Neither island nor monolith: Navigating the ASEAN opportunity

Well on its way to becoming the world’s fourth largest economy by 2030, ASEAN is offering global corporates an opportunity to sink roots across a range of dynamic markets and position themselves for long-term growth. Many are already doing so, with the region accounting for 17% of global Foreign Direct Investment (FDI) in 2022, up from 15% in 2021.¹

ASEAN’s positioning in Asia is also strengthening vis-à-vis China and India in key areas such as supply chains and manufacturing, driven by geopolitical risk and rising trade restrictions along historically open corridors. The prospects are similarly promising across the region’s digital economy, which is expected to grow to US$326bn by 2025, up from US$203bn in 2022. ²

Singapore has long had a reputation as a hub for expanding into broader ASEAN, and many corporates choose to set up there due to its friendly business environment, favourable regulatory regime, strategic location, highly skilled talent pool and full ecosystem of financial services.

For treasurers, the city-state offers a range of incentives, including a concessionary tax rate of 8% and withholding tax exemptions for companies that qualify for the Finance & Treasury Centre Incentive. It’s also the world’s third largest FX trading hub, offering a distinct benefit given ASEAN’s diversity of currencies and the need to conduct cross-border business efficiently.

These advantages amount to assurance for corporates that they have a solid starting point for implementing their strategies in other markets.

In a region as diverse as ASEAN, liquidity optimisation is particularly important yet also tricky to achieve. Restricted markets and currencies, as well as FX risks can pose challenges to moving, converting and drawing down cash to fund investments and growth. So, it’s good to have a pulse on what to expect when doing business in each one.

In Indonesia, for example, the government’s Positive Investment List in 2021 was a notable step forward in liberalising sectors for foreign investment, which paired with an open capital account has helped streamline international businesses in the country.

A similar story is emerging across the region, with Thailand recently loosening requirements on FX transactions under its Non-Resident Qualified Company scheme, and Malaysia deregulating the onshore ringgit hedging market through its expanded Appointed Overseas Office framework.

On top of this, there are region-wide initiatives that complement the in-market progress. Project Nexus, a collaboration between BIS Innovation Hub and the central banks of India, Malaysia, Philippines, Singapore and Thailand, is focused on connecting ASEAN’s range of instant payment systems to improve the speed, cost and transparency of cross-border transactions.

For treasurers, these developments reflect the region’s efforts towards financial integration, and making it easier for global corporates to grow and expand across its markets.

Internally, centralising cash management is also important to give corporates greater visibility over their cash positions across jurisdictions as well as improve both their liquidity and ability to mitigate FX risks.

To do this effectively, an individual market approach is encouraged where cash structures are set up in each one. This helps to navigate restricted markets and currencies and support more efficient operations.

In addition, global corporates can explore using alternative trading currencies to support their business in the region. Given the growing integration of ASEAN economies into global value chains, invoicing in alternative currencies may be an option to manage FX risks.

It’s therefore important to think through the right account structures and banking partners to retain flexibility and avoid bottlenecks to mobilising cash. Working with globally connected financial institutions that also have a presence across ASEAN can help treasurers optimise their operations and stay supportive of growth.

Treasurers who set up their operations efficiently will be well positioned to support the pursuit of new opportunities in ASEAN – across sectors, supply chains, innovation and the digital economy.

Looking at sectors, healthcare spending in ASEAN is expected to rise from US$420bn in 2017 to US$740bn in 2025,⁶ while the region’s renewable energy capacity is due to hit 89GW by 2030, up from just 12GW in 2015.⁷

Similarly, manufacturing continues to a be a strong source of opportunities. Businesses looking to diversify their supply chains from China to ASEAN – a strategic shift known as “China Plus One” – are attracted by cost advantages as well as the investments being made in advanced manufacturing capabilities. The region’s rich natural resources are also seen as a distinct benefit for rapidly growing industries such as electric vehicles.

In addition, ASEAN has become a destination for innovation, with corporates setting up global capability centres (GCCs) across the region to tap on talent pools and local expertise covering a wide range of disciplines. GCCs in ASEAN are also attractive because they put strategic functions in close proximity to fast-growing local markets to better to service them.

Different markets have different selling points for GCCs. For example, a global professional services brand set up its regional capability centre in Malaysia due to its strategic location in ASEAN and competitiveness for high-value investments. While an international IT consultancy set up a GCC in the Philippines leaning into its strong service sector and skilled workforce.

Scaling operations in ASEAN also requires aligning to how business is done and what consumers expect, which inevitably brings the digital economy into view. With the number of new digital consumers expected to reach 575m in 2030, representing an impressive 80% of the region’s population, treasury functions should be set up in anticipation of this trajectory.

Digital payment platforms have for this reason become necessary for efficient operations in ASEAN, given a growing population of digital natives and the growth of all forms of digital commerce – the e-commerce market alone is expected to reach US$274bn in 2027, up from US$154bn in 2023.⁸

Given the region’s ongoing liberalisation, up-to-date insights on the regulatory environment is a significant value add for keeping treasury operations running smoothly amid market developments. Solutions for unifying and simplifying payment, FX, and supporting documentation management are similarly important for successful operations in ASEAN.

For our part at HSBC, we’ve long seen the need for an integrated transaction banking platform to streamline cross-border business and FX management. The demand for our UniTransact platform since its launch in 2023 highlights how important it is for corporates to manage these areas effectively.

The growth of ASEAN’s internet economy has also given rise to demand for a consistent collections experience across all markets, able to accommodate real-time and digital payments from a wide range of methods. Solutions such as HSBC’s Omni Collect can help elevate the checkout experience and grow customer satisfaction in a region where digital expectations are high.

ASEAN is at an inflection point. Its growth to date has significantly increased its attractiveness and connectivity to other regions, while its strides towards integration have made intra-ASEAN trade and investment much more accessible. But the road ahead is long and the potential of this region has really only scratched the surface.

The current moment is therefore one of opportunity, to capture ASEAN’s growth momentum and align to its ongoing development. While challenges certainly remain, the upside of overcoming them far exceeds the downside of shying away.