Navigating Southeast Asia: Maximizing Market Entry Success Through Multi-Country Benchmarking

Investors eyeing opportunities in Southeast Asia should consider leveraging a multi-country benchmarking service to pinpoint the most promising destinations within the region for market entry. By utilizing such a service, investors can meticulously assess the comparative advantages and drawbacks of various countries, taking into account their specific business objectives, industry focus, and unique requirements.

Emerging Southeast Asian investment hubs

When contemplating investments in Southeast Asia, particularly for those seeking alternatives to or diversification from the Chinese market, the region presents compelling prospects. Factors such as geographic proximity to China, relatively lower operational costs, and favorable government policies make countries in Southeast Asia an appealing choice. This is especially true for businesses looking to adopt a ‘China-plus-one’ strategy, aiming to complement their existing operations in China or establish supplementary facilities in the region.

In recent years, Vietnam has emerged as a prime destination for investors pursuing a China-plus-one approach. Escalating costs in China and trade tensions with the US have prompted many international enterprises to explore alternative manufacturing bases in neighboring countries. Vietnam, in particular, has gained attention for its adeptness in fostering a flexible production ecosystem, conducive to higher-value manufacturing activities.

However, the trend extends beyond Vietnam alone. Other ASEAN markets like Indonesia, Thailand, and Malaysia are also increasingly on the radar of foreign investors seeking to diversify their production footprint. These nations offer a combination of cost competitive operations, robust infrastructure, and favorable trade integration within the region.

The China-plus-many approach

Rather than adhering to a China-plus-one strategy, many investors are now adopting a more comprehensive ‘China-plus-many’ approach. This entails structuring global supply chains across multiple countries within Southeast Asia to mitigate risks and enhance cost-efficiency.

The countries poised to benefit the most from this strategy are those that provide competitive advantages such as low-cost labor, well-developed infrastructure, and seamless integration into regional supply chains. Prominent candidates include Vietnam, Indonesia, and Malaysia, among others.

In addition to these Southeast Asian nations, advanced markets in proximity like South Korea and Japan offer attractive prospects for high-value production and technological innovation. For Western companies, close trade and political ties with these countries can further bolster their market position in the region.

Choosing the right market to set up: Why opt for a multi-country benchmarking study

Selecting the optimal investment location within Southeast Asia requires careful consideration of various factors. Each country presents a unique set of strengths and challenges, making the decision-making process complex for foreign firms, especially those transitioning from operations in China.

External factors such as natural disasters, geopolitical tensions, trade disputes, and pandemics can also disrupt supply chains and production activities. Diversifying operations across multiple countries can help mitigate the impact of such unforeseen events.

To make well-informed investment decisions, investors often turn to professional services providers offering Multi-Country Benchmarking Studies. These studies analyze key parameters, such as the political landscape, economic environment, legal and regulatory framework, logistical infrastructure, labor market, tax policies, and manufacturing capabilities across different countries.

While each study is tailor made to the client requirements, below we briefly discuss important parameters typically used when embarking on a benchmarking study:

Political landscape

A country’s political environment and stability can significantly impact the ease of doing business, investment opportunities, and overall business growth. For instance, a stable government with a strong, dominant party may indicate a long-term commitment to certain investment attitudes and priorities. Conversely, any signs of domestic unrest can adversely affect a businesses’ operations. Moreover, it’s important to examine non-tariff barriers that may exist and complicate operations, such as bureaucratic measures, domestic subsidies linked to populist policies, and so on.

Economic environment

Examining the economic environment and key economic indicators is crucial for understanding the current and future potential of a market. These factors directly influence the opportunities and challenges your business may encounter. For instance, currency volatility can make it challenging to accurately predict cash flow, as sudden price drops may decrease your profit margin while your costs remain constant.

Legal and regulatory environment

A favorable legal and regulatory framework can greatly impact your ability to operate smoothly and minimize risks. Analyzing current frameworks offers a comprehensive overview of regulatory and administrative procedures in different countries. This understanding allows you to assess how your operations will be treated and the extent of regulatory risks you may encounter in the target markets.

Structuring analysis

This analysis explores how you can capitalize on the optimal options for setting up your business. Researching available options, the processes involved, any special licensing requirements, and methods for repatriating profits back to headquarters is essential. These details offer a good understanding of the potential setup timeline and the feasibility of establishing your presence in the target country. You don’t want to be caught off guard by unexpected requirements that could derail your plans and other operations dependent on them. Additionally, it’s crucial to select the right entity for your business needs—one that allows legal operation and is structured to minimize costs.

Locations for manufacturing

Significant regional variations exist within each country, with specific locales or areas better suited for particular industries. When considering this parameter, it is important to compare manufacturing areas within the target countries that fit your sector. Gather and analyze data to assess the country’s overall suitability compared to others. You may even choose a more granular approach, comparing selected economic zones or regions in one country against those in another for a deeper analysis.

Labor review

Labor laws in each country vary significantly, and companies must carefully consider which laws and regulations may apply. It’s also important to ensure you can find enough (or the right) skilled labor for your sector and investigate best practices to protect yourself and your employees while encouraging retention.

Logistics review

Logistical infrastructure in each country can vary significantly. Businesses must carefully assess logistic costs and capabilities. A logistics review looks at existing networks and associated costs within target countries to help you understand the costs and time required to transport goods within and between markets.

Tax and tariffs

This is an important one. Tax regimes can be complex and vary significantly from country to country. Investors should examine existing policies to understand the extent of their tax exposure in various countries. While many countries in South and Southeast Asia have adopted appealing tax regimes to attract foreign investment, investors will still need to understand if the tax environment will allow them to run and grow their business. Reviewing the tax regimes can also help grasp how to structure the entity to minimize the tax burden. However, it is advisable to speak to a tax professional to fully understand how to structure the investment before market entry and take advantage of all available tax efficiencies.

Summary

By conducting thorough research and due diligence, investors can identify the most suitable locations for their business expansion or restructuring efforts. Partnering with experienced service providers with in-depth knowledge of Southeast Asian markets can significantly enhance the success of investment endeavors and minimize risks associated with market entry and operation.

Source: ASEAN Briefing