The ASEAN-6 nations are expected to forge ahead in the areas of technology, sustainability, and digital innovation this year.
The world has entered a new year amidst tumultuous times. There is a growing fear of recession in the United States on one end, while on the other there are concerns around a spike in new Covid variants in China. However, ASEAN nations are expected to be relatively insulated from global uncertainties since they are led by domestic demand.
The ASEAN nations, including Indonesia, Philippines, Malaysia, Singapore, Thailand, and Vietnam, ended 2022 on a strong note. There was a recovery in domestic consumption and GDP growth recovered. While Thailand saw slower GDP growth than its peers, DBS estimates the economy to recover in early 2023.
The year 2023 will bring transformational changes to businesses across ASEAN. Backed by digitisation, sustainable development, and talent mobilisation, ASEAN has the potential to become the new innovation destination for the globe. The policy reforms and business strategy tweaks initiated in the first few months will further strengthen ASEAN’s competitiveness globally.
While countries are right to worry about the data of their citizens, many of them still prefer the free flow of digital trade between economies. Perhaps the answer lies in using data localization as a tool used through a risk based lens, where each country sets its own risk level and decides how it would like to balance security and economic considerations. A risk-based approach first requires countries to have strong data classification models, which can help identify which data is more sensitive than others. Security best practices, such as the principle of least privileged access and zero trust systems, which requires portals to continuously verify one’s identity through methods such as multi-factor authentication, can also help secure data. Countries will constantly have to refine their data security laws to ensure the right balance between privacy and not affecting economic or digital growth.
ASEAN has committed to establishing a digital economy and society throughout the region by 2025. If the region’s countries align on data protection standards, this would help encourage further economic integration and reduce barriers for the provision of services, much like the EU has done. The quicker ASEAN countries refine their data protection laws, the lesser challenges they will face in the future and make the most of any opportunities arising from digitization.
Even as markets such as China have implemented various degrees of lockdowns, the ASEAN markets have reopened completely. The COVID-19 pandemic acted as a catalyst for ASEAN to accelerate its digitisation agenda. The pandemic-fuelled digitisation drive, which helped ASEAN consumers access products and services at their fingertips, will see multi-fold growth in 2023.
Going digital will involve timely regulatory interventions as well as innovative solutions by companies. Here are the three primary areas of growth within the digital fold:
|Year||Revenue (USD million)|
It is not just businesses alone. Digitisation is also being driven by the respective ASEAN governments through the implementation of digital IDs and digital smart cities programmes. Blockchain technology and web3 may power the digital transition in the near future through the use of digital ledger technology.
Climate change is knocking harder on our doors, making sustainable business practices the only alternative. Here, environmental, social, and governance (ESG) disclosures are no longer just good-to-have but a must-have. Reporting the steps taken to reduce the carbon footprint, use of renewable energy resources, and transparent governance processes are critical components of the ESG mix. While ~46% of the companies in ASEAN-6 made climate disclosures in 2022, it is expected that more companies will join this list this year.
Smart buildings, which use technology to conserve energy, will be a segment that may see heightened activity. Property developers in countries such as the Philippines have shifted to greener buildings with lower carbon footprints. Allied technologies including smart elevators and sensor-based monitoring can aid the shift.
A switch to electric vehicles (EVs) from fuel-powered vehicles is another dimension to the ESG strategy. Indonesia, Malaysia, and Singapore are among the countries which have taken the lead to transition to EVs. Shell has installed super-fast EV chargers along highways in Malaysia and Thailand which motivates more vehicle owners to switch to EVs. In these markets, there are upcoming opportunities in the areas of EV battery manufacturing, EV charging stations, and battery swapping. Considering the climate goals, it is expected that tax incentives will also be offered to manufacturers.
As more corporations in markets such as Vietnam make ESG investments, sustainability-monitoring software services will hold prominence. Achieving net-zero emission over the next three decades will involve active participation from the private sector as well as conducive regulations from the government.
With ESG at the forefront of climate change discussions, issuance of green bonds may also become a ubiquitous mode of sustainable development. Thailand is among the leading markets for sustainable bonds. Financing climate-related projects through green bonds is expected to form a part of the ESG agenda for 2023.
Hybrid working was a consequence of the pandemic. However, even as the ASEAN economies have reopened, flexi-working and work-from-anywhere continue to be popular. This translates to additional investments into coworking spaces and remote-work infrastructure. With Gen Z entering the workforce in large numbers, keeping these young workers engaged will form a part of companies’ human resource strategy.
|Country||Salary Increase 2022||Expected Salary Increase 2023|
Though companies are going slow on hiring, salary hikes are expected to be marginally better than in 2022. An Aon survey showed that Vietnam will offer the highest salary hikes among all Southeast Asian nations this year. This is amidst an increased focus on retaining skilled talent.
Technology talent in particular will be in high demand across Southeast Asia. Positions such as full stack engineers, data scientists, and UX designers will continue to see vacancies. However, talent shortage will pose challenges for companies looking to hire.
The three standout workplace trends will be:
Overall, 2023 is expected to be a busy year for skilled technology professionals. WFA and WFH will enable seamless talent outsourcing to Southeast Asian nations. Multinational companies such as Amazon and Google have collaborated with ASEAN to bridge the digital skill gap. In addition, Microsoft partnered with the ASEAN Foundation to launch a cybersecurity skilling programme. Upskilling and reskilling with the assistance of global technology companies and edtech players will pick up further momentum in 2023.
As global brands move away from China-led manufacturing, ASEAN nations can become the sought-after destinations for expansion. From infrastructure, technology, to talent, the Southeast nations have all the necessary prerequisites for setting up businesses. Greater emphasis on ease of doing business and public-private partnerships will help attract additional foreign investments.
Upcoming elections and poll promises will bring a new dimension to the region’s growth story. Indonesia and Thailand will face elections in 2023-2024. Thailand’s general elections are likely to be held in May 2022 which will translate into changes or tweaks in the corporate regulations by the incoming government. Similarly, Indonesia will finalise the seats for the 2024 Presidential Elections which means that ruling party’s candidates will prioritise on initiating people-focussed reforms.
On a macroeconomic level, inflation is expected to be lower in most of ASEAN, except Singapore and Vietnam. Frequent price volatilities may impel companies to conserve capital and pause aggressive expansion. More clarity will be available over the next two to three months, depending on how soon the economies recover to pre-pandemic levels.
ASEAN is at the cusp of transformation. The Digital Masterplan 2025 will open new horizons for the public sector, private companies, and entrepreneurs to create digital-first economies at affordable costs. The rise of an aspirational Gen Z will boost consumption in the region and offer additional opportunities for developing innovative products and services. Despite an arduous political economy worldwide, ASEAN has the potential to become a breakout success story.
Between 2023-2027, ASEAN will also build closer ties with its East Asian counterparts to build an economic powerhouse in the region. This will broaden the business possibilities in the region. Adopting sustainable practices to boost economic progress alongside environmental protection will be conducive to business growth in Southeast Asia. For all things business, this is the place to be.
Sumit Dutta is the Founder and Chief Executive Officer of ASEAN Business Partners. Prior to this, Sumit spent 26 years working for HSBC, one of the biggest banks in the world, in countries including Indonesia, Vietnam, USA, Hongkong and India.
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