Exploring New Frontiers of Growth
Amid an uncertain economic climate, firms in Asia are moving forward and taking leaps with their internationalization efforts.

As Asian firms evolve into powerhouses and increase their receptiveness to foreign investment, the region’s economy continues to be daring yet demanding. Globally distinct brands and rapid venture activity foster new opportunities in Asia for international firms.

Companies looking to expand or enter the region will need to be more risk-intelligent, make brainier decisions and move quicker to capture global advantage. What remains on top of their checklist are their risk appetite, market-access advantage and cost structure. These areas are where the ASEAN Economic Community (AEC) can help.

Businesses will also be given direction by the AEC to assess if the country is a right fit for them, from the suitability of talent, government policies and the country’s levels of technology or innovation.

For expanding multinationals and emerging firms that are going global, the AEC will offer new ways of nurturing enterprises by giving them access to new markets for products with proven success.

Reports by the Japan External Trade Organization and China Council for the Promotion of International Trade also show considerable demand for ASEAN’s high-potential growth areas, by Japanese and Chinese investors.

With a bar of competition that stretches their growth potential, China, Malaysia and Thailand, have been identified as the most popular destinations with Enterprise 50 companies looking to internationalize for growth.

These countries share the distinction of being able to meet local needs in different markets and customer segments whilst tapping on the synergy of a global network. Business owners entering these markets may want to consider a change in their business model or relook their strategies for capturing market share.
China’s Considerable Progress
As part of China’s rapidly opening economy, companies looking to enter can expect to lower market barriers for private and foreign participation.

Furthermore, China’s manufacturing is maturing and becoming more complex. New import licenses, the introduction of administrative and logistics services for factories or changes in production facilities could follow.

China’s continued emphasis on exports, added to pro-growth measures such as aggressive tax reductions and supporting enterprises makes China a thriving location. The China Business Report 2013 argues that nearly two-thirds of US companies surveyed said they were “in China for China”.

Investors and business owners will need to learn ways to capitalize on China’s tax incentives and other tax-based preferential policies. These may include reductions or exemptions in corporate income tax, import tax, urban land tax or value-added tax.

Those thinking of expanding their China presence will need to understand China’s tax policy in its entirety and align their business strategy. Investors and entrepreneurs entering China will need to better understand corruption and non-compliance in China so as to be able to protect their businesses from disruptions or irregularities.
Thailand Takes On The Region
Thailand is admired by new entrants as it offers low annual costs for business space, requires minimal hassle to register a business property and promises a lower cost of living and transparent business environment.

An International Enterprise Singapore (IE) report states that Thailand remains a hub for the agro-business, electronic and automotive industries. Plans are in place to create a stronger business-friendly environment and bolster business-enabling arrangements. These initiatives are in place to attract, root and multiply successful multinationals and enterprises.

For example, a leading foam and rubber components manufacturing company in Singapore has plans to acquire a new factory and restore operations at its affected plants, despite the recent floods.

By taking advantage of Thailand’s competitive tax regulatory and legal system, companies can play to the strengths of Thai businesses. For example, Thailand’s renewable energy sector holds great promise as its demand for energy has risen significantly in decades as it industrializes.

Businesses looking to expand can leverage on Thai organizations’ extensive networks to access alluring prospects in neighboring countries like Vietnam and Myanmar.
Malaysia Proves Stiff Competition
Malaysia is widely admired as being a capable, prosperous and flexible market. The peninsula state is also a prominent driver of growth in a number of areas including services outsourcing in aviation, exporting commodities such as palm oil, a state-of-the-art and productive seaport and advancements in property development and telecommunications.

For those looking to start a business, Malaysia promises a fuss-free process. The government only requires three procedures, six days and costs 7.6 percent of income per capita in fees.

There are also numerous tax incentives available to support various investments, especially in promoted areas like the Iskanda Malaysia. Other business-friendly benefits of the multilingual state include efficiency in tax administration, licensing approvals and ease of cross-border trading.

Malaysia was also ranked the world’s top location for manufacturing by real estate provider Cushman & Wakefield in 2013. It is also recognized as a global leader in Islamic financial services offering access to liquidity for firms and strong investor-protection policies.

One prominent area of growth is in IT-business processes outsourcing (IT-BPO). Tax incentive support includes an investment tax allowance of up to 100 percent to encourage businesses to consider IT business process outsourcing in Malaysia.

Another growth area in tandem with competitive tax advantages are industrial parks. Kuala Lumpur’s Technology Park Malaysia (TPM), for example, caters to the needs of technology-intensive industries and research and development facilities.
A New Stage of Growth
While companies are right to be excited about entering these markets, foreign entrants need to delicately balance the pros and cons. They will need to tackle challenges such as an uncertain legal landscape, inconsistent regulations and protectionism.

Local customization and branding, new approaches to diversifying markets and navigating through an ever-changing tax landscape will pave the way to internationalizing into the new era of growth.
The article was contributed by Owi Kek Hean, Deputy Managing Partner & Head of Enterprise Market Segment, and Chiu Wu Hong, Head of Enterprise Incentive Advisory at KPMG in Singapore. The views expressed are their own.
Reference
Forbes Asia, "Manufacturing in China Can Give Your Business the Competitive Advantage",
IMD, "China's Global Competitive Advantage",
Asia One, "SMEs risk new Asean single market",
KPMG Insights in Emerging Destinations (PDF, 6.08MB),
US Asean Org, "Investing in Asean 2013-14" (PDF, 4.68MB),
Business in Asia, Asia Opportunities: AEC,
IE Singapore Internationalisation Survey 2012-13 (PDF, 301KB),
Spie Research, "Asean Economic Opportunity 2015: A Real Opportunity That Should Not Be Overhyped",
The Star, "Global Companies Set Up Regional Headquarters in KL"
© 2016 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.