2016 ASEAN Outlook Survey shows Expected Profit Increases and Workforce Expansion; Concerns with Corruption and Personal Security Remain
U.S. companies remain optimistic about business prospects in the Association of Southeast Asian Nations (ASEAN), according to the 2015 ASEAN Business Outlook Survey. In a poll of 588 senior executives representing U.S. companies in all ten ASEAN countries, 74% reported that their company’s level of trade and investment in ASEAN has increased over the past two years, and an overwhelming 89% of respondents expect it to increase over the next five years. The profit outlook is solid, with 63% of executives expecting profit increases this year, and 81% next year. Slightly over half (53%) of the respondents expect their companies’ workforce to expand this year, while only 5% expect decreases.
Malaysia’s positive sentiment towards the U.S., its infrastructure, and office lease costs continue to be attractive business factors for U.S. companies. At the same time, satisfaction with these factors decreased since last year.
Sanjeev Nanavati, AMCHAM President commented, ”Malaysia continues to be crucial for American businesses operating in the ASEAN region, as evidenced by the fact that 77% of respondents in Malaysia expect a profit increase in 2015 (up from 53% in 2014), 70% have company expansion plans, and 52% expect workforce expansion. It is important that the Malaysian government continue to provide a business friendly environment in the coming years so that companies can help realize Malaysia as a regional hub and center of excellence, particularly as Malaysia continues to face new challenges and opportunities moving up the value chain.”
“This survey underscores the confidence that U.S. businesses have about ASEAN, particularly as it integrates economies, deepens its trade and investment relations with major trading partners, and makes the region an important, attractive destination for U.S. investment,” said Tami Overby, the U.S. Chamber’s senior vice president for Asia. “The ASEAN countries that are participating in the TPP will enjoy the greatest benefits from this trend toward regional integration, and we continue to encourage those countries that are not yet in the TPP to consider participation.”
However, the survey also found substantial concerns and impediments to companies’ growth in the region. As in previous years’ surveys, corruption was the top issue across ASEAN, cited by a majority of respondents in all countries except Brunei and Singapore. American companies also pointed to burdensome laws and regulations, lack of transparency, poor quality of infrastructure, and the difficulty in moving products through customs in some countries as obstacles to greater investment.
37% of respondents in Malaysia are facing significant financing constraints in 2014, up from 22% in 2013. In addition 18% of respondents indicated that they are facing higher costs of borrowing in 2014, up from 6% in 2013.
55% of respondents in Malaysia indicated that ASEAN markets have increased in importance to their companies over the past two years. 70% of respondents plan to expand, while none plan to contract. The top reasons for expansion in 2014 across ASEAN are Economic Recovery, Improvement in infrastructure, Favorable government policies and limited government opportunities.
87% of respondents in Malaysia reported that ASEAN integration is important to helping their companies do business in the region. 55% of respondents reported that ASEAN markets have increased in importance to their companies in the past two years, and 65% expect ASEAN importance to increase in the next two years. This data reveals that, although the ASEAN region is important to the majority of respondents in Malaysia, it is not important to an overwhelming majority
97% of respondents reported that the Trans-Pacific Partnership will help or have a neutral effect on their company’s regional trade and investment. 40% said that the TPP will impact where their company plans future investment in the region, while only 18% said that the agreement would not impact investment.
When respondents are requested to rate their satisfaction level with the local agencies they interact with in Malaysia, most respondents are generally more satisfied than dissatisfied across all selected government agencies. In addition, 74% of respondents said that the Malaysian Government often or sometimes considers the private sector’s input on new laws and regulations.
95% of the respondents in Malaysia believe that expatriate employees are generally satisfied with their assignments. Space at international schools does not appear to be an overwhelming problem, with only 30.5% of respondents reporting that finding space at these schools would be a problem in the next 1-3 years.
Top strengths for Malaysia are, positive sentiment towards the U.S. (58%), Infrastructure (56.6%), Office Lease Costs (50%), Stable Government and Political System (46.67%), Availability of Labor (45%), Availability of raw material (45%), free movement of goods within the region (41%), and ease of moving products through customs (43%). Corruption remained Malaysia’s top concern (67% dissatisfaction rate) followed by Personal security (42%) and Tax structure (38%).
Of the 588 executives representing U.S. companies in all ten ASEAN countries, 55% are in services industries, 31% are in manufacturing, and the remainder in extractive and other industries. The companies surveyed had turnover ranging from below $50 million to more than $1 billion.
Highlights of findings from respondents from each country:
Brunei is one of two countries in ASEAN where the majority (56%) of respondents indicate satisfaction with a lack of corruption. Respondents in the country are also highly satisfied with personal security, sentiment towards the U.S., and the stability of the government and political system. Business leaders do indicate challenges in finding trained personnel in the country.
Major strengths cited by respondents in Cambodia include availability of low cost labor and positive sentiment towards the U.S. Corruption remains a problem, as 82% of respondents expressed concern, up from 65% last year.
Indonesia was rated as the top destination in ASEAN for expansion, despite the many challenges companies cite in doing business there. Overwhelmingly, insufficient infrastructure was identified as the greatest drawback in Indonesia. Other significant challenges include corruption, finding trained personnel, moving products through customs, and problematic laws and regulations. Satisfaction with personal security in Indonesia has increased by 24% since 2009.
The availability of low cost labor and personal security are strengths in Laos, as they are across much of ASEAN. Challenges for U.S. companies in Laos include corruption, insufficient infrastructure, lack of trained personnel, and problematic laws and regulations. In addition, U.S. companies are viewed less favorably in Laos than in any other country in ASEAN.
Sentiment towards the U.S., the quality of infrastructure, and reasonable office lease costs are significant strengths for Malaysia and the country enjoys moderate strengths across many business factors. In contrast, corruption and personal security remain challenges. Additionally, Malaysia continues to battle with the pitfalls of the middle-income trap relative to the rapid growth potential of its ASEAN neighbors. As Malaysia moves up the value chain, the satisfaction level in the availability of trained personnel, infrastructure, and office lease costs have significantly decreased.
Myanmar is one of the most popular countries for business expansion in ASEAN, offering a ready supply of affordable labor, personal security, and positive sentiments toward the U.S. In addition, U.S. companies are viewed more favorably in Myanmar than in any other country in ASEAN. However, the U.S. business leaders currently operating in Myanmar cite eleven out of the sixteen business factors in the survey as challenges. The highest levels of dissatisfaction are with the housing costs, infrastructure, lack of trained labor, and office lease costs.
Satisfaction in the Philippines increased across nine of the sixteen business factors over the last five years, led by a 23% increase in satisfaction with the stability of the government and political system. Today, 86% of respondents are satisfied with the positive sentiments toward the U.S. and 78% with the availability of trained personnel in the Philippines, each representing the highest percentage in ASEAN. Insufficient infrastructure, corruption, the difficulty of moving products through customs, and the tax structure remain challenges in the country.
Singapore-based respondents cite greater satisfaction across polled business factors than any other ASEAN country. Major strengths in Singapore include personal security, a stable government and political system, infrastructure, and a lack of corruption. Challenges for businesses in Singapore, as in recent years, include high housing costs, high office lease costs, and a lack of low cost labor.
Respondents see personal security, positive sentiments towards the U.S., housing costs, and infrastructure as major strengths in Thailand. The lack of a stable government and political system and corruption are cited as the biggest challenges with 80% and 71% of respondents, respectively, indicating dissatisfaction. Increasing labor costs have also led to a 26% decrease in satisfaction with the availability of low cost labor since 2009.
Vietnam is the second most listed location for business expansion in ASEAN. Its strengths include positive sentiments toward the U.S., the availability of low cost labor, and the level of personal security. Respondents indicate that corruption is one of the biggest problems in Vietnam with 69% of respondents indicating dissatisfaction. Over the past five years, cost pressures have eased, as levels of satisfaction with the availability of low cost labor, housing costs, and office lease costs have all increased significantly. In contrast, respondents have noted a decrease in satisfaction with the business incentives offered by the government and personal security, among other factors.
ABOUT ASEAN BUSINESS OUTLOOK SURVEY
The ASEAN Business Outlook Survey includes the responses of 588 executives, representing small, medium, and large U.S. companies in all ten ASEAN countries. The Survey is the key barometer of U.S. business sentiment in Southeast Asia. For more than a decade, executives from both American and foreign enterprises have depended on the survey’s timely and reliable business insights, as have leaders from governments, academia, and non-governmental organizations across the region.
The purpose of the ASEAN Business Outlook Survey is to understand business leaders’ assessments of, and outlooks on, business opportunities in the region. It gauges their perceptions, both positive and negative, of the primary factors that affect business operations in ASEAN. The survey participants are senior executives, working for firms with an American majority interest, in all ten ASEAN countries.
To view the 2016 ASEAN Business Outlook Survey, click here.