ASEAN sales: Organize centrally, sell locally
China’s economy is weakening. Imports are declining. The ASEAN countries will become the most secure export market in the coming decades. Singapore, Malaysia, Thailand, and the Philippines are already developed, industrialized countries with 200 million affluent consumers. With Indonesia and Vietnam, there are 300 million inhabitants as future markets on the threshold of industrialization. In 2015 they joined with AEC, the second largest economic union in the world.
Create central responsibility for ASEAN
Western industrial companies often treat the economic union as ten individual countries. Sales and market shares are rarely questioned. Huge potentials remain untapped. It is already considered “special attention” in the region to maintain a limited company in Singapore, which then bears the responsibility for sales throughout ASEAN.
Such a presence is certainly not wrong. In principle, decentralised responsibility for the ASEAN region makes sense. A guide of ten major markets directly out of Europe cannot use the potential of a lack of market proximity. Assigning the region under the often established China subsidiary makes ASEAN a real “odd one out”. The local management considers Southeast Asia at best as “backyard” and generally fails to recognise the opportunities as well as the differences between the two giant markets. They are as different as Russia and Portugal in Europe.
A central responsibility for ASEAN and the AEC is therefore essential for sustained success in the markets. Singapore is no longer necessary as a logical location for this. Singapore’s market is free but small, and Singaporeans are at least supposedly the “arrogant rich neighbor” and not necessarily popular business partners in the region.
With Bangkok, Kuala Lumpur, and soon Ho Chi Minh City as well, competitors have emerged for the role of the central hub that are logistically appealing and – in the case of Thailand – also appealing for tax purposes and also have large domestic markets. The duty-free often given as a locational advantage for Singapore is also rather superficial: For further delivery of goods in the AEC, the country of origin is what counts for customs anyway, which does not change with an interim storage facility in Singapore.
It is advisable to introduce the entrepreneurial leadership where their own market is already the most developed and therefore a growing organisation is already expected. This creates efficiency and cost advantages.
Incidentally: Wherever they base themselves, a European should be in the head office, ideally an employee from the parent company to keep things firmly in hand. Do not leave management to locals, because their business understanding is sure to differ from the company’s. This creates conflicts and costs money.
Organise centrally, sell locally
But regardless where the ASEAN sales centre is now based, the actual “sales” take place regionally. ASEAN business people think highly nationalistically. No Thai likes to buy from sellers from Singapore, no Indonesian from the Malays, and no Vietnamese from the Thai. People generally buy from their compatriots.
This is why a local sales presence in the strongest markets is an absolute “must”. But this doesn’t mean you have to found a company in every country. First, this is expensive, creates unnecessary administrative costs, and competing responsibilities between the “princes” of the ASEAN headquarters and local business managers. Second, in many countries foreign-invested companies are only allowed to sell with difficult special permits.
It is usually best for medium-sized companies to either first look for a qualified retailer in each market or employ its own employees. Both will then be managed professionally by the ASEAN centre.
But please note: The company’s people cannot be employed directly in the centre. In the future, companies not owned by ASEAN (the share majorities are decisive) will not be allowed to be active in sales in many countries. The correct legal form of employment is important if you do not want to suddenly risk a tax liability as a “dependent subsidiary” in every country.
For example, the German-led SANET ASEAN ADVISORS offer affordable and legally sound solutions with its “Business Unit” in its trading company Sanet Trade & Services in the ASEAN core countries. Sanet’s sales specialists give entrepreneurial and legal advice on the right structure to found a company or a local sales management in the region. Its services include, for example, a qualified retailer search and even regional key accounting with supervision of retailers in each country. Recruiting your employees is also one of the services SANET offers in the locations Thailand, Vietnam, Indonesia, Singapore, and Myanmar.
The manufacturing plant as a natural hub
If you want to opt for production in the AEC now or in the medium-term, then this location is also the natural headquarters for sales in the entire region. With this strategy you are following Japanese, Korean, and US companies that have long recognised the advantages of ASEAN over China.
While many SMEs in China despair because of government hurdles, corruption, and disloyal partners or employees, the ASEAN countries have numerous advantages. You can sell most goods produced there through agreements duty-free to China, India, Japan, Korea, Australia, and New Zealand from any ASEAN country. The condition is that usually 40-50% of the value actually comes from one or more ASEAN countries. This is not so hard: Local content, that is, the local value added, includes packaging, domestic shipments and profits (!), in addition to wages and local materials costs.
These profits are also usually fully or partially tax-free in countries such as Thailand and Vietnam for up to 14 years. Added to this is that countries such as Thailand (similar to German law) and Malaysia (Anglo-Saxon law), in contrast to China, have reliable legal systems and jurisprudence.
The fact that this certainly means it is less stressful to occasionally visit its regional headquarters in Thailand, Malaysia, or Singapore instead of struggling in China with a much less accessible business, is intended to be mentioned only in passing.