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Who will be the next Asian tigers?

Over the next decade, the Asia-Pacific will continue to be the fastest growing region of the global economy.

TEXT: Jan Hökerberg
16 OCTOBER, 2018

During the last decades of the 20th Century, four economies in Southeast Asia became known as the four Asian tigers because of their rapid industrialisation and high growth rates. Hong Kong and Singapore are now world-leading international financial centres while South Korea and Taiwan are world leaders in manufacturing electronic components and devices.

Over the next decade, the Asia-Pacific is forecast to be the fastest growing region of the global economy and the region that offers the biggest potential gains for foreign direct investment (FDI).

So who will be the next Asian tigers?

USD
1 trillion

Four Southeast Asian economies – Malaysia, Indonesia, Thailand and the Philippines – are expected to pass the trillion-dollar GDP mark by 2030, according to a recent study.

Today, the region accounts for around one-third of the world’s gross domestic product (GDP).

By 2030, Asia will account for 40 per cent of global GDP. China is expected to take half of that share and will be roughly on par with North America and Europe, according to the London-based research firm BMI Research.

“The key driver of Asian GDP will be a combination of strong demographics, robust macro fundamentals, greater trade integration and government policy aimed at reform,” said BMI’s Cedric Chehab in October 2017.

Asia’s standout emerging markets are, according to BMI, expected to comprise India, Vietnam, Indonesia and the Philippines, due to their populous and fast-growing economies.

In a prediction by PricewaterhouseCoopers (PwC), one of the world’s largest professional-services firms, four of the five most powerful economies in the world by 2030 will be Asian. PwC’s forecast was based on projected global GDP by purchasing power parity (PPP). China is ranked first, followed by the US, India, Japan and Indonesia.

PwC also forecasts that, in 2050, India will have surpassed the US to become the second most powerful economy after China.

Four Southeast Asian economies – Malaysia, Indonesia, Thailand and the Philippines – will pass the trillion-dollar GDP mark by 2030, according to a 2016 report released by IHS Markit, a UK-based information provider, which also included China, India, Sri Lanka, Bangladesh, Vietnam and Myanmar on a list of 10 Asian hotspots for FDI.

The private equity group EQT Partners has put most of its Asian investments in mainland China and Hong Kong but has also invested in other Asian markets.

InCorp Group in Singapore has been part of EQT Partners Asia’s portfolio since 2016. InCorp is a corporate services company with services such as accounting, corporate secretarial services, tax filing, payroll services, and so on for about 5,000 companies worldwide.

“Since we invested in the company, its turnover has grown 87 per cent as a combination of organic growth and acquisitions in China and the Philippines,” says Martin Mok, partner and head of EQT Mid Market Asia.

An investment that didn’t turn out so well was Econ Healthcare which EQT entered into in 2012 with a 49 per cent stake and exited in 2016 by selling it back to the founder. Econ was one of the leading providers of care for the elderly in Singapore and Malaysia and it also ran a private hospital. EQT invested in Econ on the basis of its market-leading position and strong demand in Asia for private elderly care driven by an ageing population.

“However, during that time a policy change was implemented. Voluntary welfare organisations and government operators were subsidised to capture a larger share of the market and there were restrictions on foreign labour which increased overall staff costs for the sector,” says Mok.

“This example shows that legal and political changes that suddenly take place in a country could have a direct impact on investments,” says Johan Bygge, chairman of EQT Asia-Pacific.

Legal and political changes that suddenly take place in a country could have a direct impact on investments.”
Johan Bygge, EQT Partners

In 2017, EQT decided to invest in Vietnam’s leading English-language training service provider ILA, with 37 training centres countrywide.

“We have noted that Vietnamese parents understand and are willing to invest in the necessity for their children to learn English to be able to have a good future,” says Bygge.

ILA is now planning to broaden its business areas to offer mathematics and is also thinking about setting up day-care centres and kindergartens.

“EQT has a good track record in Sweden, Finland and China within education, but there is always a political risk in Asia,” Bygge adds.

“We really follow Vietnam and hope to do more there. People talk about Vietnam as ‘the next China’ and it is kind of true. Last year, FDI increased by 40 per cent. Tourism is also increasing as people can enter Vietnam more easily nowadays,” says Mok.

“It’s a country with a very young labour force – 60 per cent are below 35 years of age. They have carried out vital reforms of their state-owned enterprises (SOEs). There were 1,500 SOEs some 10 years ago, and now there are 500. The target is to get them down to 100 through mergers, privatisation, and so on. Vietnam’s currency is also quite stable,” he says.

“Singapore is normally a quite safe country to invest in. However, in the other parts of Southeast Asia we are more selective. Malaysia could be interesting, for example, within IT, which is not so politically affected. In most other countries we prefer to wait and see,” says Mok.

“There are a lot of issues in many countries when it comes to legislation, integrity and taxes, so you need to be local to understand it and have the right connections and so on,” says Bygge.

EQT organises itself into sector teams and also gets input from a large group of industrial advisors.

“First, the market trend must be there,” says Mok. “If you invest against the trends, it will be very difficult. You need to understand the political thinking, the regulations and demand and supply. For example, in the Chinese consumer market almost everyone made money in between 2009 and 2013. But from 2013 to 2016 almost everybody lost money.”

There could also be countries where it’s not recommended to invest at all.

“We were looking at an educational company in Myanmar but we had to take into account the political development there with racial cleansing, alleged war crimes and so on. So we decided against it even though it was a very good company,” says Mok.

People talk about Vietnam as ‘the next China’ and it is kind of true.”
Martin Mok, EQT Partners

EF Education First has established itself with offices in nine markets in Northeast and Southeast Asia: Japan (in 1972), mainland China, Hong Kong, Macau, Taiwan, South Korea, Vietnam, Indonesia and Thailand.

“Each market has quite unique characteristics when it comes to the customer journey, how the clients familiarise and interact with our brand, and what ultimately drives purchasing decisions. What’s unilateral is that stakeholders across Asia recognise that the English language is a key component that will enable growth and new opportunities,” says Anders Lundholm, sales director for Asia at EF’s regional headquarters in Hong Kong.

Lundholm spent three years as country manager in Vietnam and believes that it is a country with great potential.

“It’s a forward-looking country with rapid growth, not only economic growth but also demographic. In 1967, the population was 38 million and it had grown to 93 million in 2016. As the purchasing power is increasing for the 30-years-and-older segment by the year, we see tremendous potential for our entire product portfolio within the market,” he says.

“As a result, the aggregate number of students travelling abroad for studies at all levels is increasing by the year, and the country has a quite young population that is now setting the stage for an emerging upper middle class that can afford and have the willingness to pursue an international education.

“In 2015 for example, there were 5,032 students from Vietnam going to pursue a high-school degree in the US, making it the third largest recruitment market in the world, whereas a country like Indonesia only had 171. And the volume is even greater for university, vocational and language students of all ages,” Lundholm says.

Stakeholders across Asia recognise that the English language is a key component that will enable growth and new opportunities.”

Anders Lundholm, EF Education First

EF offers an extensive product portfolio in Asia ranging from language and high-school studies abroad, scalable on- and offline language solutions for companies and governments, and also local language schools, which is considered the leading product with a significant operation in China and Indonesia.

Local language schools, mainly for children but also for adults, is the leading product for EF in Asia. EF also offers language training for companies and governments.

“China has shown great growth and scale, but we’re also seeing more mature markets such as South Korea being galvanised by our 2018 Winter Olympics partnership and a great localised marketing plan,” says Lundholm.

“We always strive to be decentralised and driven by the markets rather than by the regional hub here in Hong Kong. We simply share best practices between markets that can be localised and executed in each market. If we run a campaign on our WeChat service account in China, it can be transformed on the Line platform for Taiwan,” he says.

Lundholm believes that globalisation and the demand for a higher skilled workforce will continue and that EF’s products are well positioned to capitalise on this.

“The scale of China cannot be ignored, but we also see tremendous potential in more mature markets like Japan, which we will also partner with for the 2020 Summer Olympics. Southeast Asia is promising, not only as an emerging market, but also due to our already established strong market presence,” he says.

Are there countries or markets in Asia where EF would probably not set up business?

“We don’t rule out any option at this stage,” says Lundholm.

India: Challenging – but has enormous potential

Swedish companies are very positive about the current business climate in India, but there is apprehension about the investment climate in the coming three years. The national election in May 2019 could impact that perception.

“India is one of the fastest growing economies in the world and companies look of course at the enormous potential of the market. However, India can be a challenging country to do business in – many companies find their journey here as multi-faceted as the country itself,” says Sara Larsson, head of the Swedish Chamber of Commerce India (SCCI), which has almost 100 members.

“Since India is basically a union of many autonomous states, there is always a discrepancy between federal government directives and state implementation. This makes India further complex and time-consuming to work in,” Larsson says.

She notes that the business climate will depend on the way India focus on holistic sustainability; for investment, people and environment. “Without this focus, the country will sub-optimise and progress will be short term only,” she adds.

Many companies find their journey here as multi-faceted as the country itself.”

Sara Larsson, Swedish Chamber of Commerce India

Taiwan: Encouraging multinationals to set up operations

Mainland China, including Hong Kong, is the main trading partner of Taiwan as of 2017. This interdependence is growing, as can be seen from the significant rise in both exports and imports between the two markets as compared to 2016.

“Judging by the results from a business climate survey we conducted last summer, Taiwan offers significant business opportunities and will continue to constitute a positive environment for multinational companies,” says Henrik Holm at the Swedish Chamber of Commerce Taipei, which has around 100 members, mostly corporate members.

An excellent infrastructure, an attractive customer base, high-quality human capital and a strategic geographical location well suited for international business are frequently cited as being the main assets of Taiwan.

“All in all, the current business climate in Taiwan can be described as one that encourages multinationals to set up operations,” says Holm.

“Of our 30 responding companies, 75 per cent described themselves as being confident in the future of the Taiwanese market. Of the remaining 25 per cent, a majority expected their businesses to perform equally well in the coming years as in the past couple of years.

“Almost 80 per cent of the respondents stated that they are planning further investments in Taiwan over the coming year. It should be noted, however, that although the respondents held a generally positive outlook, a third mentioned a fear of a looming stagnant market, when asked about their concerns,” says Holm.

Taiwan will continue to constitute a positive environment for multinational companies.”

Henrik Holm, Swedish Chamber of Commerce Taipei

Singapore: Regional hub for fast-growing neighbours

Singapore is known for being one of the most business-friendly countries in the world and the latest business climate survey from the Swedish Chamber of Commerce Singapore – which has around 90 corporate and 30 individual members – shows that this image prevails.

In general, Swedish businesses have a very positive view on the business climate in Singapore, rating it as either good or excellent. Singapore’s position as the regional hub for many of the world’s fastest growing economies also contributes to the positive sentiments connected to Singapore.

“Mainland Chinese companies are seen as an important investor base for Singapore, which in turn is one of the top overseas investment destinations for Chinese companies. According to a study by the investment management company Jones Lang LaSalle (JLL), Singapore is seen as the world’s most connected city with China and the city is well positioned in relation to China’s Belt and Road Initiative,” says Jan Stjernström, president of SwedCham Singapore and country manager at SEB.

SwedCham Singapore’s general manager Cecilia Oskarsson rephrases a Swedish executive at one of the large e-commerce players in the region, who says that he “would choose a Chinese investor over an American any day of the week”, claiming that there are myths surrounding the Chinese but in fact Chinese businesses are pragmatic and humble in the sense that they understand their weaknesses and put their money where they can get a good return.

According to a study by Jones Lang LaSalle, Singapore is seen as the world’s most connected city with China.”
Jan Stjernström, SwedCham Singapore

Stjernström forecasts that growth in Asian emerging markets will remain strong: “Looking past the recent trade tensions, the structural characteristics of the region are supportive of intra-regional trade. Even as Singapore and Thailand are now preparing for old age, favourable demographics are still at work for the rest of the region. For now, ASEAN is developing into a powerful production base. Looking ahead, rising incomes are likely to usher in a massive consumption base in the future,” he says.

“The rapid development of neighbouring markets naturally presents a multitude of opportunities, where Singapore’s position as the natural hub is at the same time both gaining importance and being challenged,” says Oskarsson.

“It is important to remember that Singapore is an extremely agile nation that has the ability to successfully leverage from and using digitalisation as a driver. In short, Singapore is very likely to maintain its position as one of the world’s best countries to do business in,” she says.

Singapore is very likely to maintain its position as one of the world’s best countries to do business in.”

Cecilia Oskarsson, SwedCham Singapore