MORE than a third of international firms with an in-market presence say they will prioritise their growth in Singapore over the next two years, according to the findings of a new survey by HSBC released on Wednesday (Sep 6).

Of the companies polled, 36 per cent of them that have operations in Singapore said they have business expansion plans there in the near future. This is followed by 27 per cent for companies in Malaysia, and 24 per cent for those in Thailand.

The HSBC Global Connections survey polled 3,509 businesses in Australia, France, Germany, Hong Kong, India, mainland China, the UK, the US, and these Gulf Cooperation Council countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

The survey – conducted online over a week from Jul 25 to Aug 2 this year – assessed key decision-makers from companies with an annual turnover of at least US$5 million and who already do, or are considering doing, business in South-east Asia. 

Singapore stands as an established hub for international companies with operations in Asean and continues to attract investments, said HSBC.

The respondents cited a number of advantages that Singapore holds over its competitors, including a skilled workforce, a growing digital economy, developed infrastructure, a supportive government and regulatory environment, as well as supply chain ease.

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In particular, Chinese companies said they were drawn to Singapore’s stable operating environment. Companies from India, meanwhile, said they were attracted by Singapore’s business-friendly regulatory environment.

For companies looking to enter a new Asean market, Malaysia emerged as the preferred destination with a quarter of firms without an in-market presence planning to expand there within the next two years.

Indonesia was second on the list, followed by the Philippines in third.

At a media roundtable on Tuesday, HSBC’s head of commercial banking for South and Southeast Asia Amanda Murphy said: “South-east Asia is clearly an attractive manufacturing base, with increasingly advanced supply chains and a highly skilled workforce attracting global firms to the region.”

Overall, the survey found that international firms with regional operations are increasingly optimistic and confident about their growth prospects in South-east Asia as a whole.

Said Murphy: “There is certainly a level of uncertainty in the geopolitical and the economic environment today that we all know about, and this region is very much a bright spot.”

On average, the companies surveyed anticipate a 23.2 per cent increase in sales in the region over the next 12 months, up from 20.1 per cent last year. 

The report also sees a strong appetite for mergers and acquisitions (M&A), with 24 per cent of respondents intending to significantly increase such activity in 2023, and 30 per cent saying they will do so next year.

Companies based in Asia-Pacific countries are much more likely to plan acquisitions, the survey found. Just over a third (35 per cent) of mainland Chinese companies and 31 per cent of those from Hong Kong have M&A plans, much higher than the average of 18 per cent of companies in the UK, France and Germany that indicated as such,

While South-east Asia holds plenty of appeal due to its competent labour pool and competitive wages, the HSBC survey found that the top challenge faced by overseas employers was the difficulty in finding the right talent.

Other problems that firms worry about include troubles with financial stability due to currency volatility, inflation, interest rates, as well as having to adapt to fast-changing regulations and policies in the market.

Sustainability – specifically, the impact of new regulations and rules on carbon reduction – presents a challenge for businesses as well.

Sunil Veetil, HSBC’s head of commercial banking sustainability for Asia-Pacific, said at the roundtable: “We work with a lot of buyers in the West who are under pressure by their regulators to disclose their sustainable supply chain standards, and most of the supplies come in from Asia-Pacific. That means it’s putting a lot of pressure on the suppliers operating here to actually start adopting these practices.”

The power of free trade

One of the biggest aces in Asean’s hand is the fact that many member states are involved in bilateral and multilateral free trade agreements (FTAs), with one in five companies citing this as a pull factor.

Seven in 10 companies say they intend to make use of the European Union-Singapore FTA this year, up from 53 per cent in 2022.

A similar number (67 per cent) say they will tap on opportunities from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, up from 55 per cent last year.

Similarly, 66 per cent of those surveyed say they will use the Regional Comprehensive Economic Partnership, up from 53 per cent the year before.

HSBC Singapore’s head of commercial banking Regina Lee said the survey findings are consistent with the increased funding, trade financing and payment activities that the bank has seen, especially among its global clients in Singapore. 

“Asean’s growing demographics, increasing number of inter-regional economic frameworks, and sprouting innovation scene make it one of the most compelling regions to do business in,” she said.