Presentation Oliver Tonby

1. 15 June 2015
How to succeed in ASEAN:
Advice for Norwegian
companies
ASEAN-Norway Business Conference
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2. 1
Today's discussion
ASEAN in context
The reality of ASEAN economic integration
Market prospects
Doing business in ASEAN

3. 2
Incomes in ASEAN countries are rising
at unprecedented rates
1Time to increase per capita GDP (in PPP terms) from $1,300 to $2,600.
Year
154
53
65
33
25
12
16
11
19
16
48
50
1700 1750 1800 1850 1900 1950 2000Country
United Kingdom
Vietnam
Malaysia
Philippines
Germany
Singapore
Japan
United States
China
Indonesia
India
Thailand
50Norway

4. 3
But there are large disparities in economic
development
GDP per
capita, 2014
% of US level
GDP, 2014
$ billions
Population,
2014 Millions
68 116~0
2 81715Cambodia
Real growth
of GDP, 2000-14
%
6 5888252
Brunei
Indonesia
3 7127Laos
21 533830Malaysia
2 963.564Myanmar
5 5285100Philippines
102 53086Singapore
10 437467Thailand
4 618693Vietnam
Norway 180 25005

5. 4
13
19
Myanmar
21
Laos CambodiaVietnam
33
Philippines
37
Thailand
49
Indonesia
55
Malaysia
56
Singapore
111513
26333845
100
48
More than 90 million people will move
to ASEAN’s cities by 2030
ASEAN
43
36
1 Brunei not included as the country has no cities with population >200,000
1 128 3115 34 15 11 9 235
2013-30 2012-30
xx Number of
cities with more
than 200,000
inhabitants
2030
2013
Share of country population living in cities of more than 200,000 inhabitants1
%

6. 5
Real GDP growth, 2013-30
1 Includes cities with greater than 200,000 inhabitants
Small and mid-size cities will drive
ASEAN’s future growth
Less than 5 percent
5 to 7 percent
More than 7 percent
GDP compound annual
growth rate, 2013-30
(%)

7. 6
ASEAN’s urban infrastructure
is generally poor
Average Best practiceWorst-in-class
1 2 3 4 5
Country
Fact-based
project
selection
2.6
3.5
2.5
4.5
2.5
2.5
2.3
Streamlined
delivery
2.5
3.0
2.5
4.0
2.8
2.5
1.2
Making the
most of existing
infrastructure
1.8
3.0
1.5
4.5
2.0
1.8
1.4
Robust funding
and finance
framework
2.3
4.0
3.5
4.0
2.3
2.5
2.0
Strong
infrastructure
governance and
capabilities
2.2
3.0
2.2
4.5
2.2
1.8
1.5
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Myanmar

8. 7
ASEAN must spend $7 trillion on infrastructure
to support growth
0.5
0.5
Others
2.7
Indonesia
Water
Telecom
Residential
real estate
1.2
7.0
0.6
Transport
0.6
1.0 Power
Commercial
real estate
Malaysia
0.7
Singapore
0.7
Vietnam
0.8
ThailandPhilippines
0.9
3.1
0.7
Total
investment
Required infrastructure and real estate investment, 2014-30
$ trillions

9. 8
ASEAN’s workers and consumers are young
Percent of population under 45 years old
81%Philippines
76%Indonesia
76%Malaysia
59%Korea
66%China
77%India
48%Japan
58%Norway
Vietnam 73%

10. 9
4.8
5.9
4.8
7.4
3.4
Contribution to overall real GDP growth, 2006-12
%
50
46
45
43
33
27
44
59
26
14
23
10
30
54Thailand
Vietnam
Singapore -4
Indonesia
Philippines
Productivity impact
from sector reallocation
Within-sector
productivity improvement
Labor input
Past growth was driven by labour
force expansion
GDP compound
annual growth rate,
2006-12
%

11. 10
Labour is inexpensive but low output
186.6
57.1
33.2
16.5
21.2
14.2
3.8
12.5
Indonesia 8.6
Vietnam 6.7
Singapore 87.4
China 27.5
Malaysia 26.7
Thailand 16.3
Philippines
2.4
8.9
5.2
8.7
5.5
5.4
6.9
10
9
5
10
6
19
5
7
8
8
8
5
11
7
-3
-1
3
-2
-1
-6
2
-73%
Average daily wage
cost for a factory
worker
$ per day
Annual manufacturing
labor productivity
$ thousand per worker
Average daily
output/wage
$
Compound annual
growth rate,
2007–12 (%)

12. 11
To keep growing, ASEAN must boost
labour productivity
2.2
-0.2
2.52.02.2
4.34.23.8
5.4
7.9
5.8
0.1
5.2
4.1
3.5
6.3
5.5
4.7
5.9
7.9
SingaporeBruneiMyanmar ThailandMalaysiaPhilippinesVietnamLaosIndonesiaCambodia
Historical productivity
growth (2000–13)
Required productivity
growth (2013–30) to
maintain historical
growth rate1
-0.6 10.4 25.7 28.7 46.5 59.7 99.7 111.0 159.2 170.2
Annual labor productivity compound annual growth rate
%
Required increase in productivity
%

13. 12
Five ASEAN countries rank among
the world’s 50 most connected nations
Connectivity
index rank
1-10
11-25
26-50
51+
ASEAN2
country Services Financial PeopleGoods
Data and
Communica-
tions
Indonesia 49 39 11331 6556
Cambodia 82 59 10981 10491
Malaysia 23 34 2610 3218
Thailand 19 27 9412 5636
Vietnam 56 41 9025 5848
Singapore 3 4 182 54
Philippines 45 47 5253 5445
Rank
Norway 25 12 7534 2329

14. 13
ASEAN ranks high by some measures of global
technology adoption
2013, millions
103
Russia
India
ASEAN
110
162
Japan
189
Brazil
US
88
623China
267
Turkey
Brazil
US
125
163
India
67
40
61
Mexico
ASEAN
32
32UK
248Russia
Brazil
141Japan
India
715
China
351
1,216
US
888
274
ASEAN
Mobile users Facebook usersInternet users

15. 14
Vast differences in digital readiness
Overall
rank Country
Infra-
structure Affordability Individual Business
2 Singapore 16 46 10 15
5 Norway 6 28 2 12
30 Malaysia 71 48 49 27
45 Brunei 37 129 50 56
64 Indonesia 85 37 95 36
67 Thailand 73 47 85 59
78 Philippines 89 75 91 43
84 Vietnam 121 8 84 88
108 Cambodia 97 105 105 78
109 Laos 125 130 129 74
146 Myanmar 136 146 143 145
Selected indicators from the Networked Readiness Index 2014
Readiness 2 Usage3
1–10
26–50
11–25
51+
Ranking

16. 15
Today's discussion
ASEAN in context
The reality of ASEAN economic integration
Market prospects
Doing business in ASEAN

17. 16
Intra-ASEAN trade is relatively low
2012
$2.2
trillion
63
13
24
2000
$705
billion
73
4
23
2012
$8.2
trillion
36
5
59
2000
$3.4
trillion
34
2
64
2012
$4.8
trillion
48
12
40
2000
$2.2
trillion
49
5
46
Extra-regional (excluding China)
Intra-regional
Trade with China
North American Free
Trade Agreement
(NAFTA)
Association of
Southeast Asian
Nations (ASEAN) European Union (EU)
Trade within and outside of trading blocs
Share of total goods trade, %

18. 17
“Transform ASEAN into a single market and production
base, a highly competitive economic region, a region of equitable
economic development, and a region fully integrated into the global economy”
AEC Blueprint
The AEC Blueprint aims to create a single market
“Transform ASEAN into a single market and
production base, a highly competitive economic region, a region of
quitable economic development, and a region fully integrated into the global economy”
AEC Blueprint
Free flow of goods
Free flow of skilled
labor
Free flow of services
Free flow of
investment
Free flow of capital
Food & agricultural
security
Integration of 12
priority sectors
Single Market and
Production Base
1
2
3
4
5
6
7
Develop competition
policy
Strengthen consumer
protection
Intellectual property
rights
Promote
infrastructural
development and
e-commerce
Reduce double-
taxation
Competitive
Economic Region
1
2
3
4
5
Free flow of goods
Free flow of skilled labor
Free flow of services
Free flow of investment
Free flow of capital
Food & agricultural
security
Integration of 12 priority
sectors
Single Market and
Production Base
1
2
3
4
5
6
7
Develop coherent ap-
proach towards external
economic relations
Form and manage free
Trade Agreements
(FTAs) and Compre-
hensive Economic
Partnerships (CEPs)
Enhance participation in
global supply networks
Integration Into the
Global Economy
1
2
3
Develop competition
policy
Strengthen consumer
protection
Intellectual property rights
Promote infrastructural
development and
e-commerce
Reduce double-taxation
Competitive
Economic Region
1
2
3
4
5
Accelerate the
development of
small and medium
enterprises (SME’s)
Enhance ASEAN
integration to reduce
development gap
between member
countries
Equitable Economic
Development
1
2
Develop coherent
approach towards
external economic
relations
Form and manage
free Trade
Agreements (FTAs)
and Comprehensive
Economic
Partnerships (CEPs)
Enhance participation
in global supply
networks
Integration Into the
Global Economy
1
2
3
Accelerate the
development of small
and medium
enterprises (SME’s)
Enhance ASEAN
integration to reduce
development gap
between member
countries
Equitable Economic
Development
1
2

19. 18
Foreign ownership restrictions remain
in multiple sectors
Foreign equity ownership index
100
75
100
50
50
100
100
66
65
100
81
Telecom
Wood
Manufacturing
Agriculture
Health care
Logistics
Tourism
Vietnam
100
100
70
70
40
100
70
100
49
100
80
Malaysia
49
69
95
98
57
65
100
49
99
100
78
Indonesia
49
87
49
49
49
49
100
49
49
49
58
Thailand
77
87
79
72
62
88
96
62
75
93
79
ASEAN
40
75
40
40
40
100
100
40
606
100
64
Philippines
Aviation
Financial services
Services
Cross-Sector
Mining, oil and gas
Goods
0-24
25-49
50-74
75-99
100

20. 19
AEC lags other regional
trade agreements
Already realised (or
significant progress
toward realisation)
Targeting but not
sufficient realisation
Not targeting (to any
meaningful extent)
AEC1 Eurozone2 NAFTA3
Elimination of tariffs
Elimination of non-tariff barriers
Common tariffs with other countries
Liberalisation of service trade
Mutual recognition of standards
Trade facilitation
Liberalisation of foreign investment
Free movement of people
Intellectual property
Government procurement
Competition policy
Common currency

21. 20
MEDIUMLOW
HIGHMEDIUMLOW
Telecommunications Rubber
Mining, oil
and gas
HIGH
Financial
services
Electronics
Automotive
The impact of integration therefore
varies by sector
Current progress on integration
Potential impact from full integration
Agriculture-
based Wood
Size = 2013 GDP
Goods Services
Aviation
Logistics Textiles
Consumer
goods
Health care

22. 21
ASEAN Integration: Is the glass half-full or
half-empty?
Progress on AEC
implementation: 82% of the
initiatives planned for the current
phases have been achieved
(according to ASEAN secretariat)
Lowering of Tariffs: Tariff rates
virtually zero in ASEAN-5 and
Brunei
National Single Windows
implementation: Live
implementation of the National
Single Windows in ASEAN-5
Trade agreements: Five
“ASEAN+1” FTAs signed with
Japan, Korea, India and
Australia/New Zealand
ASEAN exchange: A collaboration
of seven stock exchanges kicked
off in 2012
Removal of non-trade barriers and
non-tariff measures: Safety, health
regulations or technical barriers remain
obstacles
Lack of institutional capability for
reinforcement: Implementation down to
each country with no limited
accountability
Low involvement of the private
sector: Need Public-Private
partnerships to achieve implementation
targets
Low progress on service sector:
Financial services, healthcare and other
service sectors have generally seen
limited progress
Weak labour mobility: 8 mutual
recognition agreements, but only 2
(architects and engineers) have
progressed

23. 22
Today's discussion
ASEAN in context
The reality of ASEAN economic integration
Market prospects
Doing business in ASEAN

24. 23SOURCE: Source
INDONESIA

25. 24
Indonesia will become a global top 10 economy
by 2030
Ranking by overall GDP
Ranking 1990 Ranking
Trillion USD
2010 PPP
trillion2010 Ranking 2030
25 18 IndonesiaIndonesia
5 55 FranceItaly Brazil 5.28
6 66 UKUK Russia 4.82
4 44 GermanyFrance Japan 5.55
3 33 ChinaGermany India 23.27
1 11 USUS China 38.49
8 88 ItalySpain Germany 4.05
9 99 IndiaBrazil United Kingdom 3.67
2 22 JapanJapan United States 24.62
7 77 BrazilCanada Indonesia 4.28
10 1010 CanadaChina Mexico 3.20

26. 25
37
Malaysia
52
Thailand
55
Indonesia
65
USA
69
India
58
China UK Norway
41
57
Private consumption
Private consumption drives Indonesian growth
Contribution of private consumption to GDP, 2014
Percent of total GDP

27. 26
69 65
55
86
1314
Consuming class
Wealthy class
164
<2
2013
138
<2
Aspiring class
Struggling class
2020
The population of Indonesia’s urban consuming
class is growing by the equivalent
of one Singapore every year
Indonesian urban population
Millions

28. 27
Indonesia’s fastest-growing cities
are beyond Java
GDP development, 2010–30 Less than 5 percent
5 to 7 percent
More than 7 percent
GDP compound
annual growth rate,
2013-30 (%)
Sumatra
Maluku
Papua
Java
Bali and
Nusa Tenggara
Kalimantan
Sulawesi

29. 28
Experts describe common set of impediments
to Indonesia growth

30. 29
GDP growth has yet to recover
5.6
5.05.0
4.64.6
5.15.1
5.3
5.65.75.8
6.1
Q4Q2Q1 Q4Q2Q1 Q2 Q3Q1Q3Q4Q3
Year-on-year quarterly GDP growth
Percent
2013 2014 2015E

31. 30
PHILIPPINES

32. 31
The Philippines has rebounded to its highest
growth rates since 2000
500
200
300
100
0
400
201385 2000 10907570651960 059580
CAGR
4.9% 5.0%5.9%
6.6%
1.7%
5.3%4.7% 5.1%
2.9%
4.8%
Philippines
ASEAN
Marcos
Administration
Martial
Law
Marcos Aquino Ramos
Estr-
ada
Arroyo
Aquino
III
Real GDP growth over time
1990 USD millions (PPP)

33. 32
The Philippines’ largest cities will become
significant markets by 2030
GDP 2030, USD billions 2013 prices
Malaysia
GDP, 2013
312
Manila
GDP,
2030F
307
Manila
GDP,
2013
97
Antipolo
Cebu
59
GDP,
2030F
75
21
23
32
GDP,
2013
26
5
6
15
Dasmariñas
Myanmar
GDP,
2013
Manila will grow to the size of
Malaysia today
Next 3 cities will become the size of
Myanmar today

34. 33
Consuming households are expected to more than
double, from 11 million in 2013 to 23 million in 2030
Households
with income
>$7,500
Millions
23
42
37
42
32
19
19
2030
29100% =
7
2013
20
2
11
Consuming middle class
(20,000-70,000)
Emerging consumers
(7,500-20,000)
Globals (>70,000)
Basic consumer needs
(0-7,500)
Annual household
income brackets
$ PPP 2005
Share of households in each
income bracket
%, millions of households

35. 34
Unique ‘hard and soft’ strengths position
Philippines for growth
Hard
Improving governance, strong
government finances, steadily increasing
country credit rating
1
Large and increasingly skilled overseas
population with stable remittances
account for 10% of GDP
2
Millions lifted from poverty in last 15
years (although much remains to be
done)
3
Youngest median age in ASEAN, 3rd
largest English-speaking population
globally
4
Consuming households will double to 23
million by 2030
5
A foreigner-friendly multi-cultural ethos2
High affinity for technology, 8th highest
population globally on Facebook and
Twitter, fastest growing smartphone
market in ASEAN, and self-declared
‘selfie capital of the world’
3
High affinity for the West, and Western-
style consumption
1
Private-sector friendly culture, 2nd highest
economic freedom rating in Southeast
Asia
4
Soft

36. 35
MYANMAR

37. 36
0
2
4
6
8
10
12
14
1311 201507 09050320011999
Myanmar's economy has recovered and is now
posting 8% growth
4
1999-2005
-17
2005-10
9
2010-15
Real GDP
%
Compound
annual
growth rate,
%
Myanmar’s GDP growth
2000-2020

38. 37
While Asia developed and urbanised, Myanmar
remained dark
19922010

39. 38
High growth will require substantial investment
480
170
320
Estimated
domestic
savings
Estimated
foreign capital
650
Potential
investment
$320 billion
infrastructure
investment,
$180 billion of
which in real
estate
2010-2030 investment required to fuel 8%
annual growth
Cumulative, $ billions

40. 39
Agriculture, where productivity is low,
dominates Myanmar's economy
44
35 39
15
56
12
32
Myanmar
10
29
10
38
Indonesia MalaysiaThailand China Korea
Services
Agriculture
Industry
3
1965 2010 1965 2010 1965 2010 1965 2010 1965 2010 1965 2010
Sector share of GDP
%

41. 40
By 2030, a diversified Myanmar economy could
achieve annual output of $200 billion
Total 50
Telecom 0.1
Financial services 0.2
Tourism 0.6
Energy and mining 8
Infrastructure 11
Agriculture 21
Manufacturing 10
6
221
11
14
22
49
49
69
20302010
10
4
8
5
17
23
23
8
Annual
growth
%
GDP contribution
$ billions

42. 41
THAILAND

43. 42
Thailand
3.03.23.23.0
2.1
0.60.5
-0.3
0.4
2.82.9
5.6
Q2 Q3 Q4Q1Q4Q2 Q3Q1Q4Q3Q2Q1
2013 2014 2015E
Year-on-year quarterly GDP growth
Percent

44. 43
MALAYSIA

45. 44
Malaysia
4.7
4.9
4.5
5.2
5.75.7
6.5
6.3
4.9
5.2
4.5
4.3
Q4Q4 Q2Q2 Q3Q1Q4Q3Q1 Q2Q1Q3
Year-on-year quarterly GDP growth
Percent
2013 2014 2015E

46. 45
SINGAPORE

47. 46
Singapore
3.5
4.8
3.5
1.3
2.2
2.8
2.3
4.6
6.56.6
5.5
3.3
Q1 Q4Q3Q2Q3Q2Q1 Q4Q4Q3Q1 Q2
Year-on-year quarterly GDP growth
Percent
2013 2014 2015E

48. 47
VIETNAM

49. 48
Vietnam
6.7
6.4
6.2
6.0
6.1
6.0
5.9
5.8
5.6
5.5
5.4
5.2
Q3 Q4Q3Q1 Q1Q2Q4 Q2Q3Q1Q2 Q4
Year-on-year quarterly GDP growth
Percent
2013 2014 2015E

50. 49
Today's discussion
ASEAN in context
The reality of ASEAN economic integration
Market prospects
Doing business in ASEAN

51. 50
ASEAN’s landscape is dominated by MNCs and
Domestic Champions
Ace Cook Co
Betterway (Thailand)
Gold ABC
Metrotech Jaya Komunika
Hartono Istana Teknologi
United
Laboratories
Scotch Industrial Thailand
Packaged Food Apparel & Footwear Consumer Electronics Consumer HealthcareBeauty & Personal Care
Multi-
National
A global
company
with ASEAN
footprint
Domestic
Champion
A strong
presence in
a single
ASEAN
country
Regional
Champion
ASEAN co.
with multi-
country
footprint
Sing Tsu Fang
Creative Technology
Citra Nusa Insan Cemerlang
San Pablo
Manufacturing
40 companies 25 companies 27 companies 35 companies 27 companies
19 companies 2 companies 1 company 1 company 5 companies
92 companies 14 companies 13 companies 18 companies 13 companies
Total 441 companies 177 companies 142 companies 89 companies 298 companies
50

54. 53