UPDATE. Asia at the Crossroads: 5 forces transforming Asia-Pacific region Fraser Thompson, AlphaBeta

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1 UPDATE Asia at the Crossroads: 5 forces transforming Asia-Pacific region Fraser Thompson, AlphaBeta fraser.thompson@alphabeta.com Website:

2 Million USD 500,000 USD 00,000 USD USD 50,000 USD 5 0,000 USD 4 5,000 USD USD 500 USD 00 USD. Was Napoleon relatively short? A: Yes B: No

3 Million USD 500,000 USD 00,000 USD 00,000 USD 50,000 USD 5 0,000 USD 4 5,000 USD 3,000 USD 500 USD 00 USD. How many wise men were mentioned in the bible? A: B: C: 3 D: None of the above

4 Million USD 500,000 USD 00,000 USD 00,000 USD 50,000 USD 5 0,000 USD 4 5,000 USD 3,000 USD 500 USD 00 USD 3. How long is the memory of goldfish? A: 3 seconds B: 3 days C: 3 months D: 3 years

5 Five myths Goodbye to globalization Growth will come from the region s mega cities 3 When it comes to tourism, it s all about capturing the Chinese consumer 4 Technology disruption will be the same in Asia as elsewhere 5 We will return to business-as-usual after a few shocks 5

6 Trade deals are not dead! Number of trade agreements (with trade facilitation components) 0 North-North North-South South-South

7 Who is in and who is out? Trans-Pacific Partnership (TPP) Canada Australia Chile Brunei Mexico Japan United States Malaysia Peru New Zealand Singapore Viet Nam Hong Kong Papua New Guinea Russia Taiwan China Indonesia Philippines South Korea Thailand Regional Comprehensive Economic Partnership (RCEP) Cambodia India Laos Myanmar Free Trade Area of the Asia-Pacific (FTAAP) 7

8 The ASEAN Economic Community (AEC) moves into its next phase AEC Blueprint 05 A highly integrated and cohesive regional economy Free flow of goods Address non-tariff barriers Deep integration in trade of services More seamless movement of investment, skilled labour, business persons, and capital Competitive, innovative & dynamic community Digital technology Innovation Green technology Good governance Tackling corruption Dispute resolution Enhanced participation in global value chains Enhanced connectivity and sectoral cooperation Focus on strategic sectoral priorities Infrastructure A resilient, inclusive, people-oriented and people-centred community MSMEs Poverty eradication Sub-regional cooperation Global ASEAN A driver of regional economic integration in East Asia A united ASEAN with an enhanced role and voice in global economic fora in addressing international economic issues 8

9 ASEAN has ambitious plans for tourism by 05 The GDP contribution of ASEAN tourism could increase from % to 5% Tourism s share of total employment could increase from 3.7% to 7% Per capita spending by international tourists could increase from US$ 877 to US$,500 Increase the average length of stay of international tourist arrivals from 6.3 nights to 8 nights. The number of accommodation units could increase from 0.5 units per 00 head of population in ASEAN to 0.60 units per 00 head of population. 9

10 Tourism progress on Integration FDI restrictions reduced. Second most liberalized sector for FDI in ASEAN (after logistics), although constraints in some countries (e.g., Thailand) Visa liberalization. Removal of visa requirements for short-term travel by ASEAN citizens in most member states. Move towards ASEAN single visa Introduction of open sky policies. Encouraged introduction of new carriers in routes previously dominated by national incumbents Visa issues remain. Progress on ASEAN Business Travel Card is limited. Restrictions on domestic airline competition. Domestic routes are only open to national carriers. Weak labour mobility. Very limited progress on tourism-related labour mobility in ASEAN despite being having mutual recognition agreements. Vocational training programs. Launch of new training programs (e.g., Singapore-Myanmar Vocational Training Institute) 0

11 The ASEAN Single Aviation Market is a work in progress! üwhat has been achieved? û What has been achieved? 3 rd freedom The right to fly from one s own country to another 7 th freedom The right to fly between two foreign countries while not offering flights to one's own country 4 th freedom The right to fly from another country to one s own 8 th freedom The right to fly inside a foreign country, continuing to one's own country 5 th freedom The right to fly between two foreign countries on a flight originating or ending in one's own country 9 th freedom The right to fly inside a foreign country without continuing to one's own country

12 ASEAN countries still impose visa requirements for short business visits Nationality ASEAN member states Visa required in advance Visa on arrival No visa required Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam Japan China India UK US Korea Germany France Australia Canada

13 ASEAN is building integrated trip planning facilities and supporting the development of e-visas Western Australia tourism website Turkey tourism website The Western Australia website has specific itineraries listed on their website which helps travelers plan their trip better They also have an events sections that lists the various popular events and leads you to the link to book tickets to the events The website also has the option to translate it into multiple languages Information tab on the Turkey tourism website provides information on the e-visa eligibility and process The application for e-visa is integrated into the website It lets you apply for the visa, make payment and then download the approved visa instantaneously Also has options to translate into common languages i.e. Spanish, German etc. 3

14 Five myths Goodbye to globalization Growth will come from the region s mega cities 3 When it comes to tourism, it s all about capturing the Chinese consumer 4 Technology disruption will be the same in Asia as elsewhere 5 We will return to business-as-usual after a few shocks 4

15 Not the usual suspects: middleweights, not mega regions, are growing fastest in ASEAN Compound annual growth rate of real GDP # of regions 05 Share of real GDP 05 Share of Pop. 05 Mega Regions 5 million and above % % Large Middleweights million 5 million % 48% Small Middleweights 500,000 million % % Small Regions 300, , % 9% Rural Regions Below 300, % 0% Total Source: AlphaBeta regional database 5

16 Don t think about countries when it comes to growth Think about cities GDP growth CAGR Percent Average country growth rate Fastest growing region Difference in growth rate; Percent Myanmar Cambodia Lao PDR Brunei Philippines Indonesia Viet Nam Malaysia Singapore Thailand N/A N/A Regions with >500,000 people. ASEAN average growth (5.5) 6

17 What is driving the growth of the middleweight regions? Percent of upper middle Weight regions where growth driver is of large or medium importance, Percent Large Medium Trade & FDI Satellite region 30 4 Natural resources 34 Tourism Growing consumer base Only includes regions with a population of more than million inhabitants 7

18 Examples Large focus Medium focus Mid-size middleweights Country Growth rate (009-3; percent) Rich in natural resources Trade and FDI Tourism Satellite region Growing consumer base Cebu 4.4 million 9.4 Karawang. million 8.7 Bandung 3.4 million 8.6 Chiang Rai. million 8. Makassar.4 million 8.8 8

19 Five myths Goodbye to globalization Growth will come from the region s mega cities 3 When it comes to tourism, it s all about capturing the Chinese consumer 4 Technology disruption will be the same in Asia as elsewhere 5 We will return to business-as-usual after a few shocks 9

20 Tourism is booming in ASEAN, particularly from increasing intra-asean visitors Tourist arrivals into ASEAN % 4% 4% 4% Intra-ASEAN Asia (ex ASEAN) Europe Oceania America 46% Other 30% 0

21 Many planned regional infrastructure projects will support this growth Number of planned PPP infrastructure projects in ASEAN Road Rail Port Airport Energy Philippines Indonesia Viet Nam Laos Thailand Malaysia Myanmar Cambodia Brunei Total

22 Five myths Goodbye to globalization Growth will come from the region s mega cities 3 When it comes to tourism, it s all about capturing the Chinese consumer 4 Technology disruption will be the same in Asia as elsewhere 5 We will return to business-as-usual after a few shocks

23 A number of unique aspects in Asia will influence technology disruption Asia context Rapidly growing affluent middle class Tech loving population Supply chain fragmentation Skills constraints Low starting point Key facts in ASEAN Consuming class will double in ASEAN by 030 ASEAN is the nd largest facebook market Aside from Brunei and Singapore, >50% of all grocery markets in ASEAN are still considered traditional grocery retailers. Only ~0% of population above 5 have completed secondary schooling <50% broadband penetration in all countries except Singapore Implications for tourism Big data techniques to understand buying behavior Social media strategy becomes core to growth Internet of Things allows transformation of supply chain Technology empowering workers by upskilling them, or enabling them to achieve similar impact without obtaining a high skill-level Low wage costs may limit displacement Opportunity for digital leapfrogging 3

24 Technology will continue to give rise to innovative new entrants and disrupt incumbents Music industry example Illegal upstart proves download potential (999) Rental and purchasing models Incumbents from production and retail Tipping point Mainstream customers adopt Advanced incumbents & established start-ups constitute the new normal Traditional retailers Time New trends emerge Innovative startups create disruptive business models Early adopters start embracing the new models Advanced incumbents start adapting to the new model Digitally nascent Emerging or on the adoption curve New normal Laggard incumbents die 4

25 5 tests of technological readiness Can you name three to five technologies that pose the biggest risks or opportunities to your business? Are they different than one year or three years ago? Have you fully integrated digital initiatives into your strategic planning process? 3 Which disruptors are set to change your industry landscape? Are they a Napster or a Spotify? 4 Does your company culture allow your team to undertake bold technology initiatives? 5 Do you have the people in place today to support where you need to go to? How do you manage the transition for those who will be displaced? 5

26 Five myths Goodbye to globalization Growth will come from the region s mega cities 3 When it comes to tourism, it s all about capturing the Chinese consumer 4 Technology disruption will be the same in Asia as elsewhere 5 We will return to business-as-usual after a few shocks 6

27 Executives operating in Asia consider geopolitical instability to be the biggest potential risk to global economic growth What risks to economic growth will be present in the global economy over the next months? China India Asia-Pacific countries Europe North America Geopolitical Instability Increased economic volatility One or more defaults on sovereign bond Low consumer demand Increased volatility of exchange rates New asset bubbles Domestic political conflicts Transitions of political leadership Insufficient governmentpolicy support 4 0 Lack of access to credit

28 What are some of the risks to growth? Description Impact on tourism China economic transition South China Sea Transition from investment led growth model to consumer led model Most exposed markets include Malaysia and Korea Indonesia less exposed Saber-rattling from China Drop in tourism arrivals from mainland China Korea and Taiwan already impacted Debt USD strength Demographics Unwinding of high consumer debt levels Appreciating USD placing pressure on currencies pegged to USD Reduction in working age population Malaysia and Thailand have some of highest debt to disposable income levels globally Myanmar with risks to capital account Potential slowdown in growth in Hong Kong. Korea, Taiwan, Thailand, and Vietnam need to be careful Thailand / Singapore / Korea / Taiwan particularly impacted 8

29 Questions to ponder 3 4 Connectivity: What growth opportunities does ASEAN integration open up for you? What are the risks? New growth markets: Is your resource allocation in line with the emerging growth pockets? Intra-ASEAN tourism: How will new infrastructure development impact your investments? Technology disruption: Do you meet the 5 tests? 5 Global volatility: How to build resilience in your markets (e.g., lower cost offerings)? 9

30 UPDATE Thank you 30