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8 points to understand ASEAN 630 million Consumers Survey

With a combined population of more than 630 million, the Association of Southeast Asian Nations (ASEAN) is the world’s third largest market in terms of population, behind China and India.

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The trade bloc’s sizeable consumer base is underscored by a young workforce, some 60% of whom are aged below 35. With this favourable demographic structure, together with positive economic trends, it is expected that the average ASEAN disposable income and consumer expenditure are set to further increase in coming years.

Notably, the widespread use of the internet and social media is also having a more influential role in re-shaping the retail landscape in the ASEAN, sometimes blurring the lines between physical and virtual buying channels.

This article provides a summary of major findings of the Survey, allowing companies to have a better understanding of their potential target customers in Thailand, Malaysia, the Philippines, Indonesia and Vietnam.

ASEAN Consumer Spending On the Rise

According to Euromonitor International, annual consumer expenditure in the ASEAN will rise to US$1.92 trillion by 2020, 30% above the 2016 level of US$1.47 trillion, and this is equivalent to a healthy average annual growth of 6.8%.

Chart: ASEAN Consumer Expenditure

Hong Kong and ASEAN countries enjoy a close trade relationship. In 2016, the ASEAN was Hong Kong’s second largest trading partner and fourth largest export market.

Among the major export destinations within the ASEAN, Thailand, Malaysia, the Philippines, Indonesia and Vietnam have caught the eyes of many Hong Kong exporters and retailers, thanks to their economic vigour, strong purchasing power, and in particular a fast expanding middle class.

To better understand the spending patterns of the middle class consumers in these five countries, including their shopping motivations and channels, as well as their receptiveness of Hong Kong’s brand products and services, HKTDC Research carried out a consumer survey (the Survey) in the second quarter of 2017 to gather first-hand information.

The Survey was conducted in the five ASEAN countries stated above, covering seven cities, namely Bangkok, Kuala Lumpur (KL), Manila, Jakarta, Surabaya, Ho Chi Minh City (HCMC) and Hanoi.

A total of 1,406 completed questionnaires were collected through face-to-face interviews. To qualify as middle-income class consumers in respective countries, all respondents had to be aged 21-60, with monthly household income no less than US$1,000, and have lived in the surveyed city for at least two years.

This article offers an overview of Survey findings, with forthcoming articles focussed on characteristics and attitudes of ASEAN consumers, their spending preferences as well as e-commerce opportunities.

ASEAN Middle Class Consumers Are Sensible Spenders

First and foremost, the Survey revealed that the ASEAN middle class allocated some 40% of their monthly income on discretionary items. In general, respondents spent 19% of their monthly income on “Non-food Items”, while “Financial Investment and Insurance” and “Car loan” accounted for another 15% and 7% respectively.

This tendency to allocate income to non-essential items is generally uniform across the board, except for Manila, which dedicated a higher proportion of income on “Food items” at 34%, compared with the survey average of 29%.

Chart: Allocation of Monthly Household Income in Major ASEAN Cities

ASEAN Middle Class Consumers Are Sensible Spenders

Another feature commonly found among the surveyed middle class consumers is their high saving rate, which ranged from 17% to 22%.

When asked for the reasons for saving, 81% of respondents indicated that they set aside a certain proportion of income as a “rainy-day” fund. Therefore, it is fair to say that ASEAN middle class consumers are sensible spenders, despite the strong growth in consumer expenditure.

Middle Class Consumption Patterns More Alike Than Expected

The ASEAN as a trade alliance is notably diverse in terms of population size, per capita income, economic development and export orientation, not to mention the substantial differences in culture, language and religion. On the whole, the ASEAN consumer market is predictably diverse considering the economic disparity and distribution channels across the countries. As the survey results reveal, however, ASEAN middle class consumers exhibit a high degree of similarities in their consumption patterns and preferences.

For example, when asked to name their top spending areas in the past two years, “Travel and Leisure”, covering spending on airlines, hotels, theme parks and travel packages, was the top choice of respondents in six out of the seven cities surveyed.

An attribute possibly linked to this result is the rise of online travel agents and budget airlines, making travel more affordable these days to the ASEAN’s burgeoning middle class, thereby encouraging them to form a habit of travelling.

Chart: Top Three Spending Product or Service Catagories

The ASEAN middle class is health-conscious. “Health, Beauty and Wellness”, covering spending on health supplements, cosmetics, fitness centres or training classes etc., came second in the Survey. This was followed by “Fashion” and “Consumer Electronics”, reflecting the respondents’ strong demand for items such as quality clothing and electronic appliances to upgrade their living standards.

A closer look into the median one-time spending in each spending category also gives interesting insights. For instance, the median spending on “Travel and Leisure” varies greatly among cities, from US$150.5 in Hanoi to US$850.5 in KL. Such a huge spending gap suggests that middle class consumers in Hanoi are more likely to fly domestically, while the more affluent Malaysian consumers have their holidays abroad.

On the other hand, spending on “Fashion”, “Cuisine, Food and Catering” and “Entertainment” was clustered around a narrow price range. Respondents across the seven surveyed cities indicated that their median one-time spending on each of these categories ranged between US$75.5 to US$150.5.

Table: Median One-time Spending Breakdown (US$)

ASEAN Consumers Looking for Quality

As ASEAN middle class consumers get more sophisticated they will keep demanding better quality products and personalised services, a trend found in the survey results. An overwhelming 95% of respondents agreed with the statement “I am willing to spend more on products with better quality”.

In addition to their readiness to pay extra for quality products and services, these ASEAN consumers also exhibited a great desire to try out trendy and novel items, with 83% agreeing with the statement that “I am always willing to try new brands and new products”, while 82% agreed with the statement “I frequently look for new and trendy products across various media channels”.

It is not just about product functionality – ASEAN middle class consumers also have a strong sense of personal style, with 89% of respondents saying “I am more focused on personal style, and do not blindly follow the trend”. This emphasis on keeping up with their own styles is particularly pronounced in Surabaya, where 93% of respondents reported that they agreed with the statement.

Chart: Motivation for Higher Spending

Local Brands Dominating the Market

In many developing ASEAN economies foreign companies are faced with challenging competition as these markets are crowded with local players that have captured a significant portion of consumer spending.

Survey results confirmed that the overall market penetration rate of foreign brands in ASEAN is relatively low at present. When respondents were asked how they allocated their spending between local and foreign brands across different spending categories, local brands appeared to be the dominant choice in most areas.

Chart: Spending on Local and Foreign Products and Services

For categories such as “Cuisine and Catering”, “Financial Services” and “Education”, where localised products and services are highly preferred, respondents allocated less than 20% of their spending on foreign brands.

On the other hand, “Consumer Electronics”, “Travel and Leisure” and “Fashion” were the three categories showing a higher acceptance of foreign brands, with respondents spending 35% to 41% of their income on foreign brands.

Indeed, as revealed in the above, 68% of respondents indicated that they prefer imported or international brands to locally produced or domestic brands. This suggests that as most middle class consumers may aspire to attune to western lifestyles and acquire a better quality of living, foreign brands will see higher market penetration as ASEAN consumer’s income continues to rise.

Purchasing Decisions Heavily Affected by Online Reviews

The internet and social media are widely used by consumers in ASEAN countries. The Survey reveals that user reviews impacted 62% of respondents’ purchasing decisions. More than 50% of respondents also reported that social media platforms such as Facebook, Twitter and Instagram had influenced their buying decisions. In contrast, bloggers, key opinion leaders (KOL) and celebrity endorsement tend to have little impact on ASEAN middle class.

Chart: Touch Points Influencing Consumer Decisions

The Lines Between Physical and Virtual Channels Are Blurring

Thanks to the rapid growth of e-commerce in many ASEAN countries, multi-channel solutions are fast becoming the dominant strategy in modern retailing. The Survey results show that in all spending categories at least 50% of respondents had made purchases online or used both online and offline channels.

Chart: Shopping Channels

The most popular spending categories where online channel were used included “Travel and Leisure”, “Entertainment”, “Financial services” and “Fashion”. Survey results showed that respondents prefer online shopping because of three main reasons. First, it is convenient to shop online as one can make purchases anytime. Second, respondents found it easier to make price comparison when shopping online. Third, online shopping allows consumers to share information and reviews with other shoppers.

Hong Kong Awareness and Enjoyment

As a leading international city in Asia and a world-class tourist destination known for being a shopping and culinary paradise, Hong Kong is one of the popular choices among ASEAN middle class travellers. In the Survey, 79% of the respondents visited Hong Kong one to three times in the past two years, while the rest visited more.

Chart: Number of Visits to Hong Kong Over Past Two Years

In the Survey, respondents were also asked to rate the extent to which they agree or disagree with a given statement pertaining to their perceptions of Hong Kong. According to the Survey results, the ASEAN middle class overwhelmingly agreed that they enjoy visiting Hong Kong for shopping and sightseeing, and considered Hong Kong products and services as mid-to-high to high-end. The Survey result also gives credence to the notion that Hong Kong is a centre for ASEAN middle class consumers looking for trendy brands and products.

Chart: Perceptions of Hong Kong

In regard to ASEAN middle class awareness of Hong Kong brands, the Survey results revealed that many Hong Kong brands are well known. Watsons, SaSa, Wellcome, Cathay Pacific, Shangri-La Hotels and Resorts, Bossini and Giordano are the best-known Hong Kong brands, each enjoying a response rate of over 50%.

Respondents also indicated that they would like to see more Hong Kong brands introduced to their home countries, including SaSa, Wellcome, Pacific Coffee, Chow Tai Fook, Vitasoy, Hui Lau Shan and Tim Ho Wan.

Many Hong Kong companies, be they manufacturers or traders, are increasingly eyeing the ASEAN’s expanding middle class consumers. With rising income and purchasing power, the ASEAN has seen the emergence of a fast growing consumer market in which demand for a wide range of discretionary items is strong, from travel and leisure activities, to electronic items and fashion products.

 

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Asean

Assessing the economic impacts of COVID-19 on ASEAN countries

All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent.

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Author: Jayant Menon, ISEAS–Yusof Ishak Institute

The COVID-19 pandemic is first and foremost a human tragedy. Measures introduced to deal with the pandemic could save lives but are having wide-ranging economic effects and inducing economic contagion.

There are already studies estimating the economic impact of the virus. But greater focus is needed on the transmission mechanisms of the economic contagion and in critiquing how assessments of the economic impacts are made, concentrating on the ASEAN region.

The effects of COVID-19 are hitting ASEAN economies at a time when other risk factors, such as a global growth slowdown, were already rising.

COVID-19 is disrupting tourism and travel, supply chains and labour supply

Uncertainty is driving negative sentiment. This all affects trade, investment and output, which in turn affects growth. Tourism and business travel, as well as related industries, especially airlines and hotels, were the first to be affected. And the conditions are worsening as more countries go into shutdown.

The supply disruptions emanating mostly from China will reverberate throughout the value chain and disrupt production. Since China is the regional hub and accounts for 12 per cent of global trade in parts and components, the cost of the disruption in the short run will be high.

The negative effects of quarantine arrangements on labour supply could also be high depending on duration and sector. Manufacturing has been hit harder than service industries, where telecommuting and other technological aids limit the fall in productivity.

All these disruptions will lead to sharp declines in domestic demand. And their impact on economic growth will further propagate these disruptions. This compounding effect can magnify and extend short-run effects into the long run.

The highest economic cost could come from the intangibles

The effects of negative sentiment about growth and general uncertainty — which is already affecting financial markets — will feed into reduced investment, consumption and growth in the long run.

Rolling recessions around the world now appear inevitable, despite the stimulus measures being contemplated. If so, there will be sharp increases in unemployment and poverty. Some degree of decoupling from China, or de-globalisation in general, may also be a permanent reminder of this pandemic.

Among ASEAN countries, Singapore, Malaysia and Thailand are heavily integrated in regional supply chains and will be the most affected by a reduction in demand for the goods produced within them. Indonesia and the Philippines have been increasing supply chain engagement and will also not be immune.

Vietnam is the only new ASEAN member integrated into supply chains with China and is already suffering severe supply disruptions.

Given time, supply-side adjustments will alter trade and investment patterns. The main adjustment will involve relocating certain activities along the supply chain from China to ASEAN countries. Although the pandemic will disrupt the relocation phase, ASEAN countries can benefit from the new investments, mitigating overall negative impacts.

Thailand is probably the most tourism dependent Asean country

All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent. Cambodia and Laos receive most of their investment and aid from China, and a marked growth slowdown in China will affect them the most.

The Philippines and Mekong countries have large overseas foreign worker populations and restrictions on their movement or employment prospects as COVID-19 spreads will affect sending and receiving countries. Brunei and Malaysia are net oil exporters and the price war indirectly induced by the pandemic will hit them hard. Others will benefit from lower oil prices, as will the struggling transport sector.

In measuring the impacts of COVID-19, it is important to separate its marginal impact from observed outcomes. This is important because the remedy may vary depending on the cause of the disruption. This requires an analytical framework that can measure deviations from a baseline scenario that incorporates pre-existing trends. A model-based analysis, rather than casual empiricism, is required to reduce the problem.

Even before the outbreak, risks of a global growth slowdown were rising

The restructuring of regional supply chains had started, driven initially by rising wages in China and accelerated by the US–China trade war. While COVID-19 may further hasten the pace and extent of the restructuring, it is only partly responsible for what may happen. It would be misleading to attribute all of the current disruption to COVID-19. Had the trade war not preceded it, COVID-19 may have resulted in greater disruption to supply chains.

Any assessment of impacts must recognise that the spread of COVID-19 is unpredictable, and so too the response by governments. It is difficult to estimate the impacts of a shock that is uncertain in itself. This reiterates the need for rigorous modelling and scenario analyses. The current trend points to risks rising, often accelerating, as with previous epidemics. This uncertainty underscores the need for caution in assessing, and regular recalibration in producing assessments.

Jayant Menon is a Visiting Senior Fellow in the Regional Economic Studies Programme at the ISEAS–Yusof Ishak Institute, Singapore.

A version of this article first appeared in ISEAS Commentary.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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Asean

Coronavirus’ economic impact in East and Southeast Asia

The ASEAN+3 Macroeconomic Research Office (AMRO) estimates that the COVID-19 epidemic could deduct as much as half a percentage point from the economic growth of some regional economies in 2020.

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As the number of coronavirus cases continues to rise around the world, there are deep concerns over the potential economic impact of the virus.

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Asean

Trade War Incentive Schemes flourishing in ASEAN

Countries such as Thailand, the Philippines, Malaysia, and Indonesia have unveiled an array of incentive packages to entice businesses affected by the US-China trade war.

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Governments across ASEAN have been unveiling an array of incentive packages to entice businesses affected by the US-China trade war.

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