What are the industries to focus on?
In this second article in our Managing Change and Growth in Asia Series, we explore the sectors that are dominating Asia’s growth, presenting significant opportunity for businesses worldwide.
As we explored in our last article, this region presents a goldmine of potential. With 50 per cent of global consumption growth expected in Asia over the next decade, and with more than 40 per cent of the world’s 5,000 largest companies being Asian, the potential that Asia offers simply can’t be ignored. The region is home to some of the world’s most dynamic economic powerhouses (including China, India, Singapore, Hong Kong, Japan) and most rapidly developing nations (including Myanmar, Thailand, Laos, Vietnam, Malaysia, Philippines and Indonesia). Many of these emerging economies offer foreign business and trade incentives, strategic and convenient locations, market size and growing political stability.
When it comes to identifying and grasping opportunities, which sectors are driving economic growth in the region? What industries are the ones to watch? Here’s a brief industry pulse-check on a few key sectors in Asia
Construction - a quiet giant
To continue its fast growth trajectory, Asia needs ongoing substantial investment in infrastructure, predicted to rise to approximately US$600 billion over the next 10 years. Given the strong correlation between GDP growth rate, employment and infrastructure investment, it is imperative for governments to remove any barriers to delivery of world-class infrastructure services, for continued regional growth.
Reports show Asia is home to one of the most underappreciated global construction markets. Countries across the region such as Vietnam, Indonesia and Malaysia are building their way to a more interconnected future, with huge redevelopments breathing new life into emerging economies. Southeast Asia particularly has shown impressive growth driven by an expanding, continuously up-skilling labour force, meeting the demands of an expanding population.
The construction industry across the region is expected to reach US$4.6 billion by 2023, with a very healthy projected CAGR of 8.9 per cent. Increasing urbanization, government and consumer spending are expected to continue to drive strong growth in this market, spread across residential, industrial and infrastructural developments, posing a powerful market opportunity for construction companies operating in or seeking to expand into Asia.
China’s contribution to growth in Asia
One nation with a big vision for Asia’s construction and infrastructure landscape is China, whose Belt and Road Initiative (BRI) will make a significant mark on the region and beyond.
In a bid to “enhance regional connectivity and embrace a brighter future”, the initiative is seeking to improve the physical infrastructure along land corridors that roughly equate to the old silk road. This includes 60 countries, primarily in Asia and Europe but also Oceania and East Africa. While it has drawn criticism, the business opportunities are plentiful: the Singapore Business Federation for example surveyed multinational organisations, professional services firms and financial institutions about their plans with regards to BRI-related opportunities. Around 75 per cent of respondents said that they see significant opportunities in partnering with BRI country governments in Asean and South Asia.
Complimenting the BRI, is Chinese policymakers blueprint for the development of Guangdong-Hong Kong-Macau Greater Bay Area (GBA). Officially announced in February 2019, the GBA aims to transform nine mainland Chinese cities and two special administrative regions into a new Silicon Valley-type technology and innovation hub. That integration would further prop China’s infrastructure and connectivity programs like the Belt and Road Initiative as well as strengthen the supply chain industry in higher-tech manufacturing and services.
Aircraft Maintenance, Repair & Operations – a skills shortage
Asia is forecasted to become the world’s largest Aircraft MRO sector (in terms of fleet size and MRO market value), but land constraints, customs bureaucracy and a shortage of skilled labour is negatively impacting the region’s MRO industry. It is predicted that over the next 20 years, Indonesia will need at least 1,000 new engineers and mechanics annually, and Singapore also faces a major challenge with reports indicating the issue is not high-cost or unskilled labour, but rather no labour.
Offering low-cost labour as a differentiator will no longer be a sustainable success strategy: MRO businesses must offer world-leading turnaround time performance. To offset the challenge of staff shortages, improvements in productivity, efficiency and technology utilisation will be critical.
However, this skills shortage crisis presents opportunities for additional labour supply from outside the region, as well as third-party partnership and outsourcing opportunities.
Financial Services – a disruptive scene
The Asian financial sector accounts for almost 40 per cent of the world’s banking and insurance market capitalisation, having more than doubled over the course of the last decade. In banking, this is predominately characterized by the largest institutions in Asia having surpassed Western counterparts (who are still recovering from the credit crisis), enjoying an astounding double-digit growth.
However, the whole industry faces an onslaught of disruption from non-traditional bank players. Reports suggest that there are over 5 billion mobile phone users worldwide, with Asia Pacific leading the world in the rapid adoption of digital banking and Insurtech platforms, as a response to the constantly evolving demands of increasingly tech-savvy consumers. Even in countries where traditional bank account penetration has been less than 40 per cent, such as Philippines and Indonesia, telecom operators have driven the adoption of mobile money services. In developed markets such as Japan and Australia, peer-to-peer lenders are positioning themselves to cut out banks as the middleman through offering attractive interest rates to lenders and investors alike.
It is easy to see how cascading demographic trends across the region are adding to the optimism and growth of the sector. Established players operating a more traditional model of financial services can harness a competitive advantage by keeping abreast of disruptive trends in this market, adopting an innovative mindset and working collaboratively with the fintech sector to harness mutual benefits.
Mining – a mixed scorecard
The mining industry in Asia benefits from valuable mineral deposits, increasing political stability and strong infrastructure in the region. While ranking highly in terms of rewards (as the largest mining sector size globally), the region ranks second lowest for risk. Demand for a diverse range of mineral commodities remains strong, driven by factors such as China and India’s urbanisation, industrialisation and infrastructure investment; additionally, the transition to a low-carbon economy will be mineral-intensive, posing a significant opportunity.
While analysts predict that Asia will help lead the global mining sector turnaround, regulatory governance and occupational health and safety remain issues in emerging economies.
Volatility of commodity prices can also lead to difficulty in cashflow management, requiring mining companies to adopt innovation, reduce costs and increase efficiency. Timetric’s Mining Intelligence Center (MIC) finds that Asian mines are increasingly transitioning towards digital mining, increasing investment in mine surveying and design software.
The introduction of new, rapidly evolving technologies, which we are only just beginning to understand, will affect the pace of ongoing change, while significantly changing the problems we face. As we’ve explored, industries also encounter resource constraints, and in some, skills shortages, which can pose an opportunity for an increase in business partnerships and technology adoption.
In our next article, we will take a deeper dive into secrets to success when expanding into Asia, or when branching out further in the region.