By Jiten Arora, Global Head, Commercial Banking, Standard Chartered Bank
The future looks bright for ASEAN. From rising consumer demand to the ongoing need for new infrastructure, ASEAN offers plenty of potential for companies, especially in a world where global shifts are reshaping the regional business landscape. Already ranked the world’s fifth-largest economy, ASEAN’s GDP growth is estimated to reach US$4 trillion by 2023.
Of the businesses operating in ASEAN, the mid-corporate segment – which we classify as companies with annual revenue of between US$10 million and US$500 million – is especially well-placed to develop new services and expand across borders. Mid-corporates have a stronger capacity to fund innovation than smaller businesses and a more agile approach than larger multinationals, enabling them to adapt effectively to evolving needs and expectations.
Mid-corporates, especially those in the manufacturing, retail and consumer, and infrastructure sectors, are also expected to have the most far-reaching impact on ASEAN’s growth prospects. The three sectors represent 44% of regional GDP and are projected to maintain strong growth in the near term at 7% to 9% annually by 2021.
Manufacturing has long been a key industry in the region. We see that the sector is shifting away from more traditional resource-heavy manufacturing such as mining into high-tech areas, including automotives and medical devices. Meanwhile, new technology is already proving to be the driving force behind the growth of the retail and consumer sector with ASEAN e-commerce sales expected to grow from US$13 billion in 2018 to US$88 billion in 2025. Finally, with over 800 projects already in the planning stages, infrastructure development will continue to play a huge role in ASEAN’s growth story, and private investment will be needed to meet the funding shortfall.
To successfully capture emerging opportunities, mid-corporates will need to ensure they have in place strategies that allow them to adapt to the changing marketplace. For example, adopting smart operations that use technology, such as the Internet of Things and 3D printing, to improve productivity and reduce margins. Those in the consumer sector will need to embrace digital technology so that they can provide a more personalised customer experience and accelerate the delivery process.
Importantly, mid-corporates in ASEAN should look to expand into other regional markets to support their growth ambitions. According to The Business Times-Standard Chartered Leaders’ Survey 2018, 80% of Singapore companies are keen to expand elsewhere in the region.
At a time when digital transformation and demand for social responsibility are increasingly driving change, mid-corporates in the three sectors looking for overseas growth will also need to become more innovative about managing capital and liquidity to fund new ventures and support the next phase of their expansion.
Efficient capital management
One way that mid-corporates can improve their capital management is by diversifying their sources of funding to include bonds, private equity investment, and syndicated lending arranged by established financial institutions. Partnering with well-connected financial institutions not only enables mid-corporates to adopt appropriate cash management solutions for cross-border transactions, but also gain more comprehensive coverage that can support their entire supply chain’s financial needs.
For example, the adoption of digital transactions in trade finance can help reduce inefficiencies created by manual processes while also providing security and transparency for the whole supply chain, from suppliers to distributors.
In addition, capital expenditure shown to support environmental, social or governance (ESG) issues could be funded by a green bond issue or using sustainable finance. With many governments in ASEAN offering incentives for this type of funding, as well as being positive for society, it could also reduce costs for mid-corporates.
Moreover, financial institutions such as Standard Chartered with a comprehensive ASEAN and global network will also be able to provide advisory services for overseas expansion. Mid-corporates moving into new markets will need suitable risk management strategies to protect their investments from foreign exchange risks, counterparty risks, or other market fluctuations. A strong familiarity with local business conditions and a nuanced understanding of local operations in ASEAN, means that these financial institutions can act as growth catalysts for mid-sized businesses.
ASEAN’s continuing growth story presents many possibilities for mid-corporates in the region. However, achieving sustainable success will require companies to develop new business models and ideas through enhanced productivity and innovation that can enable their expansion into regional markets.
Having a financial strategy that can keep up with growth plans should not be a secondary consideration; involving financial advisers early on is paramount. It is only when businesses take financial institutions as a long-term strategic partner that they can expect their future-ready transition to be seamless and scalable.
ASEAN transformational journey has begun. It is time for mid-corporates to seize the opportunity.