-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Dualpub_9/Accenture-ASEAN-Consumer-Research-CPG.pdf , see also http://teams.global.hsbc/comms/globalcomms/strategic%20comms%20themes/Shared%20Documents/
  9. http://www.mckinsey.com/industries/public-sector/our-insights/understanding-asean-seven-things-you-need-to-know
  10. HSBC Global Research: The Asean Economic Community, November 2015
  11. United Nations, Department of Economic and Social Affairs: World Urbanization Prospects: The 2014 Revision http://esa.un.org/unpd/wup/CD-ROM/ File 3
  12. May 2016. Report slide deck: https://docs.google.com/presentation/d/1Bp4KT-W8RF4ZorPUthts8X-B7QHBhsEnY1T5G7XifU0/pub?start=true&loop=false&delayms=3000&slide=id.g1421568192_0_54 , see also http://www.bloomberg.com/news/articles/2016-05-24/google-temasek-see-s-e-asia-web-economy-reaching-200-billion
  13. http://datatopics.worldbank.org/g20fidata/, see also McKinsey, March 2015: Digital Banking in ASEAN: Increasing Consumer Sophistication and Openness http://www.google.com.hk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwip9o7E8czNAhVDFp

This article first appeared in the FT’s Beyondbrics on 29 July 2016.


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