Singapore once decoupled from the region and saw its economy take off. Now, it's time to do the reverse, and focus on its neighbourhood
The modest two-storey facade of Fassler Gourmet's food factory in Woodlands Terrace belies the home-grown seafood and soup manufacturer's reputation as one of the largest suppliers of smoked seafood in Singapore.
For more than 20 years, the company, set up in 1991, had been content to cater solely to the domestic market. It counts among its customers all major hotels here, along with big-name restaurants and supermarkets such as Cold Storage and NTUC FairPrice.
But last year, it made the move to sell its products outside Singapore - to countries such as Brunei, Cambodia, Indonesia and Malaysia - and that has opened up a world of possibilities.
On going regional, chief executive Mellissa Chen says, "In Singapore, there's definitely still more to do. But in terms of growing Fassler and expanding the brand, export is the way to go. That's where the bigger growth is."
The smoked salmon specialist, which runs on a staff strength of about 50, now sells its products overseas in small quantities with the help of partners with a presence or a network of customers across various markets. The aim, says Ms Chen, is to double or even triple its export business over the next five to 10 years, with Malaysia and Indonesia as its key foreign markets.
The bulk of the company's turnover still comes from the Singapore market.
"Asean is exciting for us because the opportunity is here, right at our backyard," Ms Chen says, citing the fast-changing dynamics in the region, such as the emerging middle class and rising levels of disposable income.
"The market is ready, and it's something we can immediately provide," she says, adding that the firm's halal-certified processes already lay the groundwork for it to penetrate the region's sizeable Muslim market.
POISED FOR TAKE-OFF
In a global economy where growth prospects are for the most part dim, Asean is a bright spark.
Asean is exciting for us because the opportunity is here, right at our backyard. The market is ready, and it's something we can immediately provide.
MS MELLISSA CHEN, CEO of Fassler Gourmet.
With a total market size of more than 600 million people, "if the countries work well together and, increasingly, if the markets are more integrated, it represents a tremendous opportunity for companies in Asean, and that includes Singapore", says corporate titan Koh Boon Hwee.
In fact, the potential to scale Fassler's business beyond Singapore and into Asean was one reason Mr Koh's private equity firm Credence paid $23 million to buy out the company from its founder in November 2014.
"No one can really predict how fast or how slowly things will progress, but the direction is correct. Ten or 20 years down the road, I think Asean, as an economic region, will be quite a formidable entity," says Mr Koh. "It will be twice the size of Europe, almost 1.5 times the size of the United States. And if you believe as I do, the standard of living within Asean will continue to grow, which means the purchasing power and the consumption ability of these 600 million people should be far better than it is today," he adds.
"So yes, there is plenty of reason for optimism here."
At a conference this week on Singapore's Future Economy, Mr Caesar Sengupta, Google's vice-president of product management, spoke of South-east Asia as a region enjoying "exponential growth". It is the world's fastest-growing Internet region with an existing Internet user base of 260 million that is set to nearly double to 480 million by 2020. The region's Internet economy is also expected to grow to US$200 billion (S$269 billion) by 2025.
Already, the 10 Asean countries combined - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - make up the seventh-largest economy in the world, with a gross domestic product (GDP) of US$2.43 trillion last year.
They marked a milestone in economic integration when the Asean Economic Community (AEC) was established on Dec 31 last year, with an eventual goal of a single market and production base with free flow of goods, services, investments and skilled labour, as well as freer movement of capital across the region.
If growth trends continue, the Asean region could be the world's fourth-largest economy by 2050. And as incomes and purchasing power rise, the region's significance as a centre of demand - not just supply - is set to grow.
"Asean never had it so good. It is poised for the next stage of takeoff - though only if its members know how to play their cards right," says Associate Professor Tan Khee Giap of the Lee Kuan Yew School of Public Policy. "If Asean can stay united as a political entity and become more integrated as an economic entity, it has the potential to be a significant economic community close to the likes of the European Union by 2030."
For Singapore, Asean's growth as an entity will open many more doors, says SIM University senior lecturer Lim Tai Wei. "Asean represents a large market for Singaporean products and services, especially with an expanding middle class of consumers. Singapore is at the centre of this regional trade arrangement, and it enjoys a fast-mover advantage as an energetic advocate of free trade for decades," he notes.
A PIVOTAL MARKET
The Asean growth story comes at a time when companies globally are making the move towards inshoring - also known as reshoring or next-shoring, or the practice of bringing back manufacturing activity to where the demand is.
It is the reverse of offshoring, or the practice of setting up production facilities in low-cost, developing countries like China, which has been the industry norm in the last decade, notes Mr Matteo Mancini, partner at global management consulting firm McKinsey & Company.
But Asean presents a unique proposition - it is able to host the entire spectrum of business activity, from production to consumption.
"If someone wants to invest in Singapore, he will be told by consultants that Singapore is very expensive and that he should put his headquarter functions there, but the manufacturing operations somewhere else, like Malaysia or Vietnam," says Mr Ong Keng Yong, former Asean secretary-general and Singapore's Ambassador-at-Large. "So we have this kind of 'distribution' of the incoming investments, which is conducive for businesses across the board."
He adds: "These days, US and European companies are thinking about moving back to home countries because of issues like rising labour costs, regulatory compliance costs and the protection of IP (intellectual property) rights. Going forward, Asean investors must play a more prominent role in the business and manufacturing sectors of Asean member states."
Many Singapore firms are in fact already stepping in.
Conglomerate Sembcorp Industries, for instance, has singled out emerging countries such as Vietnam, Myanmar and Indonesia as focus markets for its urban development and power businesses. "In these markets, urbanisation and industrialisation continue to drive growth for essential solutions and infrastructure," says Sembcorp group president and chief executive Tang Kin Fei. "These markets are expected to see continued economic growth and, along with this, demand for utilities such as power is expected to rise."
Even now, the Asean region accounts for a "significant proportion" of Sembcorp's urban development business, notes Mr Tang, adding that the group's land bank in the region grew nearly 30 per cent in the last five years alone, while it also ramped up power capacity in Myanmar and increased investment in Vietnam's power market.
Real estate giant CapitaLand, which has been building up its presence in the Asean region since the late 1980s, is keeping an eye out for more room for expansion in key cities.
The opportunities in Asean are "immense", says CapitaLand president and group chief executive Lim Ming Yan. "As key cities in the region develop, demand for infrastructure and real estate will invariably rise."
The group has to date 26 malls in Singapore and Malaysia, a portfolio of about 7,850 homes across eight residential projects in Vietnam, and over 16,000 units under its serviced residence arm, The Ascott, in nine of the 10 Asean countries.
Smaller outfits like home-grown beverage brand Allswell want in as well. Mr Jate Samathivathanachai, director of strategy and investments, says the company, which sells its products mainly in Singapore and Brunei and exports small quantities to Cambodia and Vietnam, is looking at manufacturing its drinks in Johor Baru, Malaysia.
"Our biggest challenge is that our drinks are 100 per cent made in Taiwan, so they are not duty-free in Asean, under the rules of origin requirement," says Mr Samathivathanachai. "So we're now exploring making our products in Johor Baru. We could buy the essence or extract of the drinks from our partner in Taiwan and bottle them in Malaysia."
By 2030, the continued growth of Asean cities could add US$930 billion to the region's annual GDP, says Mr Mancini. This shift will be supported by the growing consumer class, which could double to 163 million households by then, making South-east Asia "a pivotal market of the future for companies in a range of industries".
Analysts see Singapore playing a key role in supporting the growth of the rapidly-emerging digital economy, says Ms Alison Kennedy, managing director for Asean at Accenture Strategy.
"The question for Singapore is how does it organise its economy to play in this new digital world? For me, the real potential lies in the ability to connect in digital trade," she says, adding that Singapore has the infrastructure, for instance, to facilitate and lead secure trade transactions within Asean.
EY Asia-Pacific partner Tad Carmody adds: "You could see Singapore become an exporter of enabling systems, such as expertise, skill sets, technologies and IP. It's not going to be an exporter of goods. Its true value is in its ability to enable - that is exactly what all of Asean needs."
Indeed, Singapore firms can take advantage of the manpower pool and relatively lower land costs in other Asean markets, says Mr Ivan Tan, group director for South-east Asia at trade agency IE Singapore.
"We also see investment opportunities relating to infrastructure needs, consumer needs, such as food and beverage, healthcare, education, and the growing digital economy, such as e-commerce," he says, citing Indonesia, Myanmar and Vietnam as markets ripe for investments.
But Asean's rise also comes with its own set of challenges for Singapore.
For one thing, it could spell more competition for Singapore as other member states play "catch-up" and the playing field evens out.
Jakarta, for instance, has announced plans to become a regional financial hub, a role Singapore has been playing for years.
Mr Koh, former chairman of top corporates such as DBS Bank, Singapore Airlines and Singtel, says Singapore companies will find it easier to succeed in an Asean economy that is open, although it is less likely they will end up as the only, or biggest, winners.
"Countries like Indonesia, Malaysia, the Philippines themselves will be the biggest winners. They have the advantage of having a big domestic market," notes Mr Koh, who also sits on the investment board of GIC, Singapore's sovereign wealth fund. "Today, with certain degrees of protectionism, they are shielded from the competition and there is no need for them to be best in class. But a little more incentive to compete and globalise could see them succeed in an open environment."
But Mr Koh believes that Singapore will remain relevant. "There are certain activities that naturally make a hub. Take the financial services sector in Europe - a lot of it is centred on London not because it's in the centre of Europe, but because it's where people enjoy living, working and so on."
Singapore must make sure its environment, from the rule of law to education to security, is friendly and open, and stays that way, he says, adding: "If the world's most talented people want to live here, somehow, activity will flourish."
More competition, in fact, could even be helpful for Singapore in moving up the value chain, notes SIM's Dr Lim. "Singapore is small and nimble and can identify niches in which it has a comparative advantage," he says, citing areas such as urban planning and development, infrastructure project management, education, biotechnology and financial services.
Accenture's Ms Kennedy says: "Rather than seeing the rise of Asean as competition, this single market can instead serve as a growth multiplier for Singapore. "And Singapore has advantages it can already leverage on - its history in trade, its location at the centre of Asean, and the trust that people have in the Singapore Inc brand."
The region's growth, she adds, will spell opportunities for local small and medium-sized enterprises, in particular, as they leverage on Singapore's strengths to develop their businesses.
Fassler, for its part, is banking on its Singapore brand as it expands into Asean. Right now, import and export regulations pose a big challenge as each market has its own set of rules.
"There is more time and costs involved, the logistics are not that straightforward, and there is no guarantee," says Fassler CEO Ms Chen.
But she believes the "Made in Singapore" tag will help the company navigate its way.
"That's the strength of running a business here - the stringent regulations and processes you have to pass, certifications, things like that. All of this is already a selling point and an advantage because Singapore is seen that way," she says. "So yes, notwithstanding all of those challenges, we're still forging ahead."
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