ASEAN: an emerging hotspot

The ASEAN trade bloc is a growing force in the world economy and its increasing influence brings with it prime investment opportunities for businesses both inside and outside the region.

The region’s emergence as an economic powerhouse is partly the result of its rising middle classes enjoying increased spending power. This, in turn, is creating thriving new markets in a variety of sectors including healthcare, education and retail, says Kenneth Atkinson -Executive Chairman Vietnam. 

Increasing economic clout

The Association of Southeast Asian Nations (ASEAN) has ten member states: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. These countries have been working for almost 50 years towards their goal of creating a single market with the free flow of goods, services, investment, skilled labour and capital.

And the journey doesn’t stop there. Last year saw the formation of the ASEAN Economic Community (AEC), whose plan for 2016-2025 is to accelerate progress by encouraging greater integration and cohesion, boosting competitiveness and innovation, and building the bloc’s economic clout.

Internal or ‘intra-ASEAN’ investment is an intrinsic part of that plan as it serves to increase the region’s ‘interconnectedness’. This rose by $15 million to $22.1 billion last year and is an increasingly significant contributor to overall foreign direct investment, which stood at $120 billion in 2015.[1] A major recipient of this investment is Vietnam, which accounted for almost 25% of the total.

The role of medium-sized businesses is critical in stepping up internal investment and helping the region continue to flourish. Regarded as the entrepreneurs, they contribute significantly to job creation through expansion and franchising and act as a vital link as suppliers or contractors to multinationals in overseas markets. Their contribution in helping ASEAN realise its ambitions 'cannot be underestimated', according to the ASEAN Investment Report 2016.

Local and foreign businesses therefore can take advantage of a more liberalised and lower-cost market, an area rich in natural resources and an abundance of talent and skills. There is also a market of 622 million people to tap into and, more to the point, an emerging consumer class.

Retail Sector is growing fast

The retail sector is growing fast in ASEAN being driven by rapid urbanization in markets like Thailand, Indonesia, Philippines and Vietnam and the fast growing middle classes.

Vietnam has for several years been a favourite for investment into the retail sector and has consistently ranked in the top 3 sectors as shown in Grant Thornton’s Private Equity Surveys says Nguyen Thi Vinh Ha National Advisory Partner Vietnam.

The Vietnam retail market reached over US$ 108 billion last year[2] with a 10% year on year growth.

According to Ministry of Industry and Trade of Vietnam, modern retail formats accounted for some 25%of Vietnam’s retail market in 2015, with the country having 724supermarkets, 132 shopping centres and a very large number of convenience stores.

The retail sector saw a surge in M & A activity in 2015 and the volume of M&A transactions is continuing in 2016. It is worth noting that it is not only international players who were active in M&A, but domestic players as well.

For instance, AEON from Japan acquired 30%⁾ and 49% of local Fivimart and Citimart, locally established chains popular with the local market; or Kinh Đô’s confectionary business 100%  of which was acquired by Mondelez International.  Vingroup, one of Vietnam’s leading conglomerates, acquired Ocean Retail Group, Maximark and Vinatexmart are establishing their own chain named Vinmart. Significantly some of Thailand’s major groups are starting to show their hand in Vietnam with TCC Group completing the purchase of Metro Cash & Carry Vietnamand Central Group acquired Big C Vietnam in 2016

Locating the right knowledge

ASEAN is not a homogenous market. Its diverse economies mean there is no one-size-fits-all approach and investors need to be aware that economies are at different stages of development. For example, Singapore ranks second in the Global Competitiveness Index 2016-2017, while Vietnam is ranked 60th. Atkinson  warns that the pace of change is incredibly rapid. “In five years everything has changed. Being able to adapt is vital,” he says.

This is a dynamic region with a compelling growth story and it presents many investment opportunities for organisations looking to make the most of the ASEAN bloc’s potential. It is essential, however, to have a thorough understanding of how markets are developing in each country and how the increasing economic interconnectedness of the ten countries can be made to work to your advantage.  

For more information about the ASEAN economic community, or if you're considering investing in this region, please contact Ken Atkinson at Ken.Atkinson@vn.gt.com.