ASEAN: From great diversity comes great synergy?

There has been much talk recently, about how ASEAN’s AEC target in 2015, is just a mile-stone and not a target of full integration. Yet being a mile-stone or a target, the prospect of ASEAN integrating its economies, have raised the expectations of more opportunity for all, as more synergy and efficiency is injected throughout ASEAN. Yet ASEAN’s Single Market will encompass “Great Diversity.”

From great diversity comes great synergy?

The following is from Euro Monitor: (Source)

The creation of the ASEAN Economic Community (AEC) at the end of 2015, uniting the ten members of the Association of Southeast Asian Nations (ASEAN) into a single market and production base, will put Southeast Asia in the spotlight, attracting greater attention from multinationals which have so far been drawn mainly to China and India. Poised to become a global economic powerhouse thanks to its expected strong future economic performance, the AEC also has real potential of becoming a vast market with predominantly young, dynamic and increasingly affluent consumers, which contrasts ageing China and Japan.

The ASEAN’s integration into the AEC is a significant progression from the ASEAN Free Trade Area (AFTA) which was established in 1992, as it will transform the ASEAN into a region with free movement of goods, services, investment and skilled labour. As a consumer market, the AEC will be a regional market of over 615 million consumers, with combined consumer expenditure estimated to reach more than US$1.5 trillion in 2015. In comparison, during the same year, total consumer expenditure is forecast to reach US$3.8 trillion in China and US$1.2 trillion in India.

More importantly, the AEC consumer market will boast a young and growing population together with a burgeoning middle class. Across Southeast Asia, the middle class has already been credited to transforming the region’s key consumer markets including Indonesia, the Philippines, Thailand, and Vietnam. Euromonitor International estimates that the number of households with an annual disposable income over US$10,000 (in constant terms) in the whole ASEAN will reach 47.1 million in 2015, rising further to 63.9 million by 2020. Given the size of its middle class, the AEC will simply be a consumer market no multinationals can afford to ignore.

A Single Market, yet with Great Diversity

Consumer goods companies excited at the prospects of the AEC single market should not lose sight of the fact that the ASEAN will remain a highly diverse region in many regards – from incomes and levels of socio-economic development to language, culture, politics and religion.

Consumers in different countries will continue to have different needs, preferences and levels of purchasing power, thus requiring companies to adopt localised business strategies tailoring to individual countries within the AEC single market. In this regards, ASEAN diversity could potentially act as a barrier preventing companies from achieving scale.

Euromonitor International forecast that total consumer expenditure in the ASEAN will reach US$2.0 trillion in 2020, representing a real growth of 45.7% over the 2013-2020 period. Driven by a burgeoning middle class with greater capacity for discretionary spending (i.e. spending on all items other than food, non-alcoholic beverages and housing), communications, education and hotels and catering will be the fastest growing consumer spending categories, with forecast real growth of 61.7%, 59.2% and 51.0% respectively over the 2013-2020 period.

The emerging market slowdown does not mean that there are no longer opportunities for growth. Rather companies may have to search harder for opportunities – particularly beyond Brazil, Russia, India and China – and also work harder to attract the middle classes in these markets.

Some Key Facts to Consider

Between 2013 and 2020 emerging market economies will grow almost three times faster than developed economies; By 2020, five of the world’s largest 10 economies will be emerging markets — China, India, Russia, Brazil and Mexico — accounting for a combined $47 trillion in GDP (in PPP terms); In 2013 emerging markets are home to 85% of the world’s population and 90% of those aged less than 30;

All Emerging Markets are not Created Equal

In 2013, GDP per capita in emerging markets ranges from $438 in the Democratic Republic of Congo, to $104,775 in Qatar (in PPP terms). Thirty-three emerging markets have a per capita GDP below $2,000 in PPP terms but the same number have a per capita GDP of above $15,000.

They range from Tuvalu with a population of 9,900 to China, the world’s largest country, with a population of 1.4 billion in 2013; from Bulgaria with a median age of 42.2 years in 2013 through to Niger with a median age of just 15.5 years in the same year; and the United Arab Emirates where 87.2% of the population is of working age, to Niger where just 48.9% are aged 15-64 in 2013.

In 2013, 45 emerging markets have consumer expenditure above US$5,000 per capita, but 34 have spending below US$1,000. In a high-ranking market such as Chile, 69% of household budgets are available for spending on non-essentials (excludes housing, food and non-alcoholic beverages); while in a low-ranking country such as Kenya this drops to 47%.

Looking at the world’s 20 largest non-BRIC emerging consumer markets, and using the definition of those earning between 50% and 100% of gross household income, we can see that a middle class income ranges from around U$3,000–US$6,000 per household in Nigeria up to US$74,000–US$150,000 in the United Arab Emirates.

Become Aquatinted with the Middle Class

One tactic to consider is to deepen your understanding of the middle classes beyond the BRIC markets. Are they typical nuclear families with father, mother, children and detached house, as is more familiar in the UK or USA? Or are they large, single-income households whose main shopper is penny-pinching and sceptical of new products? Are they savvy consumers who expect quality and convenience? Or are they new consumers who are still figuring out how to deal with all the choices in their new, local supermarket?

To learn more, download our new White Paper Reaching the Emerging Middle Classes Beyond BRIC. The new white paper highlights key information about the emerging middle classes with insight into economic and demographic trends, including income and population growth, using information from Euromonitor’s Countries & Consumers system. It also discusses consumer spending priorities and lifestyle preferences, including habits, culture and beliefs, using key takeaways and insight direct from consumers participating in Euromonitor’s Middle Class Home Survey.

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