Expanding your business internationally? Here’s what you need to know about investing in Southeast Asia

Southeast Asia (SEA) is home to some of the world’s most dynamic economies, offering an expanse of opportunities for businesses seeking to grow their production and customer base. By 2030, the Association of Southeast Asian Nations – the grouping of 10 SEA nations – is expected to be the world’s fourth largest economy with a combined gross domestic product (GDP) of approximately US$4.5 trillion (S$5.95 trillion). This growth is powered by a rising middle class, continued urbanisation and demand for smart solutions, increased spending on infrastructure, and a shift towards sustainability.

To unlock the region’s huge potential, businesses must first understand the region’s diverse markets, contexts and priorities. Here’s what the experts have to say about the opportunities and challenges in SEA, and how Singapore offers a base for businesses to navigate the region.

1. SEA’s Digital Economy enters its new era of growth and profitability

The e-Conomy SEA 2024 report by Google, Temasek, and Bain & Company highlights how SEA companies are clearly on the road to more sustainable growth, with corporates in the region embracing digital and artificial intelligence (AI), and governments removing roadblocks to regional growth.

Key findings

• Strong digital growth: Despite global economic challenges, SEA’s digital economy has shown resilience, reaching a gross merchandise value of US$263 billion (S$347.53 billion) in 2024, a 15 per cent increase from the previous year. This growth is driven by core sectors like e-commerce, online media, travel, and food delivery, all of which have seen enhanced profitability.
• Emerging video commerce: Video commerce is now a significant part of e-commerce sales, with its popularity fuelled by the rise of social media and a thriving creator economy. This trend enables businesses to engage audiences in new ways, offering a valuable channel for brand visibility and customer engagement.
• Investment in AI infrastructure: To support long-term growth, SEA has attracted US$30 billion (S$39.64 billion) in AI infrastructure investments in the first half of 2024 alone. This lays a foundation for the region to develop and adopt advanced AI applications, positioning SEA as a leader in the global digital economy.

The e-Conomy SEA Report 2024 offers in-depth insights into SEA’s digital growth, highlighting opportunities for businesses to capitalise on expanding digital markets and innovative trends like video commerce. It outlines growth areas, emerging trends, and opportunities to build sustainable digital businesses.

2. Capitalising on SEA’s growth and resilience amid global shifts

SEA’s economies are undergoing significant shifts driven by factors such as inflation, global supply chain disruptions, and geopolitical risks. By staying informed about these shifts, businesses can better shape their strategies, anticipate risks, and identify investment opportunities. This might involve diversifying supply chains, staying agile in response to market changes, and tapping into the region’s growing integration into global trade networks.

The McKinsey SEA Economic Landscape Q2 2024 report examines how SEA’s economies are adapting to global challenges. It provides a practical look at the strategies businesses can adopt to enhance resilience amid inflationary pressures, global supply chain disruptions, and geopolitical risks.

Key findings

• Sectoral resilience and manufacturing growth: SEA’s manufacturing sector shows resilience, supported by regional strengths in electronics, consumer goods, and apparel. This trend is attributed to the region’s rising importance as a manufacturing hub, providing businesses with alternative supply chain solutions to China.
• Emerging role as a supply chain hub: SEA is becoming increasingly attractive for businesses aiming to diversify their supply chains. SEA’s strategic location, skilled workforce, and trade agreements make it an appealing option, especially as companies look to mitigate global supply chain risks.
• Risk mitigation strategies: The report emphasises diversification and flexibility in supply chains as essential resilience strategies. Companies operating in SEA are encouraged to integrate with regional trade networks to maintain agility and adaptability.

Complementing these insights, the Angsana Council, Bain & Company, and DBS Bank's Navigating High Winds: SEA Outlook 2024-34 report provides a comprehensive 10-year outlook for the region. The report reveals that the top six SEA economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam — are projected to grow at 5.1 per cent annually. Notably, the region has overtaken China in foreign direct investment, attracting US$206 billion (S$272.21 billion) compared to China's US$43 billion (S$56.82 billion) in 2023.

Key findings

• High-growth economies: Vietnam, the Philippines, and Indonesia are expected to lead the region’s growth, with Vietnam and the Philippines projected to exceed 6 per cent annual GDP growth. Indonesia’s growth rate is expected to reach 5.7 per cent, driven by domestic demand and infrastructure investments.
• Strategic investment sectors – semiconductors and data centres: Malaysia is emerging as a key player in semiconductor packaging and data centres, benefiting from supportive policies and established infrastructure. The report highlights Thailand and Indonesia’s leadership in electric vehicle manufacturing, attracting significant foreign investments.
• Vietnam’s role in the “China+1” strategy: Vietnam’s strong export base and infrastructure investments position it as a primary destination for companies implementing the “China+1” strategy, which involves diversifying operations beyond China to other high-growth markets.

3. Investable decarbonisation opportunities in SEA’s Green Economy

SEA faces the challenge of balancing economic growth with the urgent need for decarbonisation. As the region works to reduce its reliance on fossil fuels, new opportunities are emerging in green sectors such as renewable energy, biofuels and carbon capture.
 

The SEA’s Green Economy 2024: Moving the Needle report by Bain & Company, GenZero, Standard Chartered, and Temasek highlights the region's potential and the pivotal role Singapore plays in this transition.

Key findings

• Investment opportunities: The report identifies 13 investable decarbonisation ideas across sectors such as nature and agriculture, power, transport, and buildings, with an estimated economic opportunity of up to US$150 billion (S$198.15 billion) by 2030.
• Investment gap: To achieve decarbonisation goals, SEA requires an estimated US$1.5 trillion (S$1.98 trillion) in investments by 2030. However, only US$45 billion (S$59.42 billion) has been invested in dedicated green initiatives since 2021, indicating a significant investment gap.
• Accelerators for transition: The report emphasises five key accelerators to expedite the region's green transition: policy and regulatory frameworks, financing mechanisms, technological innovation, talent development, and regional collaboration.

Singapore as a hub for green growth

Singapore plays a pivotal role in SEA’s green economy transition by serving as a hub for green finance and carbon services. The city-state hosts a comprehensive carbon services ecosystem with over 120 firms specialising in carbon trading and related services — the highest concentration in the region. Through its supportive regulatory environment and advanced infrastructure, Singapore enables businesses to access financing and expertise for sustainable projects throughout the region.

It also actively promotes renewable energy projects, including large-scale solar installations and the development of hydrogen-ready natural gas plants, to enhance energy resilience and support its renewable energy goals.

4. Singapore as a gateway for SEA expansion

An Introduction to Doing Business in Singapore 2024 by Dezan Shira & Associates provides a comprehensive overview for investors and businesses considering entry into Singapore's dynamic market. The guide delves into critical aspects such as corporate establishment, tax advisory, compliance, accounting, payroll, due diligence, and financial review services.

Key highlights

• Corporate establishment: The guide outlines the procedures for setting up various business entities, including private limited companies, branch offices, and representative offices, detailing the necessary documentation and regulatory requirements.
• Taxation: An overview of Singapore's tax regime is provided, covering corporate income tax rates, Goods and Services Tax (GST), and available tax incentives aimed at fostering business growth.
• Human resources and payroll: Guidance is offered on employment regulations, work visa applications, and payroll management, ensuring businesses can effectively manage their workforce in compliance with local laws.

Registration is required to download the full report.

Singapore, with its strategic location and business-friendly environment, is a crucial hub for accessing SEA’s markets. To explore how your business can capitalise on SEA’s growth potential, sign up for The Workshop — a personalised, on-demand consultation with industry experts to support your market expansion plans.