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Logistics in Indonesia contributes 13 per cent of transactions in exports and imports, showing huge potential for expansion |
The global economy appears to be marching out of recession, and leading the parade are the world’s emerging markets.
For small and medium-sized enterprises (SMEs), this means new opportunities to expand their products and services, whether in one of the BRIC countries (Brazil, Russia, India and China) or another of the many developing economies, from Mexico to Indonesia, with a burgeoning consumer class.
While economic uncertainty among consumers in Europe, the United States and Japan continues to depress demand for exports, emerging markets, particularly in Asia, are experiencing encouraging growth thanks to increased consumer spending and intra-Asian trade. Some of the best market opportunities present themselves in Southeast Asia.
The Strength of ASEAN
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Robert Yap, Chairman and CEO of Singapore-based supply-chain company YCH Group, and Co-Chairman of the ASEAN Business Advisory Council
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The Association of Southeast Asian Nations (ASEAN) represents a total population of 580 million, higher than that of the European Union. Its combined GDP of US$1.5 trillion is less than one-tenth of the EU’s, but it’s growing briskly, indicating the region’s huge potential as a consumer market. Its 10 member nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – are at varying stages of development. But all stand to gain as ASEAN carries out its agenda for regional economic integration, leading to the establishment of the ASEAN Economic Community by 2015. The goal is a highly competitive single market and production base, featuring the free flow of investment, goods, services and labour.
Robert Yap, Chairman and CEO of Singapore-based supply-chain company YCH Group, and Co-Chairman of the ASEAN Business Advisory Council, says the ASEAN economies offering the best opportunities for SMEs are “populous countries with exponential growth potential, such as Indonesia, Vietnam, Thailand and the Philippines, because of their consumer-driven markets and increasing affluence.” Singapore and Malaysia, he adds, “remain as value-adding hubs that will support the tertiary activities of their ASEAN neighbours as they grow their manufacturing and production bases.”
Specifically, Dr Yap points to the quickly expanding market for goods and services in Vietnam. It has 88 million people, making it ASEAN’s third most populous country, after Indonesia and the Philippines. “More important, it has a young and literate population growing in affluence and seeking better living standards.”
Logistics and ODM
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Companies used to the efficiency and speed of business in more developed economies may find it difficult adjusting to the varying levels of responsiveness in other ASEAN countries
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Asked to identify the main business opportunities for SMEs in ASEAN, Dr Yap cites logistics and supply-chain management as “one of ASEAN’s priority sectors and a key enabler to promote trade and boost the region’s economic growth.”
“In fact,” he says, “the growth of emerging consumption-driven markets in ASEAN calls for well-connected supply chains that can address future complexities in supply-chain infrastructure and networks, as demand for logistics grows exponentially in the region for the next few years.
“At the same time, in this economic crisis, where companies are still trying to recover, multinational corporations have an increasing interest in logistics outsourcing as a means of cost control and efficiency.”
Quoting from research by Frost & Sullivan Asia Pacific, he says the logistics market in Indonesia will reach an estimated value of US$2.76 billion in 2012, an average annual increase of 12.1 per cent from 2008. “Logistics in Indonesia contributes 13 per cent of transactions in exports and imports, showing huge potential for expansion,” he says.
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Connecting Vietnam
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Vietnam, with its “exponential growth
potential,” is one ASEAN country offering significant business opportunities |
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Asked to recount a recent success story in an ASEAN market, YCH Group Chairman and CEO Robert Yap didn’t need to look far. Last month, the Singapore-based supply-chain company announced the development of its latest DistriPark in Vietnam.
“The state-of-the-art DistriPark in Binh Duong Province is just 20 kilometres from Ho Chi Minh City. It will be developed to meet the growing need for value-added services in Vietnam’s logistics industry, as well as to enable our multinational corporation customers to tap [the country’s] immense potential as both a production base and a consumer market.
“The US$20 million investment, jointly undertaken by YCH and Protrade Corporation, will cater to the supply-chain requirements of industry clusters, from electronics manufacturing to fast-moving consumer goods [FMCG]. YCH already has an understanding with a regional customer, a leading European FMCG company, to start operating in the first quarter of 2010.”
YCH is now considering setting up DistriParks across Vietnam to offer multinational firms operating there a more comprehensive supply chain network.
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There’s also a growing trend of global electronics and high-tech companies outsourcing to original design manufacturers (ODMs) in regions where manufacturing and operating costs are lower. “Countries like Thailand and Vietnam are emerging as credible contenders,” says Dr Yap.
According to a report by In-Stat, Asia will more than double its share of ODM by 2011, thanks to exponential growth in the region’s EMS (electronic manufacturing services) market, from US$121.5 billion in 2006 to US$281.8 billion in 2011. This offers the opportunity for SMEs engaged in third-party logistics to help ODMs boost their manufacturing efficiency.
Potential Pitfalls
Cultural differences and variations in business and environmental practices are among the main obstacles that SMEs need to watch for when venturing into a new ASEAN market. “What may work for SMEs in Singapore or Hong Kong may not be the same when stepping into new terrain,” warns Dr Yap. “Most companies that are used to the efficiency and speed of business in Singapore or Hong Kong may find it difficult to adjust to the varying levels of responsiveness in other ASEAN governments. However, this should improve with time as ASEAN countries become more competitive and modernised.
“Another possible challenge may be the relative unfamiliarity of an SME’s brand name and presence as a newcomer to a different market in ASEAN. Therefore, branding and marketing are important when establishing a presence in a new country.”
Dr Yap’s advice to SMEs looking to take advantage of the ASEAN market:
- Work closely with local partners and forge strong government relations to help you start up quickly.
- Leverage on your partners’ familiarity with the environment, culture and business processes, such as hiring and land acquisition.
- Find a niche sector to provide complementary, value-adding services or products. This eliminates hostility and opens up opportunities for partnership in other areas.
- Align your business with the country’s interests and culture to encourage local authorities to help you invest.
- Don’t spread yourself too thinly. Invest only in new ventures in which you have confidence. Risks should be calculated.
- Don’t enter a new market without the necessary preparation and understanding of local laws, regulatory procedures and cultural practices.
Robert Yap is a featured speaker at the upcoming World SME Expo, 3-4 December.
Related Links
ASEAN
YCH Group
