15 December 2006
Spire Highlights New Economic Trends for 2007
Asia’s leading strategic market intelligence consultancy looks into its crystal ball and predicts new trends in investment and energy that could change the economic landscape next year.
SPIRE Research and Consulting Group Managing Director Leon Perera said: “The regional economic landscape is undergoing a major transformation. We are seeing the emergence of several major trends that could revolutionize the business profile of countries in the region.”
Perera said these changes are creating new opportunities for global companies:
Rising Manufacturing Hotspots
Spire’s research suggests that, while China will continue to be the most attractive manufacturing location in Asia by a wide margin, many international companies are quietly increasing production FDI into India and Vietnam, to diversify risks and tap into the domestic market in these countries.
Spire’s recent survey of 43 international manufacturing companies based in Singapore revealed that China is the most attractive location for manufacturing investment by a large margin, followed by Thailand, India, Malaysia and Vietnam.
Nearly half the respondents feel that China is the most competitive location in the region for manufacturing and that they would move more manufacturing there in future. However, Singapore is seen as a competitive location for manufacturing of high-end products such as advanced electronics components and biomedical technology. The strong showing of India and Vietnam is somewhat surprising but underlines the trend going forward.
In India, Special Economic Zones (SEZs) are being established at an astonishing rate to stimulate manufacturing investment. A selling point for Indian SEZs is the fact that more sectors are being allowed 100 percent foreign-owned equity in Indian-based ventures. As at April 2006, the Board of Approvals accepted more than 160 proposals for new SEZ projects. Investment in the infrastructure of SEZs is expected to exceed US$2 billion. Four industries that will be among the most promising drivers of SEZ investment in India are telecommunications, biotechnology, electronics and automotives. Nokia, for example, currently manufactures 10% of its global production of mobile phones in India.
With entry into WTO likely in 2007 and its history of frequently being Asia’s secondfastest growing economy,Vietnam is poised to attract more manufacturing FDI from MNCs wary of placing too many eggs in the China basket. Some manufacturing giants currently operating production facilities in Vietnam include Canon, Yamaha Motor, ABB and Honda.
New economic trends and opportunities for businesses by specific countries and regions:
Singapore’s position as the leading location for Regional Headquarters (RHQs) in the South/East Asia region is fairly secure. Going forward, Spire foresees more international companies establishing two Asian RHQs, one for North and one for South Asia, with Singapore, Hong Kong and to a lesser extent Thailand, Malaysia and China competing for these projects.
Spire’s research has shown that international companies in Asia are increasingly creating separate Regional Headquarters (RHQs) for north and south Asia. Singapore and Hong Kong are the two most attractive destinations.
Spire conducted a survey among 43 global manufacturing companies located in Singapore. It found that 72% of manufacturers ranked Singapore as the top location for RHQs, mainly because of infrastructure, political stability and availability of talent. Hong Kong, Thailand and China were seen as the main competing locations for Asian RHQs.
Interestingly many manufacturers are splitting the RHQ function into two zones, seeing Singapore as an ASEAN/South Asia RHQ, and Hong Kong as a North Asia RHQ. Hong Kong came second to Singapore. Hong Kong claims to host 1,167 RHQs as of 1 June 2005, compared to over 4,000 that conduct their global and regional functions in Singapore.
Thailand was ranked third as an RHQ location among respondents in the electronics and components industries, partly due to the Thai government’s efforts in supporting these industry clusters.
China was a surprisingly popular choice among electronics and IT industries. 30 global companies reportedly have their RHQs in Shanghai, including General Motors, Visteon and Fuji-Xerox.
The top three criteria businesses used in deciding the location for Regional Headquarters were infrastructure, political stability and availability of talent, respectively.
RHQs require global connectivity and the ability to act quickly, which in turn requires excellent IT, financial and transport capabilities – thus infrastructure was ranked very highly by the respondents. Political stability is crucial in selecting the location for any business but in particular for locating RHQs in the Asia Pacific region, which contains many countries with volatile political environments. Singapore’s peaceful, stable and secure physical environment, coupled with predictable governmental policy-making, enabled the republic to score highly on this attribute.
As the third most important criteria listed by respondents, the search for quality employees to work in RHQs has risen above the need to lower costs. The ability of nations to compete in the RHQ arena is clearly not a function of population size, but rather the size of the “quality talent pool.” Location proximity between RHQs and their manufacturing bases was also cited as a factor in RHQ location choice, as was travel mobility within and with other Asian countries.
In 2007-2010, Spire foresees explosive growth in the consumption and production of biofuels in Asia, particularly in Southeast Asia and India, albeit from a small base. Driven by government initiatives, the rising production, refining and use of biofuel are creating huge opportunities for firms in the automotive, energy, agri-business and
A key variety of biofuel that will see strong growth is jatropha curcas, a perennial & non-edible oil plant growing in tropical/sub-tropical climates, which has seeds with 30% – 50% oil content. The oil can be used to produce bio-diesel.
Many Asian countries aim to build up cultivation of Jatropha, or encourage refining of jatropha oil into bio-diesel, to benefit from the migration towards biofuels, while also encouraging use of biofuels in their own countries to reduce emissions.
Jatropha, and biofuels in general, represent an enormous opportunity for energy, agri-business and automotive companies.
Spire expects China to continue to lead the world in the deployment of small-scale solar power cells, primarily for home water heating. Going forward, China will become the world’s key market for the testing and commercialization of home solar cell technology, driven by government concerns over energy security and air pollution from coal-fired power generators.
China is easily the world’s biggest market for solar energy, accounting for roughly three-quarters of the world’s new solar panel collector capacity (MW). The nearest ranked region is the whole of Europe, which accounts for about 10%.
China’s dominance in this space is mainly due to the huge size of its population. But even in per capita terms, China’s capacity of 6.7 kwth. per 1,000 inhabitants noplaces it in fifth place, which means it has overtaken the stagnating German market(6.4 kWth/1,000 inhabitants) during the last year.
Since 2000, China’s per capita solar panel installation has risen by 20% per annum and shows no sign of slowing. 90% of these systems are installed to heat water in private households, 10% in hospitals, schools and hotels. About 85% are flat-panel collectors with thermo siphon systems and 15% evacuated tube collectors. There is a trend towards higher quality flat-panel collectors with longer service life, especially for large showpiece projects.
About Spire Research and Consulting
Spire Research and Consulting is Asia’s leading strategic market intelligence consultancy. Spire’s competitive advantage lies in its ability to deliver to its clients actionable intelligence on the external business environment in support of their strategic decision-making in marketing and business development. Spire is one of the few companies in its industry to be headquartered in Asia. Spire’s clients include over 20 Fortune 500 organizations as well as Government agencies in nine countries. For more information, visit us at www.spireresearch.com.
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Spire Research and Consulting is the leading research consultancy in global emerging markets. Spire's competitive advantage lies in its ability to deliver actionable intelligence on the external business environment in support of its clients’ strategic decision-making in marketing and business development. Spire's clients include 50 Global Fortune 1000 companies and government agencies in 15 countries. For more information, please visit www.spireresearch.com.