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.)
The recent upgrading of Indonesia’s sovereign debt symbolizes the fall and rise of Southeast Asia’s largest economy. During the period from 1998 through 2002, the economy collapsed, dictator Suharto fell from power, and terrorists attacking in Bali killed 200 people.
Rather than being torn apart, the archipelago nation, with a GDP of $1 trillion at purchasing-power parity, has rebounded. Over the past five years, real GDP has been growing by 6 percent a year, and this growth is expected to continue through 2015.
The number of mobile-telecom subscribers increased from 6.5 million in 2001 to 270 million in 2011. The number of cars sold rose from 300,000 to nearly 900,000 from 2006 from 2011.
This growth reflects both Indonesia’s rising household income—14 percent of households are middle class or affluent—and smart moves by local companies. XL Axiata, a subsidiary of the Axiata Group, has catalyzed the mobile growth with an ambitious expansion campaign that has doubled its market share from 10 to 20 percent in five years. Astra International, Indonesia’s leading conglomerate, and its Japanese partners, Daihatsu and Toyota, have redefined the auto market by building popular small cars and knitting together an integrated automotive value chain behind the scenes.
The stars are aligned in Indonesia’s favor. The nation has a sizable workforce of 120 million, nearly one-half of the total population. Manufacturing wages are still low compared with those in China and India.
Indonesia’s current president, Susilo Bambang Yudhoyono, was reelected in 2009, a sign that political stability and reform are more than just buzzwords. Indonesians are proud to point out that their country is the third-largest democracy in the world.
Indonesia, however, is still a work in progress. About 30 percent of the population lives in poverty. Unemployment hovers at 8 percent, and income inequality remains high. Roads, rails, and ports are inadequate to serve rising demand.
Despite attempts to cut corruption, Indonesia remains a difficult place to do business. It ranked 129 out of 183 in the 2011 Ease of Doing Business index published by the World Bank.
Boldness of Ambition. The Asian financial crisis is now a distant memory, and the region is once again ready to announce itself on the global stage. But unlike the last time it was in the spotlight, Southeast Asia is prepared. The banking system is on a solid footing, corporate and household balance sheets are strong, and government debt loads are low. Collectively, these factors form the bedrock that allows ambitious companies to become key regional or global players.
The Southeast Asia challengers are not only the face of Southeast Asia’s economic dynamism: they are also the microeconomic realizations of these five trends.
(In earlier reports, we examined companies with similar ambitions in both Africa and Latin America. Collectively, these regional reports are part of BCG’s Global Challenger franchise, which identifies emerging-market companies seeking to become global players. The global challengers are 100 companies that have started to achieve not just regional but also global reach.)