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New research commissioned by HSBC Commercial Banking shows that international businesses from nine major economies are increasingly optimistic about their growth prospects in Southeast Asia. They expect sales in the region to grow by 23.2 percent over the next 12 months – versus 20.1 percent from last year’s survey, and 4-5 times the rate of GDP growth expected in Southeast Asia.

The HSBC Global Connections survey also finds the Philippines, touted as ‘Asia’s Rising Tiger,’ is a key target for businesses seeking to enter the Southeast Asian market, while those already with operations in the Philippines said they planned to prioritize expanding their operations there over the next two years.

“These findings confirm what we have been seeing from our own customers: that businesses around the world are increasingly confident about scaling up in Southeast Asia, especially the Philippines,” said Sandeep Uppal, President and CEO of HSBC Philippines.

“We are on fertile ground and as excited as our clients about the growth prospects of the Philippines and in Southeast Asia and focused on connecting local and international businesses in this dynamic region to opportunities across the globe.”

The survey reveals a marked difference between the M&A ambitions in Southeast Asia of Asia Pacific respondents and those from other regions. Twice as many respondents from China (65 percent) are more likely to significantly increase inorganic growth in Southeast Asia by 2024 than those from Germany (45 percent), although respondents from all markets expect activity to increase over the next four years and the gap between Asian and other respondents narrows over time.

Respondents that are already present in the region plan to focus on growing in the markets they know. 36 percent of companies operating in Singapore expect to prioritise growth there over the next two years, followed by 27 percent of those with Malaysian operations and 24 percent of those with operations in Thailand. Businesses from all markets except Germany are most likely to prioritise Singapore among their current markets, reflecting the country’s enduring attraction as a regional business hub and financial centre.

When it comes to fresh opportunities, Indonesia, Malaysia, and the Philippines, are the most popular choices for companies aiming to expand into a new Asean market over the next two years. 25 percent of firms without an Indonesian or Malaysian presence and 21 percent of those without Philippine presence report plans to expand in those markets during that time frame.

The survey suggests that international businesses continue to see Asean primarily in terms of its supply chain connectivity rather than as a consumer market, even though Gross Domestic Product (GDP) per capita for Southeast Asia has grown from $1,250 in 2000 to $5,800 in 2023, according to the International Monetary Fund.

The region’s skilled workforce (27 percent), growing digital economy (26 percent) and competitive wages (25 percent) are the top three attractions, while the growing middle class ranks ninth in terms of importance. However, businesses identify talent as a challenge as well as a draw: the cost of training (36 percent) and lack of skilled personnel to drive implementation (also 36 percent) are identified as top challenges for businesses seeking to digitise their operations in Asean. Also, the ability to hire talent with the right level of expertise (32 percent) is the top challenge to becoming more sustainable in the region.

When asked which technologies Asean is leading the way in, the highest number of respondents identified e-commerce (31 percent) and digital payments (28 percent), reflecting the widespread adoption of digital platforms and mobile wallets across many countries in the region.

“Southeast Asia is clearly an attractive manufacturing base, with increasingly advanced supply chains and a highly skilled workforce attracting global firms to the region,” said Uppal. “But the consumer story is also one to watch for international businesses as digital adoption and domestic spending power grow. This is particularly true in Philippines as the country stands out because of three ‘Gs’ – growing economy; growing population; and growing trade liberalization,” he concludes.