4 key factors for HK firms to succeed in SE Asia

SG, Thailand, Vietnam, and Malaysia top local firms’ preferred destinations for expansion.

Businesses in Hong Kong view Southeast Asia as a potential area for expansion. But before venturing into this territory, an expert from UOB advises local firms to consider four essential criteria that will help them navigate and achieve success in the region.

Ricky Ng, head of Wholesale Banking at UOB Hong Kong, said firms must first consider their target location’s legal and regulatory policies.

“A business will need to adapt to a new legal and regulatory environment when they enter a new market to tackle issues such as intellectual property laws, labour laws, ESG, [and] tax requirements as well,” Ng told Hong Kong Business.

Firms must likewise consider their “financials” before expanding to a new market, regardless if it is in Southeast Asia or not.

“By financials, I mean they need to consider currency management because ASEAN (Association of Southeast Asian Nations) is not their home market. They need to understand the controls, taxation, tax incentives, or any tax exemptions in place for them,” Ng said.

“Of course, they need to consider their cash flow management and also the costs of doing business in this new market,” he added.

Understanding the cultural differences and local customs in each market is also important for Hong Kong firms before expanding into the Southeast Asian markets.

“I think each SEA market has a unique culture and customs. Understanding and respecting these differences can contribute to successful market penetrations,” Ng said. “Adapting to local business practices can also help build trust and establish strong relationships with customers and partners.”

The UOB expert underscored that cultural difference could be a potential challenge for firms seeking overseas expansion.

“In China, a 24-hour shift may be workable; but when you’re setting up a manufacturing firm in SEA, this may not be workable,” he said.

“Local people in, let’s say, Vietnam or Malaysia, those workers are not prepared to really work under a 24-hour shift… so, if you are taking the same approach in China to run a factory in SEA, that is not workable,” he added.

With talent crunch being a problem elsewhere in the world, Ng said firms need to consider employee acquisition strategies when expanding outside their home markets.

“Business targeting SEA will need to acquire appropriate talent and might need to manage a diverse workforce as well,” Ng said.

“They will also need to provide training for employees and develop a programme for staff retention because the SEA market is very hot… a lot of Foreign Direct Investment (FDI) is coming into the region,” he stressed.

To attract and retain talent, Ng said firms need to provide competitive immigration packages.

Data from UOB’s Business Outlook Survey showed that 73% or more than seven in 10 companies in Hong Kong are now interested in expanding their operations overseas.

According to the report, 47% of HK-based companies are “slightly interested: in pursuing an overseas expansion, whilst 26% are “very interested.”

Apart from the SEA countries, local enterprises are also interested in venturing into the Mainland (50%), the rest of North Asia, particularly South Korea and Japan (26%), Taiwan (25%), Europe (23%), and the Americas, particularly the US and Canada (20%).

In South Asia, local firms’ target markets are India, Nepal, and Bangladesh (16%).

SG vs Thailand vs Vietnam vs Malaysia

Amongst locations in the SEA region that Hong Kong firms prefer to expand their business in are Singapore, Thailand, Vietnam, and Malaysia.

Data from UOB showed that out of the four destinations, Singapore is the most preferred market of HK firms, with 56% expressing interest in the Lion City.

Ng said any firm expanding in Singapore lands on a business-friendly environment and a very robust ecosystem for foreign firms.

The Lion City’s transparent regulations and competitive tax framework are benefits that local firms can expect. “The country has an extensive network of double taxation treaties which can help firms to mitigate the tax liability,” Ng said.

“Singapore [also has a] regulatory framework that is well-developed, providing strong protection for investor and business aligned,” he added.

For the local firms eyeing Thailand as a new home, Ng said they can take advantage of the country’s array of investment schemes.

Ng said Thailand, which was the preferred market of four in 10 Hong Kong firms, has been actively working on improving its business climate and attracting foreign investment.

“Thailand provides tax incentives and has streamlined their procedures for qualifying projects. To add, Thailand has a well-developed legal system and regulation to protect investors and businesses,” Ng added.

Ng said Thailand will be a good market for car manufacturers since the country is also known to be one of SEA’s manufacturing hubs.

When venturing in Vietnam, Ng said firms can likewise enjoy the country’s various investment incentives including tax exemptions, reductions, and preferential rates for specific industries or projects located in certain regions.

“[Vietnam] also provides incentive for investment in technology, research and development,” Ng said. “The government has focused a lot on simplifying its administrative procedures, reducing barriers and enhancing the ease of doing business in Vietnam.”

The UOB expert said Vietnam will be a good market for companies in the electronics industry, noting that UOB has helped a company belonging to the electronics segment to expand its factory capacity there through working capital financing. 

In Malaysia, HK firms can take advantage of its tax incentives particularly the pioneer status and investment tax allowance.

“Malaysia has established organisations such as the Malaysian Investment Development Authority or MIDA and the Malaysia Digital Economy Corporation, to facilitate investment and provide support to foreign businesses,” Ng said.

“These agencies have a streamlined procedure incentive and assistance to companies seeking to establish operations in Malaysia,” he added.

Like Vietnam, Malaysia is also a good market for businesses in the electronics industry. Malaysia is also a “hot country” for firms in the technology, media, and telecom (TMT) sectors, according to Ng.

Drivers for expansion

Based on UOB’s survey, businesses in Tech, Media and Telecom (82%) topped the sectors that showed the highest interest in expanding to foreign shores, followed by Industrials/Oil and Gas (79%) and Manufacturing and Engineering (78%).

Regardless of sector, the key motivators for Hong Kong firms to expand are to improve their profit (70%); build an international reputation (50%); and grow their revenue (50%).

Other reasons cited by firms to expand overseas are to leverage their network (42%); take advantage of government policies in their selected markets (38%), reduce risks (34%); and seek opportunities for their products (16%).

When shepherding their businesses across foreign shores, however, firms are hampered by challenges such as lack of legal, regulatory, compliance and tax support (40%); lack of in-house talent and experts to drive their expansion (38%); and inadequate financial support or funds (37%).

To address these challenges, businesses are seeking access to business analytics and insights relevant to their industry.

Some are also building connections to large corporate businesses that are prospective anchor clients that their company can supply to, or to government-linked companies.

Ng said building connections with local business pirates or business associations is crucial for firms moving out of their home country.

Using FDI platforms such as UOB’s can also help firms find such connections, said Ng.