Asian corporates want to cash in on 'growing middle class,' yet seek cheap labour, survey finds

This was the first survey of its kind on the impact of trade flows and on the way Asian enterprises do business and expand regionally. 

It found that enterprises in the food and beverage, tourism, leisure and travel-services sectors in particular were focused on capturing the increased spending power of Asia’s middle class. According to the Brookings Institution, by 2030, Asia is expected to account for two-thirds of the world’s middle-class consumers or about 3.2 billion people, a majority of whom will live in China.

Frederick Chin, head of group wholesale banking at UOB, said the survey reaffirmed that rising incomes created opportunities for those businesses that can cater to the higher expectations and consumption patterns that come with increased affluence.

“Companies that can create the services and products to meet the rising expectations of Asia’s middle class have a unique opportunity to build sustainable and strong regional businesses. They will be able to tap into a closely integrated and increasingly interconnected Asia for abundant and sustainable growth opportunities,” Chin said.

The survey also found that China, home to more than 1.3 billion people, was the top expansion destination (32 per cent) for Asian enterprises. Malaysia (27 per cent), Singapore (24 per cent), Vietnam (24 per cent) and Indonesia (19 per cent), which are seeing strong growth in middle-class households, also feature among the top choices for regional expansion.

Even as opportunities to serve Asia’s rising middle class abound, many Asian enterprises are grappling with the increasing cost of doing business in the region. Twenty-two per cent of the respondents cited rising costs as the main factor limiting their business growth, while 15 per cent said their regionalisation plans were affected by labour shortages.

Enterprises in the manufacturing sector in particular say they are looking to set up facilities in relatively inexpensive markets such as Vietnam and Myanmar.

 

Higher costs 

“Production and labour costs in developed cities in China and Singapore are inching upwards,” said Suan Teck Kin, senior economist at UOB. “As a result, Asian enterprises are now exploring lower-cost cities within China or are relocating their labour-intensive operations to less expensive Southeast Asian countries. This allows businesses to trim their costs and remain connected to Asia’s large middle-class consumer base.”

Forty per cent of Chinese enterprises surveyed said they were considering moving from recent growth hotspots in the Pearl River Delta and the Yangtze River Delta to emerging consumer markets in lower-cost areas in southwestern and central China such as Nanning, Chongqing and Chengdu.

In choosing their next regional expansion destination, Asian enterprises also tend to rely on opinions found in social networks and by word of mouth. UOB found that almost half of the business leaders surveyed depended on the advice of personal and business contacts with a similar language or culture (24 per cent) or trade associations and financial advisers (20 per cent) when making decisions on when and how to expand regionally.

This “network effect” has been a key factor driving the memorandum of understanding between UOB and the China Council for the Promotion of International Trade, which is aimed at increasing foreign investment and trade between China and Southeast Asia.

The “UOB Asian Enterprise Reports 2014” can be downloaded from www.uobasianenterprises.com.