As ASEAN moves closer to its goal of implementing a common market by 2015, Malaysia has been finding its place in this new regional alignment. The country has a unique role to play, with its longstanding status as a trading nation likely to benefit greatly from further integration. Meanwhile, particular industries will have to strategically position themselves if they are to reap the greatest rewards. For foreign investors too, Malaysia can be a welcoming gateway to the wider ASEAN marketplace, enabling them to leverage on its solid fundamentals, location and sound infrastructure to become an indispensable part of ASEAN supply chains.

GLOBAL PLAYER: As of 2012 the 10 ASEAN members had a combined GDP of $2.3trn – already larger than that of India. Analysts believe that, barring unforeseen events, combined GDP should reach $10trn by 2030. The population is also expanding – in 2011 ASEAN Secretariat figures put the combined total at 599m – with rising per capita incomes meaning a growing proportion of that population is now entering an income bracket where, for the first time, they enjoy significant surpluses. Per capita income stood at $3106 in 2011, though the figure varies widely on a country-by-country basis. This growing population of higher income earners is boosting domestic demand across the region, creating major opportunities for investment.

The impact of this can be seen in energy consumption. ASEAN figures show total primary energy consumption across the member states rising from 511m tonnes of oil equivalent (toe) in 2007 to 1.41bn toe in 2030. This translates into a rise in per capita energy consumption from 0.9 toe in 2005 to 1.8 toe in 2030. The implications of this for energy players are obvious, with demand for electricity the major growth area – this is expected to increase at a compound annual growth rate (CAGR) of 6.1% up to 2030. The transport sector, meanwhile, will see demand for energy grow at a CAGR of 5.1%, fired by a major surge in automotive ownership. A 2011 Deutsche Bank study shows car ownership in ASEAN rising by 54% from 2011-15, up from 26m vehicles to 40m. This will not be the end of it, either; car density in Germany, for example, is 509 per 1000 inhabitants, while the ASEAN average is 44. Even if that doubles, it will still be far from realising its potential.

ON THE RISE: Electronics and electrical goods (E&E) and IT are two other major fast-growing industries across the region, fuelled by rising levels of disposable income. The mobile market is characterised by high penetration rates but low average revenue per user, outside Singapore. However, this is likely to change as data becomes the preferred form of usage and ASEAN’s citizens use their smartphones for more online business. Half of ASEAN’s members have 100% or above mobile penetration, yet the internet penetration rate is only above 100% in Singapore. Smartphone penetration is also highest in the city state, at over 50%. Other ASEAN countries show huge potential for further growth. In banking, too, there are major opportunities for ASEAN-wide expansion, with the overall loans-to-GDP ratio below 100%, except in Singapore and Malaysia.

ASEAN has shown remarkable resilience to the international economic turbulence of recent times.

Merchandise trade grew from $2.05trn in 2010 to $2.39trn in 2011, with intra-ASEAN trade at $598bn.

Intra-ASEAN investment stood at $17.5bn in 2011, up 23% on the previous year, while foreign direct investment overall reached $89bn, with the EU the main source, accounting for 25%. Thus, the region is already a major global source of business, both for outside investors and for members themselves. The question is, how much of this opportunity can Malaysia account for – and how well positioned are its industries to capitalise on this growth?

STRENGTHS & WEAKNESSES: In many ways, Malaysia is already an ASEAN leader, possessing some of the region’s most globally well-known brands. Two of these are in the services sector, an area which is not dominant for ASEAN as a whole. The members of the organisation are still dominated by trade in commodities, from palm oil to natural gas, and from sugar to timber. Malaysia is a major supplier of the first two of these in particular.

Yet in services, AirAsia is an ASEAN success story, as is CIMB Bank. Both have branched out from their Malaysian origins to establish ASEAN-wide networks, capitalising on growing per capita income levels. The low-cost carrier model is ideally suited to emerging markets with growing middle classes, while the ability to tap into financial services from Indonesia to Cambodia, and Thailand to Brunei, has made CIMB the region’s widest banking network.

COMPONENTS & CARS: Malaysia is also a key regional E&E provider. In 2011 the segment accounted for 52% of manufacturing exports. Much of this was in semiconductor, wafer and component industries, with the future also likely to see the country being a major source of rare earths. E&E expertise should stand the country in good stead as ASEAN’s population increasingly goes online, demanding higher-quality electronic platforms. Malaysia has over 100% mobile penetration, more than half of which is via smartphones, with 60% internet connectivity. The country also possesses a major automotive industry. Deutsche Bank places it among ASEAN’s top three in this sector, along with Thailand and Indonesia. Together they account for around 90% of ASEAN’s automotive production and some 86% of the region’s unit sales. So in terms of some of the major growth sectors in ASEAN over the coming years, Malaysia is extremely well positioned. Yet debate is now ongoing as to how the country can exploit these opportunities to the fullest. In some ways, this is as much a question of exploiting what is already there as of developing new ways of doing business.

ALL CHANGE: In 2015 the ASEAN Economic Community (AEC) will begin, with many of the member states by that time having removed almost all the tariff and other non-tariff barriers previously upheld on a range of goods and services. Malaysia reported that it had removed 98.7% of all its tariff lines with other ASEAN states by the end of 2011. Countries have, however, been able to protect certain industries, while Cambodia, Laos, Myanmar and Vietnam have been able to preserve certain duties until 2018, due to their lower level of economic development. This demonstrates great flexibility within ASEAN, yet it also shows the wide disparities of wealth between member states. However, the organisation’s policy of allowing members to preserve a deal of protectionism may not be beneficial in the long term as ASEAN grows. Here, automotives may be instructive. Much of the industry in ASEAN was founded by Japanese manufacturers, which established an integrated supply chain across the region that targeted exports to Europe, North America and, more recently, China, as well as exporting finished vehicles back to Japan. As ASEAN rises in importance this supply chain will likely shift emphasis to its own domestic markets.

PROTECTIONISM: How Malaysia responds will be crucial. The local car sector has a history of protectionism, going back to the initiatives which sought to nurture local producers, such as Proton. Imported vehicles and parts have often been at a disadvantage, with foreign brands selling for higher prices to cover high import duties and taxes. With its continuing commitment to liberalising the economy, however, Malaysia looks set to benefit greatly from the growing markets in ASEAN for goods and services produced by some of the country’s most dynamic and robust economic sectors.

This will likely make Malaysia one of the major winners from the AEC, while also increasing its attractiveness to international investors, who may see the country as a well-resourced gateway to the wider market. With years of experience in E&E, automotives and financial services, Malaysia may prove itself to be a firm platform for further regional expansion.