Southeat Asia should be the destination of choice for new export strategies

SOUTHEAST Asia remains one of the star opportunities for UK companies looking to further their overseas trade strategies.

According to the latest research from Catalyst Corporate Finance and its Asian-based international partner Alpha Advisory, the region – comprising Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – is enjoying growth opportunities without the surplus capacity and headwinds that currently face China, thereby making it the ideal platform for inbound investors.

In 2012 UK companies exported goods worth £8.9bn and this is set to grow as SEA becomes an increasingly important market for UK companies.

Catalyst said overseas investors were attracted to the region’s high growth opportunities underpinned by strong economic growth, a share of global foreign direct investment which is close to China’s, and its rising middle class.

With a young population of 600 million and rapidly growing GDP per capita, UK companies are using mergers and acquisitions to benefit from, and exploit, the increasing demand for their products and expertise. In particular, it said UK companies are well placed to take advantage of the growth in demand for aerospace, pharmaceuticals and financial services.

As a result of this activity, competition for assets is rising as both financial investors and strategic acquirers increase their investment in the region. Over the last two years there have been around 40 acquisitions by UK companies in the region and many investors also see an investment in Southeast Asia as a platform to access the Indian and Chinese markets.

Market entry strategies are varied in this region and include establishing a local presence, joint ventures and acquisitions. Many UK investors are using a combination of strategic partnerships, joint ventures and acquisitions to take advantage of opportunities available to them. However, many mid-sized companies in the region are not institutionalised and have a founder who is key to the future of the business, so analysts said that getting the right deal structure was essential.

Private equity has been highly active in the region with investment up from $300m in the first quarter of 2012 to $1.2bn for the same period in 2013. Exits in the region are typically via a trade sale with secondary buy-outs more prevalent in developed markets like Singapore.

Andy Currie, Managing Partner at Catalyst, said: “The headline merits of investing in Asia through acquisitions or organic growth are well known: buying is quicker and can often bring a well-established regional brand, whereas building allows a company to develop a culture that is more in line with the parent company and systems are integrated fully with the parent company from the outset”, says.

“Whilst it is difficult to generalise which approach is best, there is increasing evidence that the cost of building a business is increasing. Finding quality staff in particular can be a challenge and without an established presence it can be difficult to attract talent. In an ideal scenario, an investment in an established business brings with it a mix of talent from various Southeast Asian countries, allowing the investor to operate across the region in the shortest possible time.”