EO contributed by Tomas Svoboda, EO member of the Czech Republic in the Europe Bridge Chapter. Tomas is a business speaker and the founder of Incorp Vietnam (formerly Secondo), a market entry consulting firm that also provides business process outsourcing. InCorp has helped investors and entrepreneurs expand in the Asia-Pacific for more than 30 years and has earned the trust of over 15,000 clients worldwide. Tomas recently shared 6 tips for American entrepreneurs looking to expand their businesses in Southeast Asia on Inc.com.
I have spent the past four years starting a market entry business consulting company in the young and developing Southeast Asian market of Vietnam. I’ve learned a lot about this field and the best ways to successfully operate a business.
We are currently experiencing a large number of Western entrepreneurs looking to take advantage of establishing their regional headquarters and manufacturing operations in Southeast Asia. To help those just starting out on this journey, I’ll share firsthand insights I’ve learned in my role as a Market Entry Consulting Firm and Business Outsourcing Specialist.
In the coming years, ASEAN, a grouping of 10 member countries in Southeast Asia, is expected to grow significantly, gaining access to international markets through free trade agreements and the world’s fourth largest economy thanks to an abundant, young and skilled workforce. Thank you for being a great economy. In addition, participation in international trade agreements, including the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, is expected to further boost regional investment.
According to a recent Standard Chartered Bank survey, Singapore is becoming an increasingly popular location for companies to set up regional headquarters, sales and marketing offices, R&D and innovation centres. Furthermore, 80% of the firms surveyed ranked Singapore as the ideal destination for expanding operations. Thailand ranked second with 60% and Vietnam ranked third with 50%.
I have seen many medium and large companies moving their financial headquarters to Singapore due to the ease of cross-border transactions and low taxes, while setting up operations or manufacturing in emerging markets, due to the low cost of operations.
According to 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 potential areas of its future growth. Furthermore, the country is home to some of the world’s biggest names in finance, risk management, insurance brokerage, offshore insurance and captive insurance.
With a US$1 trillion asset portfolio, the city-state is considered one of the leading asset management hubs in Asia. In addition to being the fourth largest foreign exchange market in the world, Singapore also has the second largest trading volume of over-the-counter derivatives and the largest trading volume of commodity derivatives.
More than 200 global companies are listed on the Singapore Exchange, which offers exchange-traded funds, individual stock futures and bond futures. Due to a liberalized banking sector, Singapore’s financial sector has been able to withstand global competition.
Establishing your regional headquarters in Singapore is the first step in your foray into Asia. Here are some examples with related structures:
Nutrition Technologies, an agri-technology company, manages its finance, R&D and overall group operations in Singapore, but conducts its manufacturing out of Malaysia. Lego, one of the world’s best-known toy makers, has a similar setup, with its financial headquarters in Singapore. Following the previous model, Lego recently began 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 sectors operate under a similar model. Countries including Indonesia, India and Vietnam offer a large and well-trained workforce working in the IT and software industry.
With some 26,000 international subsidiaries (including many multinationals), the benefits of setting up a company in Singapore are clear. City-states offer at least two important advantages to corporations:
75 double taxation treaties and 8 limited, no controlled foreign company rules relating to shipping and air transportation income, no capital gains tax, and one of the lowest corporate tax rates in the world
It’s easy to understand why foreign investors prefer to headquarter in Singapore, a high-growth emerging market that offers easy financial transfers and low costs.
Emerging Markets in Asia: Manufacturing and Technical Outsourcing
Once you have established regional headquarters in the modern financial capital of Singapore, you may want to expand your operations or manufacture in an emerging market in the South East Asia region. The cost of operation and construction can be significantly lower in these countries.
The following is an ASEAN.org list of industries that offer abundant investment opportunities in the Southeast Asian region at significantly lower costs than 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 IT Food and agro-forestry product processing Construction materials Electricity (especially the development of renewable energy sources, new energy and clean energy)
Indonesia Agri-Industry Downstream Oil & Gas & MiningFood & BeveragesAutomotive & AerospaceIron & SteelPetrochemicalsPharmaceuticals & Medical GoodsChemicals, Textiles & Apparel
Malaysia Chemicals and Chemical Products Electrical and Electronics, Machinery and Equipment Aerospace, Medical Equipment, Global and Regional Establishments Medical Tourism Research and Development Green Technology Oil and Gas Services Information and Communication Technology Services
Philippines R&D and Innovation, including smart manufacturing electronics automotive, aerospace and shipbuilding iron and steel; Tool & DieHealth Products & Medical Supplies Chemicals, Textiles & Clothing Processed Food Agriculture, IT-Business Process Management Including Urban Farming & Support Services Renewable Energy Including Power & Infrastructure From Waste In conclusion
So, as you can see, while your manufacturing, outsourcing and other tasks are being taken care of in one of the developing markets in the region 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 at a much lower cost, without any loss in productivity, than running your business in a developed Western country.
For more insight and inspiration from today’s leading entrepreneurs, check out EO on Inc. and more articles from the EO Blog.