The speed and scale at which COVID-19 hit the global economy was unprecedented, adding further stress to global supply chains that have already been disrupted by increasing labor costs, rising protectionism and trade tensions of recent years. More than a year into the pandemic, companies have had to reinvent themselves to reap opportunities presented by the rapidly changing business landscape that dramatically pivots towards digitalization and e-commerce.
As companies embrace the new normal while exploring lower-cost manufacturing bases, markets within the Association of Southeast Asian Nations (ASEAN) are proving to be attractive alternatives for businesses1.
The diverse 10-member ASEAN, with a population of over 650 million people, is now home to the third-largest labor force in the world, behind China and India2. With the signing of the Regional Comprehensive Economic Partnership – the largest free trade agreement in history – between ASEAN and key Asia Pacific markets in late 2020, corporates seeking to diversify their supply chains are presented with greater incentives to establish hubs within the bloc.
Digital boom across ASEAN
The ongoing digital boom in ASEAN countries, along with changing consumer buying habits, high internet penetration and improved banking infrastructure, makes this sub-region appealing to businesses that are increasingly putting digitalization at the forefront of their strategies. The bloc is already a recipient of the second largest foreign direct investment inflow in the world and will be further extended by additional funding that the ASEAN governments have allocated for investments in the information, communications and technology sectors by the end of 2021.
The pandemic has also accelerated the growth of ASEAN’s online economy with the sub-region now home to more than 10 million online merchants3, and e-commerce sales in ASEAN surging to $38 billion in 2019 from $5.5 billion in 2015, with the sales projected to rise to $150 billion by 2025. At the same time, local governments are setting economic goals to cater to its growing and increasingly digitally savvy middle class. Thailand, for example, has introduced its 4.0 initiative – a 20-year strategy to pivot towards a digital economy; and in the Philippines, the central bank last year approved its Digital Payments Transformation Roadmap that targets for the country to be cash lite by 2023.
Meanwhile, important milestones in the payments space are positioning ASEAN as an emerging hub for innovation in treasury and cash management. Real-time payments (RTP) are becoming ubiquitous, with seven out of the 10 ASEAN nations having already rolled out the capability domestically. Cross-border RTP are also gaining traction as governments continue to connect their domestic clearing systems with one another; Malaysia and Singapore for example, have rolled out real-time cross-border debit payments in 2019 and are looking to extend the capabilities to cross-border credit and Quick Response (QR) code payments.
At the same time, evolving consumer habits, emergence of new payment channels and strong commitments from local regulators have helped accelerate digital innovations within the region. In Singapore for example, the government is playing an active role in promoting blockchain developments; its central bank-led blockchain network prototype dubbed Project Ubin is closing in on commercialization in what could be the first multi-currency payments system for cross-border clearing and settlements globally.
Navigating treasury management challenges
For corporates looking to expand into ASEAN, navigating markets in the region may not always be straightforward. Businesses must deal with multiple currencies, many with strict capital and foreign exchange (FX) controls, comply with complex and constantly evolving local regulations, and traverse a highly diverse banking landscape.
Having operated in ASEAN for over 100 years, J.P. Morgan is uniquely qualified to help corporates navigate complex regulations when establishing their business in the region, support the management of supply chains to optimize working capital and liquidity, while digitizing their treasury activities.
Managing diverse liquidity needs
When it comes to effectively managing liquidity, solutions such as the bank’s Group Preferential Rates and Unitized Term Deposits can help treasurers automatically manage excess cash and optimize yields. Cross-border/cross-currency cash concentration and “just-in-time” funding solutions also allow automated consolidation of balances into functional currencies.
Automating cross-border funding in restricted markets
Covestro, a global chemicals company, needed to automate cross-border movements of capital in Thailand. J.P. Morgan worked with local regulators and Covestro to ensure appropriate licenses were in place to automate lending and borrowing transactions, leading to optimized liquidity, maximized efficiencies, and reduced manual handling.
"With the solution, we can now mobilize idle cash from the highly regulated Thai market into our global liquidity pool to fund other parts of our business as needed, improving working capital."
Pongpunnar Chanpratib
Head of Finance, Covestro (Thailand) Co., Ltd.
Adopting digital payment tools
As more and more corporates move away from batch-based processing and take advantage of real-time payments, the need for seamless connectivity for improved access to information and execution is crucial. J.P. Morgan’s suite of treasury services application programming interfaces (APIs) enable real-time visibility into transactions and account balances, and together with the SWIFT gpi initiative, provides track and trace services throughout the entire payment cycle.
The use of digital platforms like J.P. Morgan’s Virtual Branch can also help corporates digitize and streamline cross-border and statutory payments through e-submissions of documents and payment routing instructions, reducing the need to visit physical bank branches and simplifying the way corporates do business in ASEAN.
Open banking paves path to real-time treasury
For Philippine-based Globe Telecom, J.P. Morgan’s APIs were instrumental in receiving real-time access to payment status, including obtaining confirmation of crediting to beneficiary accounts. The API also facilitated the gathering of information from the telecom’s back-office systems, providing a centralized view into transaction activities.
"We now have instant clarity over our balances and can see where outgoing payments are at any given time."
Ma. Fatima Cinco
Director of Treasury, Globe Telecom.
Gearing up for e-commerce
With businesses accelerating their e-commerce plans, corporates will be faced with new treasury challenges that place greater focus on delivering superior customer expectations through new modes of payments and collections. From acceptance to disbursements, J.P. Morgan’s end-to-end, modular e-commerce solutions provide clients with a variety of pay-in and pay-out options to meet their business needs, combined with automated reconciliation and reporting to help corporates effectively manage cash, liquidity and FX.
Thriving in e-Commerce with seamless FX and centralized pay-out solutions
A global e-commerce platform adopted J.P. Morgan’s central pay-out solution that dramatically reduced the time taken for its Chinese merchants to receive payments from Vietnam customers from 2-3 weeks to within the same day. By making payments through the bank’s Virtual Branch platform, the U.S.-listed firm was able to move away from manual, paper-based processes, and digitize its cross-border transactions end-to-end.
As businesses rethink the global value chain and seek opportunities to diversify risks, the ASEAN countries offer an appealing opportunity with tremendous growth potential. Finding the right banking partner with the digital capabilities that can position businesses to take full advantage of this rapidly transforming marketplace, will be vital to the success of their expansion plans.
To learn more about how we can support your business, please contact your J.P. Morgan representative.
References
Out of China and its repercussions, Asia Pacific Economic Research, J.P. Morgan, September 24, 2020
Trade diversification away from China may favour ASEAN: Moody’s Investors Service, August 25, 2020
Takeaways from J.P. Morgan’s ASEAN Ecommerce Days, Asia Pacific Equity Research, J.P. Morgan, September 20, 2020.
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