Key takeaways

  • Southeast Asia is a fast growing economic region, and companies are looking to scale through the opportunities presented by the digital revolution.
  • Many companies have failed at establishing a presence in the region by not factoring in the cultural complexities and diversity of each different country.
  • Building a business model around the context of each market, including understanding their unique customer needs, will help set businesses on the path to success.

Southeast Asia is a force to be reckoned with. It’s a powerhouse: the Association of Southeast Asian Nations (ASEAN) represents the world’s third biggest labour force and its seventh largest market, according to the World Economic Forum.1

A PwC report, The Future of ASEAN: Time to Act paints the region as one that is being shaped by rapid urbanisation and an expanding middle class.

It’s the combination of these factors that puts forward a compelling case for companies to embrace new ways of doing business, new models that use the power of intelligent digital to create seamless customer journeys, embrace agile organisational structures and set the stage for new income streams.

But while Southeast Asia presents boundless opportunities for digital transformation, any conversation about adopting the business model of the future must also acknowledge that ASEAN markets are not homogenous. Each nation has their own economic, cultural and demographic contexts that make these markets tick.

Embracing the
cultural complexities

Historically speaking, the wave of multinational companies rolling out Western business models in emerging markets offers powerful lessons in these cultural complexities. For instance, the growth of fast food giant McDonald’s in Southeast Asia is linked to hyper-localisation — best illustrated by its commitment to swapping generic menus for offerings that are informed by local traditions and customs.2 On the flip side, the failure to account for local regulations and infrastructure has interrupted Airbnb’s trajectory in Singapore, where the law explicitly prevents short-term housing rentals.3

Companies looking to successfully embrace digital opportunities in Southeast Asia are best-placed to choose markets where foundational elements – such as a banked population of at least 30% – are conducive to digital disruption. For example, Singapore leads the world in terms of infrastructure and connectivity but the Future of ASEAN report shows that cash is still the preferred method of transacting for 75% of the Philippines. And while PwC’s 2017 Global Entertainment and Media Outlook forecast that smartphone ownership would reach nearly 80% in markets such as Singapore and Malaysia by 2021, low levels of trust in financial institutions have made it difficult for companies in the fintech arena to evolve across the region.

Despite these cultural specificities, there’s still plenty of scope for companies to adopt a customer-centric business model – and capture a new percentage of the population – by investing in digital technologies and gaining a granular understanding of users’ needs.

The graph above outlines the ways in which the operational aspects of your business can work in tandem with a customer-centric model that revolves around segmentation and geography to transform your business and seize digital opportunities as they arise.

Singapore

Singapore, the birthplace of DBS Bank, a digital pioneer whose recent plaudits include an AI-enabled virtual assistant called KAI, is the region’s most sophisticated market when it comes to digital transformation in the financial services sector.

But Singaporeans are also advocates of good customer experience. According to PwC’s 2018 Experience is Everything report, 38% of Singaporeans don’t believe that their needs are understood.4 Companies in Singapore need therefore to embrace a customer-centric business model and take the time to acknowledge specific pain points during every stage of the customer journey. Embracing ‘Enterprise Agile’, a type of operating model that supports customer-centricity – from strategic planning and funding allocation through to change and run activities – could empower companies in Singapore to innovate and service customers effectively and tap into new segments in the process.

Malaysia

In Malaysia, where 85% of the population uses the internet according to a March 2018 New Strait Times report, the digital economy is full of promise.5 This potential is being enabled by nationwide investment in infrastructure: the government-led Malaysian Digital Economy Corporation (MDEC) is currently leading a program that champions technologies ranging from Big Data Analytics to the Internet of Things. But, an adherence to outdated legacy systems could prevent Malaysian companies in the finance space from becoming truly customer-centric.

Partnering with technology companies that have invested in digital capabilities and revolve around an agile way of working will allow Malaysian businesses to leverage the trust they’ve built with their existing customers. At the same time, it can create new value propositions.

Partnerships no longer just focus on distribution, but also the build of core enterprise capabilities. For example, a June 2018 article in Fintech Malaysia reported that the Hong Leong Bank has partnered with digital-first companies such as Kakitangan, a digitised human resources and payroll platform.6 Elsewhere, RHB has launched a suite of cloud-based platforms aimed at improving efficiency and empowering their clients to digitise their business.

Thailand

Thailand is defined by its contradictions. Even as players like the Siam Commercial Bank ramp up their investment in digital infrastructure, the size of the country’s rural makeup coupled with the fact that cash is favoured by 70% of the population complicate any moves to a digital-first business model.7

In Thailand, financial organisations have built long-term relationships with customers, who rely heavily on bricks-and-mortar branches. This creates serious barriers to agility. However, movers in the Thai financial sector can still reap the benefits of loyal customer relationships while starting a dialogue with the part of the population that prefers cash. For instance, companies can invest in personalisation and analytics technology to gain insights into the country’s vast range of customer segments.

Additionally, Bank of Thailand led initiatives such as PromptPay and centralised KYC (know your customer) accelerate development of digital capabilities and reduce infrastructure requirements. Capitalising on the country’s high degree of mobile penetration to provide user-friendly financial products to these customers via smartphone can let organisations keep their customer base while tapping into the unbanked market.

The Philippines

According to the Future of ASEAN report, GDP in the Philippines is projected to eclipse US$500 billion by 2022. But the country is also affected by factors such as poverty and a population that prefers cash payments. In the Philippines, the priorities are to create a sense of financial inclusion as well as to instil a sense of trust between people and financial institutions.

Despite this, the fact that the Philippines is also the region’s fastest-growing smartphone market is key to connecting with this customer base while moving towards a customer-centric business model in the years ahead. For example, prepaid phones can serve as a form of universal identification, allowing customers to sign up for products and services in areas such as banking and wealth management. The PwC report also shows a 25% growth in e-wallet transactions across the country, which suggests that consumers may have a propensity towards going cashless in the future.

In July 2018, the Philippines rollout of Grab Financial — a financial services product pioneered by mobile-app based ride-sharing company Grab — is an example of how companies in the region can use the mobile channel to build credibility before converting new customers to financial services.8

Laying the
future groundwork

In Southeast Asia, the successful implementation and financial viability of new business models are informed by a complex cocktail of factors. The development of regional hubs to serve ASEAN consumers, as well as the adoption of digital capabilities to produce and transport goods, and serve and communicate with consumers will be key factors for success going forward. Partnerships and alliances will also play a significant role, particularly cross sector and with industry disruptors, as companies try to stay relevant and competitive, and meet consumer expectations in a profitable manner.

On the customer side, an awareness of culture, language and customs – factors that can differ even from village to village – must exist in tandem with loyalty to local organisations, the population’s digital literacy, the rate of technological penetration as well as the level of trust between people and large organisations. On the operating side, companies should consider the capabilities of the local workforce, the quality of infrastructure, regional ownership structures as well as the ability of the country’s government to make decisions. In many cases, slow and inconsistent decision-making processes and a lack of transparency thwart even the most well-intentioned digital effort.

But for businesses in the private sector, this can represent a bold and compelling new opportunity to build innovative new business models that respect the diverse needs of a region’s customers and focus on starting conversations with the parts of the population that the digital economy has overlooked. It’s critical to remember that there isn’t a one-size-fits-all business model that will work for emerging markets in Southeast Asia.

However, building a business model that’s defined by the context of each market, respects the customers that shape each region and the essential operational considerations across each country, can help turn digital opportunities into real-world success.

 


To read more about how the region’s industries are equipping themselves for the digital future, download The Future of ASEAN.

 

digital-pulse-contributor-angelo-estrera

Contributor

Angelo Estrera

Angelo Estrera is PwC’s Southeast Asian Markets leader, based in Singapore.

More About Angelo Estrera

Contributor

Stuart Holywell

Stuart Holywell is a director within PwC’s Southeast Asia consulting practice.

More About Stuart Holywell