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South East Asia’s Middle Class Is Growing Richer By The Day

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Southeast Asia’s middle class is diverse, confident, and growing richer by the day

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by Quartz Creative

The Association of Southeast Asian Nations (ASEAN): pitted together, the 10-nation group makes up one of the world’s largest and most promising economies of recent years. ASEAN comprises 625 million inhabitants spanning nations as diverse as Laos, the Philippines, and Singapore, and its ten member GDP now totals more than $2.5 trillion, surpassing even India in economic clout.

On December 31, 2015, ASEAN took another step toward integration and came together as a formalized economic community: the ASEAN Economic Community (AEC). Though logistics, migration, and trade already link member economies, the AEC will attempt to deepen those linkages and further reduce barriers to moving goods, workers, and capital across member borders.

The AEC’s ultimate goal is to spur growth by streamlining supply-chains, encouraging economies of scale, attracting investment, and slotting the right workers into the right jobs. For firms, the promise of the economic union means greater access to an expanding economic pie, a pie that is made up of a prospering, youthful middle class with more disposable income and burgeoning consumer savvy.

Firms expect ASEAN growth as China and India’s economies slow

Strong economic growth over the last several years has driven that prosperity and helped to spread wealth throughout the region. In 2012 there were an estimated 190 million people in Southeast Asia who could be defined as middle class—people with disposable income of $16-$100 a day. But according to Nielsen, that number will more than double by 2020, to 400 million people.

More money means more houses, cars, technology, education, and a greater need for financial services. It also means that this new consumer class is migrating towards more developed and opportunity-rich urban areas, a trend concurrent with rising GDP in Asia over the last 30 years. Effectively, that means an additional 5.5 million new ASEAN city dwellers a year. And as the population becomes more urban, increased demand for luxury consumer goods is anticipated.

ASEAN middle class aspirations have become increasingly urban

Across the globe, economic activity has become increasingly intra-regional, and the AEC hopes to continue that trend by positioning ASEAN as a single market. So far, it’s worked: Foreign investment is flowing into the region, looking to capitalize on increasing affluence, consumer sophistication, and demand. Some research suggests that the formalization of the AEC will help ease concerns from foreign investors that have been hesitant about investing in ASEAN thus far. And projected consumption in burgeoning economies like Indonesia, Thailand, and the Philippines should help to amplify future ASEAN integration efforts.

But what does investment in the ASEAN middle class look like? For one, in Vietnam, the prospective purchasing clout of the fastest urbanizing middle class in Asia is driving rapid investment in modern retail outlets. Two hundred and fifty to 300 new supermarkets and 1,500 convenience stores are planned to open over the next three years. There’s room to grow: the sector attracts about 20-25% of Vietnamese consumer spending, far below China (64%), Malaysia (53%), and Thailand (46%), where, for comparison, about 20 times as many convenience stores serve a population that is three fourths the size of Vietnam’s. Numbers like these highlight investor excitement about the middle class. Indeed, dynamism and diversity define the region.

ASEAN is attracting more foreign investment than China

Still, as is expected for such a diverse community, middle class sentiment varies. Notably, most individuals self-identify as middle class by looking at their national peer group, not against comparable income levels in other markets. That makes for a big disparity across countries: The self-identifying middle class in Singapore has an average income of over 17 times more than those identifying as middle class in Indonesia, ASEAN’s biggest economy.

Nonetheless, that difference bears little weight on Indonesian optimism. Surveys reveal that an incredible 92% of Indonesians are satisfied with their lives, and 91% expect the middle class in Indonesia to grow. Those responses are the most confident in the region, but on the whole, the middle class is resoundingly optimistic: 73% of ASEAN respondents to an AIA Group survey believe they’ll fulfill their biggest dream in their lifetimes.

Companies are keen to tap into that confidence, as increased optimism generally inspires higher consumer spending. With AEC integration underway, both multinationals and local enterprises are recognizing the opportunity to more easily reach a broad population that’s ready to spend, and are developing strategies to target a regional consumer class they project will become more alike in its purchasing behavior.

Research found that 62% of company execs say that their products and services are becoming more similar across ASEAN, with only 18% claiming the opposite. The more homogenous the urban ASEAN consumer becomes, the more streamlined marketing can be within the region. This means companies can increasingly focus on consumer type or industry, rather than country.

Marketing to the consumer class is becoming a top factor in ASEAN

On the other hand, ASEAN’s diversity can be advantageous for companies looking to establish operations in the region. For industries like manufacturing, the AEC can help to streamline consolidation—the ability to create an economy of scale by centering production in one place and serving the region. Alternatively, the AEC makes it easier for companies to fragment their supply chains across member states. For example, labor-intensive work might be sourced to cheaper locations within the region, while sophisticated industrial work might be sourced to another, complementary location.

Companies think ASEAN’s skill and cost diversity is a good thing

Yes, ASEAN spans a multitude of diverse cultures, polities, and markets. But one thing is clear: the consumer class across the region is growing richer, more confident, and more urban by the day. Global and regional enterprise should take heed. The ASEAN middle class means business.

This article was produced on behalf of the Singapore Economic Development Board by the Quartz marketing team and not by the Quartz editorial staff.

Edited by Goh Wei Ting

{Source: Singapore Economic Development Board (EDB)}

[photo credits-featured image: Merlion Singapore – By ペウゲオト. (Own work.) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons]

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