Bayani Lauraya

Managing Partner at Kreston Thailand

Bayani Lauraya is the Managing Partner at Kreston Thailand. An accomplished senior executive, he has extensive domestic and international experience in hospitality, food & beverage, and real estate, with a proven track record of achieving corporate objectives.

Southeast Asia: Breaking into Tiger economies

August 1, 2024

Southeast Asia presents a wealth of opportunities for businesses looking to expand their global footprint. The region’s economic growth, large consumer base, and strategic location make it an attractive destination for companies worldwide.

However, entering the top six Southeast Asian markets—Indonesia, Vietnam, Thailand, Malaysia, Singapore, and the Philippines—also brings several challenges for incoming businesses.

Challenges

Regulatory and compliance challenges

Southeast Asia’s complex and frequently changing regulatory environments can be challenging for new entrants, with each country having its own set of regulations. Bureaucratic delays and corruption can add to the complexity, increasing operational costs and legal risks.

Overconfidence among businesses expanding into Thailand regarding their understanding of the country’s tax compliance requirements is a risk that should be managed. The complexities of Thai tax regulations, including transfer pricing and VAT, present significant challenges, often leading to misunderstandings and resulting in financial penalties and operational disruptions.

It is critical for multinational businesses to seek comprehensive local tax advice from experienced advisors to ensure robust compliance mechanisms to ensure these regulatory complexities do not impede your route to market.

Infrastructure and logistics issues

Infrastructure quality varies significantly across Southeast Asia, with underdeveloped transportation, logistics, and utilities hindering supply chain efficiency in some countries. Regional disparities in infrastructure quality complicate logistics and distribution strategies. Understanding where these holes are from on-the-ground experienced advisors is a critical part of your planning before you enter the country.

Intellectual Property (IP) protection

Weak enforcement of IP laws in Southeast Asia can lead to challenges in safeguarding patents, trademarks, and copyrights. High levels of piracy and counterfeiting undermine the competitive advantage of companies relying on intellectual property.

The 2024 International IP Index by the U.S. Chamber of Commerce ranks Singapore highest among Southeast Asian countries for its strong IP protection and enforcement. Malaysia, Thailand, and Vietnam show progress, while Indonesia ranks lower due to enforcement challenges and regulatory complexities.

Thailand has improved its IP framework in recent years. In 2022, Thailand amended its Copyright Act to strengthen protection measures. Similar positive changes have been observed in other Southeast Asian countries, enhancing their overall IP landscapes.

Opportunities

Significant Consumer Market

With 88% of the population of Southeast Asia concentrated in the top six markets, the region offers a vast and diverse consumer base. As incomes rise and urbanisation increases, demand for a wide range of products and services is expected to grow significantly.

Market maturity and advancement

Southeast Asia’s markets are rapidly maturing, with significant investments in digital infrastructure, technological innovation, and economic reforms. Countries like Singapore and Malaysia have well-developed financial systems and robust legal frameworks supporting business operations. The rise of the digital economy and government initiatives such as Thailand 4.0 enhance industrial capabilities and attract foreign investment.

Digital economy and technology

The rapid digital transformation in Southeast Asia presents vast opportunities in e-commerce, fintech, and digital services. High mobile penetration and growing internet usage drive the digital economy, with investments in digital infrastructure and cybersecurity creating a conducive environment for tech innovation. Initiatives like Singapore’s Smart Nation exemplify the region’s commitment to fostering a digital economy.

Mid-market Thai businesses are increasingly prepared to harness the benefits of AI in global operations over the next two years, driven by positive economic recovery and strategic digital transformation efforts. Government initiatives like Thailand 4.0 and collaborations such as the FedEx and Visa alliance, which provide advanced digital tools and logistics support, further enhance their readiness. These factors position mid-market Thai businesses to effectively integrate AI into their operations, improving efficiency and global competitiveness.

Manufacturing and industrial growth

Southeast Asia is becoming a manufacturing hub, attracting global investments due to competitive labour costs, strategic location, and favorable trade agreements. Sectors such as electronics, automotive, and textiles are particularly strong, with countries like Vietnam and Thailand leading in these industries.

Renewable energy and sustainability

Governments in Southeast Asia are investing in renewable energy projects and encouraging private sector participation to meet rising energy demands. Opportunities exist in solar, wind, and biomass energy projects, as well as in sustainable agriculture and green technologies. Thailand’s push for a Bio-Circular-Green (BCG) economy and Indonesia’s renewable energy targets highlights the region’s sustainable development goals.

Both China and India scored high (64% and 44% respectively) in the interpreneur report on the consideration of ESG when expanding internationally being a significant priority, indicating an appetite for ESG aligned businesses in the region.

Recent Investments in Thailand

The surge in investments across various sectors in Thailand over the past 12 months highlights the country’s growing appeal as a strategic destination for global businesses. This wave of investments is a positive indicator of the confidence international companies have in Thailand’s economic potential and its commitment to fostering a business-friendly environment.

• Electric Vehicles (EV) Sector: Chinese companies like MG, Great Wall Motors, BYD, and Neta have established manufacturing plants and infrastructure to support EV production.
• Electronics Industry: Circuit Fabology Microelectronics Equipment Co. and ZYNP Corp have set up new production bases focusing on printed circuit boards and combustion engine components.
• Digital and Cloud Services: Alibaba has invested in cloud infrastructure and digital transformation projects, while Tencent has expanded its digital services in Thailand.
• Infrastructure and Industrial Development: The Eastern Economic Corridor (EEC) attracts high-tech and industrial investments with generous tax incentives and upgraded infrastructure.
• Medical Services and Biotechnology: Significant investments in healthcare infrastructure, such as the Siriraj 5G Smart Hospital project in collaboration with Huawei, enhance Thailand’s medical tourism appeal.
• Renewable Energy and Sustainability: The Thai government promotes investments in bio-based materials and sustainable industries, with Chonburi hosting significant projects.

Conclusion

Thai businesses are likely to follow their regional neighbours in increasing their investments outside Thailand in the next 12 months as they seek new opportunities, driven by positive economic trends and business sentiments.

A UOB Thailand study indicates that three-quarters of Thai companies are optimistic about their prospects and are prioritising overseas expansion, particularly in markets like Singapore, Vietnam, Malaysia, and mainland China, reflecting a trend of robust cross-border economic activities.

Entering the top six Southeast Asian markets offers significant growth opportunities and the potential for substantial rewards. While there are challenges such as regulatory complexities, infrastructure gaps, and IP protection concerns, these can be effectively managed with proactive strategies and thorough preparation. By leveraging recent investment trends and addressing potential hurdles with careful planning, companies can position themselves for success and tap into the vibrant economic growth of Southeast Asia.

Kreston Thailand

Kreston Thailand has been founded by a skilled group of professionals who possess experience and expertise. Our dedication to delivering exceptional service and superior quality is steadfast. We pride ourselves on providing comprehensive services meticulously tailored to meet your unique business needs. By collaborating with other member firms in Southeast Asia, we can provide business solutions and assist companies seeking to establish and do business in the region.