Before we identify the 50 Southeast Asia challengers, it makes sense to present a fuller context for the region in which they operate and the macroforces from which they have benefited—forces that they have helped shape. Although the ASEAN is composed of ten nations, we have limited our review of the region to the six largest economies: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. (We have excluded Myanmar, a country with more than 50 million people and vast potential given its size and natural resources, because of its daunting political and economic realities. It is nonetheless a country worth watching.)
These six nations generate 97 percent of the region’s GDP, house 88 percent of its population, and, over the past five years, have enjoyed annual growth rates of 6 to 9 percent. On a purchasing-power parity basis, per capita GDP in 2010 ranged from $3,150 in Vietnam to $14,740 in Malaysia, with Singapore, the sole developed economy in the region, achieving a notable per capita of $45,170, one of the highest in the world.
The growth of the region—and these six nations, in particular—rests on five legs.
The Rise of the Consumer Class. Nearly 100 million people will enter the consumer class by 2015, most of them in Indonesia, the Philippines, Thailand, and Vietnam. Consequently, consumer spending will expand by 12 percent annually, significantly faster than GDP, from $980 billion to $1.7 trillion. The fastest-growing spending categories will be transportation, communications, housing, and health.
Global Demand for Resources. Southeast Asia produces more than 85 percent of the global supply of palm oil and rubber and is benefitting from rising demand for these goods. The price for these commodities more than doubled from 2005 through 2011.
Palm oil’s position as an anchor of the regional economy has been threatened by environmental concerns ranging from deforestation to greenhouse gas emissions. However, companies such as Olam, local growers, and governments have tried to address these concerns by promoting sustainable practices.
Coal production within the region has also been growing by 14 percent annually since 2000, far outstripping regional consumption and encouraging overseas sales. Indonesia, for example, is the largest global exporter of thermal coal, with annual growth in exports to China and India of 19 and 28 percent, respectively, from 2005 through 2010.
Low-Cost Production and Offshoring. As wages in India, China, and elsewhere rise, Southeast Asia is becoming a popular destination for both manufacturing and services. Multinationals such as BMW, Nissan, Toyota, and Volkswagen have established manufacturing facilities in the region.
Countries are acquiring different specialties—Vietnam for IT outsourcing, the Philippines for call centers, Singapore for R&D, and Malaysia for outsourcing of skilled back-office jobs. Microsoft and Sony, for example, have set up operations in Vietnam. The Philippines has 800 call centers generating nearly $6 billion in revenues from overseas. Pfizer, Abbott, and Bayer have established R&D operations in Singapore, while Vale and Shell have set up back-office bases in Malaysia.
Governmental Policy. The business climate is improving sharply. At the regional level, under the banner of the ASEAN, trade barriers and foreign-investment restrictions are falling. From 2002 through 2008, for example, average regional tariffs fell from 4 to 2 percent, helping to generate a jump in intraregional trade from $155 billion to $415 billion.
While Southeast Asia overall still ranks poorly in terms of ease of doing business and corruption, many national governments are also improving the quality and delivery of services. (See “Indonesia’s Big Roar,” below.)