The Singapore Link to the ASEAN Market
HKTDC Research | 9 Dec 2015
The Singapore Link to the ASEAN Market
The rise of ASEAN means new business opportunities for Hong Kong exporters, providing a hedge against sluggish demand in developed economies. SMEs with little or no experience in ASEAN markets could make use of Singapore as a stepping stone to other ASEAN markets by setting up a presence in the country or working with a local agent or franchising consultant there.
The ASEAN Opportunity
The ASEAN market, which has a combined population of 628 million and a nominal GDP of more than US$2.5 trillion in 2015, is set for robust expansion. According to the International Monetary Fund’s latest forecast, ASEAN-5 countries – Indonesia, Malaysia, the Philippines, Singapore and Thailand – will grow by 5.5% a year from 2016 to 2020, compared with 1.9% a year for major advanced (G7) economies.
ASEAN’s emerging middle class makes it an attractive consumer market. Nielsen estimates that the middle-class population in Southeast Asia will grow from 190 million in 2012 to 400 million by 2020. According to Euromonitor International, retail value (excluding sales tax) in ASEAN countries is expected to see compound annual growth of 6.8% from 2014 to reach US$656.7 billion in 2019.
This represents a number of opportunities for Hong Kong businesses. First, ASEAN’s middle class increasingly demands good quality, affordable, imported consumer goods. Hong Kong exporters, who excel in the mid-to-high-end market, can meet this growing demand.
Second, spending will increase on discretionary items such as dining out, leisure activities, entertainment, education, healthcare and other consumer services that cater to the needs and lifestyles of the middle class. This will create vast opportunities for Hong Kong’s restaurant operators, retailers and service providers.
Third, while local businesses are set to grow with the region, there will be derived demand for producer services such as design, marketing and accounting. These are sectors that tap into Hong Kong’s strength.
The Belt and Road Dimension
Driven by the China-led Belt and Road Initiative, the urbanisation and infrastructure developments in ASEAN countries are expected to create unprecedented opportunities for Hong Kong suppliers.
As an international financial centre in Asia and the world’s largest offshore renminbi centre, Hong Kong has experience in executing structured and project financing schemes of different complexities involving multiple currencies, such as infrastructure projects to be rolled out by the Asian Infrastructure Investment Bank under the Belt and Road Initiative.
On trade and logistics, Hong Kong is the most notable international business centre on Chinese soil, and has gained special access to the mainland market through the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). Hong Kong is a premier logistics hub and will further prosper as an entrepôt for the acceleration of China-ASEAN trade. Services can also be extended to include supply chain management, inventory management, quality assurance, return and repair, and distribution, as well as labelling and packaging for compliance in different markets.
With many investment opportunities implicit in the augmentation of China-ASEAN co-operation, the rich pool of professional talents (finance, legal, arbitration, accounting, insurance, construction, engineering, etc.) allows Hong Kong to support the demand for high-quality professional services in the process.
ASEAN: a Diverse Group
Despite the growing integration of the region, one can hardly treat ASEAN as a single market. ASEAN countries are highly diverse in many aspects, such as economic development, business practice, consumer preference, language, religion and culture. For instance, GDP per capita in Singapore is more than 30 times that of Laos, Cambodia and Myanmar. Malaysia has a much younger population than Singapore. Muslims make up the majority of the population in Indonesia, Brunei and Malaysia while Filipinos are mainly Christian.
These diversities, in addition to other problems, such as language barriers and red tape, make ASEAN a challenging market, especially for SMEs with limited resources.
The Singaporean Link
Multinational corporations have long realised the advantages of headquartering in Singapore to manage their operations across ASEAN countries. In fact, these advantages may extend to SMEs with little or no experience in the ASEAN market.
Establishing a Presence in Singapore
The business environment in Singapore is as friendly as in Hong Kong. Both economies share a common legal heritage derived from the United Kingdom. Also, more than 70% of Singapore residents are Chinese. English and Mandarin are the official languages while Cantonese is widely spoken. With the same legal system and languages, it is hassle-free for Hong Kong companies to operate and invest in Singapore.
Businesses in Singapore find the government to be very supportive. While SMEs are usually resource-scared, one can set up a company in Singapore with little cost but make use of the various incentives offered by the government. Some of those provided by the Singapore Economic Development Board are listed in the box below. Other schemes are offered by the Standards, Productivity and Innovation Board of Singapore (SPRING Singapore), which is an agency under the Ministry of Trade and Industry responsible for helping Singapore enterprises grow, and International Enterprise (IE) Singapore, the government agency that promotes Singapore’s international trade and the overseas growth of Singapore-based companies.
Incentives for Business Provided by the Singaporean Government
Source: HKTDC from Singapore Economic Development Board |
Also, businesses can make use of Singapore's extensive network of Free Trade Agreements (FTAs) and Double Tax Agreements (DTAs) to optimise tax benefits and reduce trade barriers and costs. Singapore has signed about 20 FTAs with 31 trading partners and some 70 comprehensive DTAs with various countries.
The advantages of establishing a presence in Singapore go beyond government incentives and optimisation of tax benefits: Singapore is the stepping stone to other ASEAN markets.
Working with an Agent in Singapore
Singapore, the trading and logistics hub in Southeast Asia, is the base of many regional retailers and distributors. Therefore, an alternative to establishing a presence in Singapore is to partner with a local agent who is able to manage the regional distribution. This saves the start-up capital but the trade-off is a lower profit margin when an intermediary is engaged.
Compared with direct deals in individual markets, working with an agent in Singapore can help reduce counterparty risks in the less developed economies. One can also enjoy economies of scale when engaging a regional distributor in Singapore.
Franchising through Singapore
ASEAN consumers increasingly crave the quality, convenience and service associated with brands, making franchising an effective means of business expansion in ASEAN markets. However, the success of franchising an operation hinges on the management of franchisees and continuous support such as training, supply chain, brand building and product innovation. All these could be big challenges to companies with little experience in ASEAN markets.
Hong Kong’s brand holders could consider Singapore a platform for franchising in the ASEAN region. The franchising industry is mature and well-regulated in Singapore, where many experienced franchising consultants can help develop business concepts and match franchisors with franchisees. Singapore is also an ideal place for franchisors to showcase or test their concepts.
Singapore as a Franchising Hub Franchising took off in the early 1990s when the Singapore government started actively promoting the concept as a means of internationalising smaller companies. The leading government agencies promoting franchise development are the Standards, Productivity and Innovation Board of Singapore (SPRING Singapore) and International Enterprise (IE) Singapore. SPRING Singapore offers financial assistance to small- and medium-sized enterprises (SMEs), while IE Singapore helps local companies to franchise abroad. The Franchising and Licensing Association (FLA) in Singapore was set up to promote the use of franchising, branding and licensing as a growth strategy for Singapore enterprises. Among other activities, it caters to the needs of franchisors and franchisees, assisting members in improving their skills and techniques. Another objective is to enlarge the pool of franchise-trained professionals through relevant programmes sourced internationally. The FLA taps into Local Enterprise and Association Development (LEAD) funding to bring in the Certified Franchise Executive (CFE) programme, a certification course that upgrades the skills and capabilities of franchise professionals. Apart from offering CFE to local franchise professionals, the association plans to take the CFE programme to neighbouring countries in Southeast Asia as well. Overseas franchise professionals may also have the option of coming to Singapore to attend the course. With decades of support and promotion by the Singapore government, its multiracial society and a prevalence of English, the international franchising community views Singapore as a strong entry point for the ASEAN market and an ideal location for foreign franchisors to test their concepts. Franchising and Licensing Asia, organised by the FLA Singapore, is an international franchise exhibition and conference in Asia providing a platform for global brands to find the right franchisees in Asia and for Asian franchisors to explore opportunities to expand overseas. According to SPRING Singapore, annual turnover of the franchising sector in Singapore is about US$8 billion, and accounts for 18% of total domestic retail sales. The franchising sector has created approximately 20,000 jobs from more than 500 franchising concepts, 50% of which are imported. Singapore’s food and beverage sector continues to dominate the franchising industry, but education and training franchises are gaining momentum due to the growing corporate training needs of the many multinational companies located in Singapore. Source: “Franchising through Hong Kong: Accessing the Asian Market”, HKTDC, 2014 |
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