Doing business in Southeast Asia: what you need to know
Originally written for Black Marketing, Singapore.
Southeast Asia is a populous region with more than 650 million inhabitants with a natural and cultural heritage that draws in tourists from all over the planet. It is also a diverse area home to some of the world’s fastest growing economies, and hence attracts global companies and investors that are seeking to conduct business.
Entering the market
Although most of the population still live in rural areas, Southeast Asia is well integrated into the global economy. Conducting business can however still present problems: a number of steps need to be taken before investing or starting a business, and an appropriate entry strategy should be devised according to the target market. Foreign business people should in fact be aware of the importance of the growing middle class and increasing consumer spending, and preferably be keen on fostering meaningful relationships with local stakeholders such as economic agencies and communities.
Rampant corruption presents a great problem in Southeast Asia. In fact, according to the Corruption Perceptions Index 2017 by Transparency International, Cambodia was one of the most corrupt places in the world, ranking at 161st place out of 100 countries and territories. Laos further ranks 135 and Myanmar 130. Aside from Singapore and Brunei that have favourable outcomes (respectively 6 and 32), other Southeast Asian countries such as the Philippines (111), Vietnam (107), Indonesia (96) and Thailand (96) rank relatively poorly.
Despite growing economies, the region’s rampant corruption delays progress towards income equality as the region is still home to some of the world’s poorest people, primarily located in the countryside which threatens to set back plans for greater economic integration. In fact, many Southeast Asian countries do not have elemental anti-corruption laws; limit civil society engagement and do not allow for transparency and accountability.
In 2018, Cambodia ranks 135 out of 190 countries in the World Bank’s “Ease of Doing Business” index – moving down four places in a year. The country is hence not progressing quickly enough in reforming institutions involved in making business activities easier.
Registering a business in Cambodia is in fact still complicated and expensive. Many businesses therefore choose to remain under the radar from the authorities in order to avoid lengthy, expensive and often corrupt processes.
Other investors choose to take over already-established businesses in order to avoid the complicated paperwork and bribes.Even though Cambodia attracts a great deal of small to medium businesses, it still has a long way to go before achieving significant improvements that could benefit the business community on a larger scale. In fact, Cambodia finds itself in the lowest quartile in “Ease of Doing Business” because of the complexities of starting a business, dealing with construction permits, and limited access to electricity.
At the same time, the problematic political climate dissuades international companies that consider setting up business in Cambodia. It should be taken into account however that despite political issues, the government is prioritising the building of a good business and investment environment so as to attract foreign investors.
Vietnam on the other hand does well for itself on the World Bank’s 2018 “Ease of Doing Business” ranking. Climbing 14 places in one year to reach 68th place amongst 190 economies is a significant achievement. In fact, important improvements were made: access to electricity, getting credit, paying taxes, importing and exporting across borders, and enforcing contracts were all made easier.
A number of regulations were issued, such as the implementation of a Supervisory Control and Data Acquisition (SCADA), which is an automatic energy management system that monitors power outages. Vietnam has further pushed for regulations to adopt a new civil code enhancing the scope of assets used as collateral, abolish the mandatory 12-month carry forward period for Value Added Tax credit, as well as upgrading the automated cargo clearance system increasing the operating hours of the customs department, and implementing a new code of civil procedure and a new law on voluntary mediation.
Despite Vietnam becoming increasingly business-friendly, more needs to be done. In fact the country still ranks very low at resolving insolvencies and starting businesses (123th and 121th). The cost of legal, professional and official fees have also increased. Vietnam should thus continue in the direction it is heading, and further focus on improving public infrastructure, reduce regulatory and administrative burdens on companies, and support the development of the domestic private sector.
Myanmar ranks 171th in the World Bank’s “Ease of Doing Business” index for 2018 and is one of the countries in the world where it is most difficult to do business. Everything from starting a business, getting electricity, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency is long and complicated.
Since 2017, improvements were only made in the registration of property and the ease of getting credit: registering property is now cheaper through a reduced stamp duty, and regulation allowing the establishment of credit bureaus has been adopted.
The fact that the country opened in 2012 after 50 years of military rule however justifies Myanmar’s struggle to become more business-friendly. The country is in the midst of a political and economic transition and has only recently officially started to democratise.
According to PWC’s October 2017 Myanmar Business Guide, foreign direct investment (FDI) is forecasted to remain strong despite the current political situation. In fact, the National League for Democracy (NLD) government has thus far been welcoming of foreign businesses: in 2016 it granted four foreign bank licenses and passed the Banking and Financial Institution Law.
Although the country is making efforts to increase its attractiveness with foreign investors, the lack of domestic stability and recent political tensions have been unsettling. The Rohingya crisis and its prevalence in the international media has in fact raised concerns among the business community and slowed down the previously booming foreign investments.
Thailand is a top country in the world for business: ranked as 26th out of 190 economies in “Ease of Doing Business”, Thailand improved from 46th in 2016 to 26th in 2018. It also ranks among the top 10 economies improving in the World Bank’s Doing Business report in 2016/17.
Thailand has in fact improved its business-friendliness in a great number of sectors: it passed regulations to make it easier to start a business, to get electricity, to register property, to get credit, to protect minority investors, to pay taxes, to enforce contracts and to resolve insolvency.
In fact, the current government is business-oriented and working towards constant improvement. It is in fact both easy and cheap to get a visa for business, and the Thai government promotes international business that supports innovation, technology and trade. A foreigner is even allowed to buy property in the country provided they are in partnership with a Thai national in a Thai majority limited company.
Similarly to Thailand, Malaysia also has a high score of 24 on the World Bank’s “Ease of Doing Business” index. Not only is it home to a lively business environment, it also has dynamic and technologically innovative enterprises. Malaysia’s infrastructure is also well developed compared to other parts of Southeast Asia.
This last year, Malaysia has continued to improve its friendliness towards businesses by making it easier to get credit through a new law that established a modern collateral registry, protecting minority investors by requiring greater corporate transparency, and by improving infrastructures, equipment and facilities at Port Klang in order to make importing and exporting easier.
Although Malaysia has its advantages such as a central and cost-competitive location in Southeast Asia, as well as a modern infrastructure, some sectors still need improving. In order to obtain construction permits for example, companies must complete as many as 37 procedures for an average of 140 days.
One of Southeast Asia’s most fundamental qualities is its diversity. It comes in all forms such as religion, languages and food, but is also prevalent in business. Some countries such as Thailand and Malaysia welcome investors and businesspeople with open arms, whilst Vietnam is constantly improving, and Myanmar and Cambodia are still dealing with internal conflicts that slow down foreign investments. It doesn’t mean however that the two latter do not have potential – on the contrary – there are great business opportunities to be explored. It may be complicated initially, but great profits can be made, as competition is still limited.