Contributed to EO by Tomas Svoboda, an EO member from the Czech Republic in the Europe Bridge chapter. Tomas is a business speaker and the founder of InCorp Vietnam (formerly Cekindo), a market entry consulting firm that also provides business process outsourcing. InCorp has helped investors and entrepreneurs expand to Asia-Pacific for over 30 years and gained the trust of over 15,000 clients across the world. Tomas recently shared 6 Tips for U.S. Entrepreneurs Expanding Their Business to Southeast Asia on Inc.com.
I’ve spent the last four years starting a market entry business consulting company from scratch in the young and developing Southeast Asian market of Vietnam. I’ve learned a lot about the region and its best practices for conducting business successfully.
We’re currently experiencing a large number of Western entrepreneurs who want to leverage the benefits of establishing their regional headquarters and manufacturing functions in Southeast Asia. To help those who may be embarking on this journey, I will share first-hand insights learned in my role as a market entry consulting firm and business outsourcing expert.
In the coming years, ASEAN, a group of 10-member countries in Southeast Asia, is expected to grow significantly, becoming the world’s fourth largest economy thanks to access to international markets through free trade agreements, and an abundant, young and skilled workforce. Moreover, participation in international trade agreements, including the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, are expected to bolster regional investment further.
According to a recent Standard Chartered Bank survey, Singapore is becoming an increasingly popular place for companies to establish regional headquarters, sales and marketing offices, R&D and innovation centers. Moreover, 80% of firms in the survey ranked Singapore as the ideal destination for expanding operations. Thailand stood in second place with 60% and Vietnam in third place with 50%.
I’ve seen many medium and large companies set up their financial headquarters in Singapore due to the ease of cross-border transactions and low taxes, while setting up operations or manufacturing in emerging markets, due to their low cost of operations.
As per the Global Financial Centers Index Survey 2013, Singapore ranks fourth among global financial centers for competitiveness. Wealth management, risk management, and private banking are three of its expected future growth areas. In addition, the country is home to some of the world’s biggest names in finance, risk management, insurance brokering, offshore insurance, and captive insurance.
With a US$1 trillion asset portfolio, the city-state is regarded as one of Asia’s leading asset management hubs. In addition to being the fourth-largest foreign exchange market in the world, Singapore also has the second-largest trading of over-the-counter derivatives and the largest trading of commodity derivatives.
More than 200 global companies are listed on the Singapore Exchange, offering exchange-traded funds, individual stock futures, and bond futures. Due to a liberalized banking sector, the Singaporean financial sector has been able to withstand global competition.
Consider incorporating your regional HQ in Singapore but manufacturing and operations elsewhere in Southeast Asia
Establishing your regional headquarters in Singapore is the first step in your entrance into Asia. Here are some examples with related structures:
- Nutrition Technologies, an agri-tech company, manages its finances, R&D, and overall group operations in Singapore, but runs its manufacturing out of Malaysia.
- LEGO, one of the world’s best-known toy manufacturers, has a similar setup, with its financial headquarters in Singapore. Following the previous model, LEGO has recently started construction on its US$1 billion manufacturing facility in Vietnam, in addition to its existing factories in China.
Outside of traditional manufacturing, the IT and software development sector tends to operate under a similar model. Countries including Indonesia, India and Vietnam offer a sizeable and well-trained workforce operating in the IT and software industry.
With some 26,000 international subsidiaries (including a number of multinationals), the benefits of setting up a company in Singapore are evident. The city-state offers at least two significant advantages to corporations:
- 75 double taxation agreements and 8 limited ones pertaining to shipping and air transportation income
- No controlled foreign company rules, no capital gains taxes, and the lowest corporate tax rates in the world
It’s easy to understand why foreign investors prefer to base their headquarters in Singapore, which offers easier financial transfer, and a high-growth emerging market for low costs.
Emerging markets in Asia: manufacturing and tech outsourcing
Once you establish regional headquarters in the modern financial capital of Singapore, you’ll want to expand your operations or manufacturing to an emerging market in the Southeast Asia region. The cost of operations and manufacturing can be significantly lower in these countries.
Following is the ASEAN.org list of industries that offer plentiful investment opportunities in the Southeast Asian region, at significantly reduced costs compared with Western locations:
Vietnam has recently become the fastest-growing economy in APAC, Incorporating a company in Vietnam is ideal for the following industries:
- Infrastructure Development
- High-tech Products
- Food and Agro-Forestry Product Processing
- Construction Materials
- Electricity (especially Developing Renewable Energy Sources, New Energy and Clean Energy)
- Downstream Oil and Gas and Mining
- Food and Beverages
- Automotive and Aerospace
- Iron and Steel Petrochemicals
- Pharmaceuticals and Medical Goods
- Chemicals, Textiles and Apparel
- Chemicals and Chemical Products
- Electrical and Electronics, Machinery and Equipment
- Aerospace, Medical Devices, Global and Regional Establishments
- Medical Tourism
- Research and Development
- Green Technology
- Oil and Gas Services
- Information and Communication Technology Services
- R&D and Innovation, including Smart Manufacturing
- Automotive, Aerospace and Shipbuilding
- Iron and Steel; Tool and Die
- Health Products and Medical Supplies
- Chemicals, Textile and Garments
- Processed Food
- Agriculture, including Urban Farming and Support Services
- IT-Business Process Management
- Renewable Energy including Waste to Power and Infrastructure
So, as you can see, while your manufacturing, outsourcing, and other operations are being taken care of in one of the region’s developing markets such as Vietnam, Indonesia or the Philippines), your finances can be efficiently processed and distributed in Singapore, backed by a world-class financial system. You can accomplish all of this for a significantly lower cost, with no loss in productivity, compared with keeping your business running in a developed Western country.