Contrary to common belief, the powerhouse megacities of Southeast Asia might not be the main force that drives the region’s future growth. Instead, argues a new report, the so-called ‘middleweight’ regions and cities, of 500,000 to 5 million people, could be far more important in powering ASEAN’s future consumer spending, and are where more business attention should be focused.
Rethinking ASEAN, by Nielsen and economic strategy firm AlphaBeta, argues that many widely-held beliefs about the consumer and marketplace dynamics within the region are false. The analysis looks into the current and future potential consumer demand in over 700 cities and regions within the seven largest economies of ASEAN, and covers demand and spending for 10 of the most popular product categories, including chocolate, instant noodles, beer, shampoo and laundry detergent.
Nielsen and AlphaBeta predict that by 2030, the growth hotspots will be largely middleweight regions, debunking the expectation that megacities such as Jakarta, Manila and Bangkok are the region’s sole engine for growth. With a population of 625 million people representing a multitude of ethnicities, languages and religions, the report argues that surprisingly little is understood about the differences and demands of a youthful and urbanising ASEAN.
The study also challenges the notion that Indonesia is the most important market in ASEAN. While Indonesia represents approximately 40 percent of the economic output of ASEAN, at regional level the country does not dominate all of the largest consumer markets. In fact, the Philippines accounts for a larger share of the top 50 markets than Indonesia in one third of the consumer product categories, particularly in the detergent and soft drinks markets.
And while Bangkok and Singapore are the two largest consumer markets for face moisturiser, Nielsen flags that the smaller Thai regions of Nakhon Ratchasima, Chonburi and Rayong are also set to be in the top 10 markets within the next decade as sales grow rapidly.
Laura McCullough, sales effectiveness leader for growth markets at Nielsen, says the research shows that middleweight regions are “punching above their weight”.
“The ability to trade across borders within ASEAN and with the neighbouring countries of Japan, China and India is enabling not only megacities to grow, but also middleweight cities and regions,” she says. “The large middleweight cities and regions which have benefitted from the free flow of goods, services and investment in the region are those on major maritime or land transit routes, such as Cebu in the Philippines and Johor in Malaysia, and regions that benefit from cross-border trade are Khon Kaen and Chiang Rai in Thailand.
“While megacities get increasingly congested and the cost of living rises, towns or cities which are within a commutable distance from megacities are benefitting.”
The growth of satellite cities — such as Cavite and Bulacan in the Philippines or Bekasi and Tangrang in Indonesia — is fuelling sizeable growth in consumer markets, bringing a range of new opportunities.
“The main message that came out of the report is that while the megacities with population of 5 million like Manila, Jakarta, or Bangkok still have growth potentials, there are pockets of opportunities elsewhere,” concludes McCullough.
The other main drivers of growth in middleweight regions include the availability of natural resources, vibrant tourism demand, easy commutes from large urban destinations and a growing consumer base and wealth.
The report also stresses huge differences between national and regional economic growth rates, and warns of the risk of categorising the ASEAN region too simplistically. Within one country, for example, there can be regions with annual growth rates in double-digits and other regions with no growth at all. Some sub-regions, meanwhile, are forecast to have larger sales growth than entire countries, and so need to be taken seriously in their own right. In Thailand, for instance, country-level demand for detergent has grown at a relatively modest 1.2 percent per year since 2010, however in the northern region and city of Chiang Mai, demand has grown more than seven times that rate — at 8.9 percent annually.
Demand for chocolate will be growing almost two times faster in large middleweight regions than in megacities between 2016 and 2030, the report predicts, and the southern Vietnamese city of Ho Chi Minh alone is forecast to have almost three times higher demand growth for instant noodles than Thailand.
The report also flags that a deeper understanding can impact on when products should be launched. Typically, the best time for a consumer goods company to enter a market is just before it reaches the “take-off phase”, the point at which incomes have risen and there’s strong growth in consumer demand. Launching a product at take-off phase can provide a first-mover advantage and avoid potentially wasting time and money by moving into a market too early.
Nielsen highlights that the take-off phase varies significantly by product and region in ASEAN, and in some cases it may not even exist. There are 263 regions within Indonesia currently in the take-off phase for instant noodles, for instance, but only 87 for chocolate. Consumer goods companies should therefore be careful to avoid taking a ‘one size fits all’ approach to product adoption, warns the report.
“The key is to have a nuanced appreciation of differences in urban consumers within Asia, or even within a country, given their distinct geographical, cultural and developmental variations,” says Ida Siow, head of planning for Singapore and Southeast Asia at J. Walter Thompson. “Sunsilk, for example, developed a hijab shampoo targeting urban women in Indonesia and Malaysia, specific to the hair needs of women who wear the Muslim headscarf.”
According to Siow, JWT’s study Female Tribes found marked differences in the perception of modern femininity within Asian urban women. For example, close to 70 percent of Vietnamese women believe they are more ambitious than their partners, compared to 28 percent of Japanese women.
Breaking it down further, Siow says that within Vietnam, people from the North tend to be more formal, status-conscious and believe in spending when travelling, whereas people from Ho Chi Minh City are seen as more casual and price-conscious, and more receptive to low-cost carriers.
“Even within a country, differences in cities can drive a differentiated product, brand and communications strategy, hence the need for precise local insight rather than a broad national snapshot,” adds Siow.
For marketers, these huge variations mean the need for careful analysis of regional differences and the implications for business. However, targeting regional groups can be expensive.
“There are undoubtedly opportunities in smaller cities, but from a brand’s perspective you’ve got to measure up the cost of doing business, the cost of distribution, the cost of taking up that opportunity,” says Guy Hearn, chief innovation officer at Omnicom Media Group. “I don’t think major brands have forgotten the middle and smaller cities, it’s just a question of what are the most effective ways of getting to scale.
“Just because you live in a smaller city doesn’t necessarily mean that your hopes, dreams and ambitions are any different to if you live in a big city and it can be more efficient to target based on behavioural groups than location. It’s more about the nuanced differences rather than assuming there are fundamental differences.”
But Nielsen’s report argues thinking regionally can have business benefits, and recommends three key actions for companies that want to tap into ASEAN’s middleweight markets.
First, says Nielsen, companies should consider that “take-off points” vary significantly across product categories, and within countries, and develop category activation on a micro-region basis. Secondly, companies should establish strategies targeting specific customer segments and regions, which will help them prioritise their resources, be it marketing spend or strategic emphasis.
Finally, given the diversity of regions in ASEAN and the fragmented business distribution channels, companies should look into the distribution structure within countries so that they can better manage relationships and identify where best to cultivate distributor relationships, and use the opportunity to get ahead of their competitors.
By 2030, the ASEAN market landscape will look very different, and Nielsen predicts that many middleweight regions will increase their ranking amongst ASEAN’s top markets.
Targeting these regions today, the report says, will ensure a seat at the table for the top markets
“That presents a huge opportunity for companies to really think about where the growth today is and where it’s going to be in the future,” concludes Nielsen’s McCullough.