A 3D view of Southeast Asia: demographics, digitisation and dynamism

HSBC Navigator SEA in Focus captures the sentiment of business leaders and decision makers from six major economies – China, India, UK, France, Germany, and USA.

All of those surveyed already operate in Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam or plan to in future. And many of them are about to increase their interests in the region. During the next 12 months 61% expect to see organic growth there of more than 20%, while 89% are planning to expand into new markets.

The report highlights three very clear reasons why Southeast Asia is inspiring such confidence and optimism.

1. Demographics: a young population – and a growing middle class

The six Southeast Asian countries featured in the survey are home to 594 million people,¹ with a median age of 32.²

A large youth population means a high demand for jobs, which in turn can drive down the cost of labour. So far, so attractive to our respondents – 21% of whom said lower running costs were important to them when considering doing business in Southeast Asia.

But this is not the whole story. Over a quarter of businesses see a skilled workforce coupled with low wages as the main attraction of Southeast Asia. Young workers have high standards of English, an advantage for international businesses. Skillsets vary across markets but have shifted away from agriculture and into the industrial and service sectors.

A crucial advantage of a young population is a growth mindset. According to a survey by the World Economic Forum (WEF),³ 15-35-year-olds in Southeast Asia are acutely aware of the challenges of the Fourth Industrial Revolution and place a premium on skills development. 52.4% believe they must upgrade their skills constantly to keep pace with technological change. The good news for businesses looking to extend their footprint is that a third of these young respondents aspire to working in an entrepreneurial setting, and just under a fifth (18.8%) have ambitions to work for a foreign multinational.

Southeast Asia is also home to a burgeoning middle class. BCG projects that the number of middle-income and affluent households will grow by 5% annually through to 2030.⁴ This increase in purchasing power can further boost growth momentum, increasing the region’s appeal to foreign direct investment (FDI).

A growing working population and increased affluence go hand in hand with urbanisation. The rise of megacities is driving huge demand for additional infrastructure, but opportunities aren’t limited to large scale engineering-procurement-construction (EPC) projects; there are also opportunities on a more modest scale providing technology and supplying equipment.

2. Digitisation: fast-tracking progress

The growth of the region’s digital economy continues at a blistering pace. A total of 80 million new internet users came online in 2020 and 2021, bringing internet penetration in Southeast Asia to 75%.⁵

E-commerce is booming, with the internet economy projected to reach about $360 billion by 2025.⁶ That said, there is still plenty of headroom for growth – the digital economy accounts for just 7% of GDP in the region, compared with 35% in the US and 16% in China.⁷

Business leaders in our survey recognise the potential in this rapidly expanding digital economy, with 29% citing it as the region’s biggest attraction.

Buoyant e-commerce opens up substantial investment opportunities in digital marketplaces and digital services such as fintech, digital payments, and data processing. And digital growth must be matched by efficient connectivity, which requires the development of 5G networks and other digital infrastructure.

Accelerating digital transformation

Recent research by McKinsey shows that leading companies globally are the ones that work hardest on their IT infrastructure.⁸ Our survey shows that In Southeast Asia, the transformation is well underway.

Of the 1,500 companies taking part, 49% were looking to invest 5-10% of their operating profits into technology and digitization. A quarter (26%) anticipated investing in excess of 10% – further underlining its importance as a business priority.

Digital transformation unlocks opportunities for data-driven decision making. Companies in Southeast Asia are increasingly leveraging the wealth of personal data generated by tech-savvy consumers to create more personalised offerings and services.

To do this, they need expertise in big data analytics, AI and machine learning. Singapore and Malaysia lead the region in these strategic technologies, but other countries in the region are firmly on course towards digital readiness.

To do this, they need expertise in big data analytics, AI and machine learning. Singapore and Malaysia lead the region in these strategic technologies, but other countries in the region are firmly on course towards digital readiness.

3. Dynamism: a mindset supported by capabilities

A youthful demographic combined with tech-first thinking breeds a strong entrepreneurial spirit. In Indonesia alone there are more than 62 million SMEs, one for every five Indonesians according to the WEF.⁹

And when businesses scale at pace exciting things happen. Take the $18 billion merger of Gojek and Tokopedia, Indonesia’s two biggest start-ups. The deal created GoTo,¹⁰an e-commerce, ride-hailing, food delivery, fintech behemoth.

Grab,¹¹ founded in Kuala Lumpur as a taxi app, is another example. Now headquartered in Singapore and Indonesia, it has grown its offerings to include digital payments and food delivery. Innovation breeds innovation – many of these services were built on the back of digital payments infrastructure provided by super-apps like WeChat¹² and Alipay.¹³

Singapore, a long-established global financial centre, looks set to become ‘The Silicon Valley of Asia’. Already home to 4,000 start-ups, it has also attracted tech giants like Google,¹⁴ Facebook¹⁵ and Amazon.¹⁶

With all this innovation comes a need for testing. Our survey indicates that the Philippines is highly rated – by 29% of respondents – as a market in which to develop and test new products and solutions. Vietnam is attractive to 36% of US respondents for the same reason. In fact, Southeast Asia’s testing, inspection and certification sector is the fastest growing in the world, second only in size to Europe.

A region with great promise

Demographics, digitisation and dynamism: this 3D picture is of a region brimming with potential for businesses of all sizes. A skilled workforce, entrepreneurial culture and the purchasing power of a growing middle class make it easy for good ideas to flourish here.

HSBC connects businesses to opportunities in Southeast Asia. We can help companies enter new markets, support them through the transition and along their sustainability journey to capture growth in one of the world’s top five economies.