The creation of the ASEAN Economic Community (AEC) at the end of 2015, uniting the ten members of the Association of Southeast Asian Nations (ASEAN) into a single market and production base, will put Southeast Asia in the spotlight, attracting greater attention from multinationals which have so far been drawn mainly to China and India. Poised to become a global economic powerhouse thanks to its expected strong future economic performance, the AEC also has real potential of becoming a vast market with predominantly young, dynamic and increasingly affluent consumers, which contrasts ageing China and Japan.
Total and Per Capita Consumer Expenditure in ASEAN Member Countries: 2012
Source: Euromonitor International from national statistics/Eurostat/UN/OECD Note: Data are in current 2012 prices, year-on-year exchange rates
A Tenth of the Global Population and a Rising Middle Class
The ASEAN’s integration into the AEC is a significant progression from the ASEAN Free Trade Area (AFTA) which was established in 1992, as it will transform the ASEAN into a region with free movement of goods, services, investment and skilled labour. As a consumer market, the AEC will be a regional market of over 615 million consumers, with combined consumer expenditure estimated to reach more than US$1.5 trillion in 2015. In comparison, during the same year, total consumer expenditure is forecast to reach US$3.8 trillion in China and US$1.2 trillion in India.
More importantly, the AEC consumer market will boast a young and growing population together with a burgeoning middle class. Across Southeast Asia, the middle class has already been credited to transforming the region’s key consumer markets including Indonesia, the Philippines, Thailand, and Vietnam. Euromonitor International estimates that the number of households with an annual disposable income over US$10,000 (in constant terms) in the whole ASEAN will reach 47.1 million in 2015, rising further to 63.9 million by 2020. Given the size of its middle class, the AEC will simply be a consumer market no multinationals can afford to ignore.
A Single Market, yet with Great Diversity
Consumer goods companies excited at the prospects of the AEC single market should not lose sight of the fact that the ASEAN will remain a highly diverse region in many regards – from incomes and levels of socio-economic development to language, culture, politics and religion.
Consumers in different countries will continue to have different needs, preferences and levels of purchasing power, thus requiring companies to adopt localised business strategies tailoring to individual countries within the AEC single market. In this regards, ASEAN diversity could potentially act as a barrier preventing companies from achieving scale.
Euromonitor International forecast that total consumer expenditure in the ASEAN will reach US$2.0 trillion in 2020, representing a real growth of 45.7% over the 2013-2020 period. Driven by a burgeoning middle class with greater capacity for discretionary spending (i.e. spending on all items other than food, non-alcoholic beverages and housing), communications, education and hotels and catering will be the fastest growing consumer spending categories, with forecast real growth of 61.7%, 59.2% and 51.0% respectively over the 2013-2020 period.