ASEAN’s transformation to a global player

Kaushik Das, managing partner in McKinsey’s Southeast Asia offices, discusses ASEAN’s growth and expansion, and how its economy has stayed resilient despite political volatility.

What are the top trends influencing Asia’s rising share of global flows and networks?

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So there are three major factors. If you look across Southeast Asia by and large, there are strong macroeconomic fundamentals. More importantly there is a consistent approach to the economy across these countries despite political volatility.

Very often the media reports on political turmoil, changes of administration in Thailand or and Malaysia, electoral cycles in Singapore and Indonesia.

What they miss out is the following—no matter which government comes into power in in these countries, by and large the political class has a consistent approach to the economy. Different parties might be somewhat more on the left or somewhat more than the right but by and large they all believe in a free economy underpinned by State effort.

This is quite different from a significant part of the Western world where we see very different approaches to trade and to the economy in different parts of the political class.

The second point that I’d like to highlight is a young and optimistic population in ASEAN. Now most of our countries have an average age of between 24 and 30 that’s very low by global standards, but more importantly most of these populations tend to be optimistic and happy. The OECS runs a survey on education of young students every three years and many of the ASEAN countries actually come out at the top on happiness.

Now what this does is it keeps the population peaceful; it keeps them optimistic and believing in a better future.

The third factor to highlight is a set of companies, family-owned businesses that are increasingly aspirational, increasingly wanting to go international. For example, the economies in many of Southeast Asian countries are effectively underpinned by families, family-owned businesses often in their second or third generation.

They’ve seen the world, they’ve been exposed to the latest technology. They want to come back. They want to take their families global they want to professionalize their companies. They want to professionalize their operating systems. They want to bring in the best technology from around the world.

This is not just limited to family-owned businesses by the way. There are a number of State-owned companies for example Petronas in Malaysia or the PTT group in Thailand that equally wants to go abroad they have acquired businesses in Latin America in the Middle East in North America and they are trying to become local headquartered out of ASEAN.

The next phase of growth in the global economy is going to be driven by increased share of services in trade. It will be driven by digital technologies; it will be driven by different developments in AI and machine learning.

All of these will have profound impact in the kind of work that’s done in our countries and the kind of skills needed the kind of capabilities needed the capture the value coming out of these technologies.

Now what that means is countries have to invest significantly behind education. I would say education and reskilling. Now in Southeast Asia primary education is actually pretty good. On average, about 96 percent of our population gets to primary schools. But that number drops off quite sharply by the time you get to secondary education.

In fact, Indonesia about 3/4 of the population gets to secondary education—by the time you get to Laos or Myanmar less than half the population gets to secondary education and beyond the numbers there is also something about the quality of the education. How do these countries drive critical reasoning, critical thinking and questioning in their education? As opposed to traditional values of obedience respect etc, which are seen as you know, the traditional skills that national attributes of being a good citizen in Asia.

A second point here is around re-skilling. So in most of these countries jobs, the nature of work is going to change significantly. In fact, we ran some analysis for Indonesia that showed that overall, the picture is good—some 46 million new jobs could be created between now and 2030 by the influx of digital technology.

However, what it hides is at 23 million existing jobs will need transitioning or could become outdated. Now what this means is that a significant number of people need training in new skills. Many of these are older aged people in their 40s and 50s that might need training retraining to stay productive.

Now some countries have already started moving in this space. For example, Singapore has earmarked some billion dollars a year for the for the Future Skills program, but many of the other countries haven’t even started thinking about it yet—they need to move on this space.

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