How to Do Business in Southeast Asia?
Southeast Asian business ethics and future leader prospects.
With a total population of 647.74 million inhabitants, Southeast Asia emerges as one of the most competitive regions in the world. The region now consists of vast developing countries, which include Indonesia, The Philippines, Vietnam, Thailand, Myanmar, Malaysia, Cambodia, Laos, Singapore and Brunei. In 2019, the total GDP of all ASEAN countries is estimated to amount approximately USD 9.34 trillion (Statista, 2020). As the world’s third-largest labor force, the region offers a promising market for foreign investors.
The Southeast Asia region is geographically expansive and it is usually characterized by a diverse culture, different markets, and varying economic developments. As a home to many different ethnic groups with their own languages, cultures, and behavior, Southeast Asia has its own challenges for global businesses to tap into the market.
Southeast Asian Business Culture: The Stereotypes
Most of Southeast Asia’s countries have the same uniqueness in how they do business. Personal relationships, indirect communication, and local culture play an important role in building a good business connection. Those various business cultures and ethics should be a consideration before starting a business in Southeast Asia. In addition, Southeast Asia could create one of the world’s most competitive areas these days with its various markets, variable economic developments, and numerous cultures. If you are interested in building a business in Southeast Asia, you will have to know about their specific business culture which might be different from other regions.
Hierarchical Indonesia, Malaysia, and Singapore
There are some similarities and differences in how countries in Southeast Asia do business. This is due to the proximity between regions and also the country’s background. The diversity that exists in Indonesia itself has the same uniqueness, namely how hierarchy plays an important role and indirect communication such as dominant body languages. They are masters at controlling or hiding their true feelings; often smiling in all types of situations. Therefore, knowing what they are thinking or saying can be challenging. To save face, this ambiguity on their part may be appropriate. They dislike saying no and will rather leave things unsaid or say “not yet”. We have talked about the tips on how to nail a business deal in Indonesia in our previous article that might help you to understand better.
In Malaysia, personal relationships play a large role in business culture, as trust is considered the key to good business for them, and therefore they will be looking for an honest commitment to the business relationship from their counterparts. Their business networks are mostly made up of relatives and colleagues, as it is believed that nepotism guarantees trust. They will often ask many questions about your family and personal life, which can sometimes come across as direct and overly personal. However, it is not intended that way. They will expect you to ask the same to them. Malaysia is also very concerned about hierarchy and avoids outright rejection, just like Indonesia.
Having similarities with the previous countries, Singaporean culture is also hierarchical, where interactions between people are divided as a result of Chinese influences. Singaporeans are supposed to pay full reverence to their parents and elders and should be unconditionally loyal to the elderly even though they don’t consider entitlement to be inheritable through family or ethnicity. Besides the similarities, there is a difference between the influence of Singaporean and Malaysian behavior where Singaporean got influenced by Chinese culture and Malaysian got influenced by Islamic norms.
Respecting Personal Relationship in Thailand and The Philippines
In Thailand and the Philippines, hierarchy is still a matter of how business works. The culture of hierarchy reflects in the behavior of the person of highest status approving all final decisions, but group agreement is still required for all decisions before it reaches this individual. In both nations, personal relationships are also respected. Finding a third-party introduction in the Philippines is a helpful technique for finding a trusted business partner. For this reason among others, nepotism is common. It is also favored that face-to-face meetings are held when possible as they consider over-the-phone business to be impersonal. While in Thailand, asking a lot of personal questions to get to know someone better is one of the keys to building a relationship. The same thing happened in the Philippines for other circumstances, which is asking personal questions in order to grant privileges for them based on your friendship and vice versa.
Trust is the Key in Cambodia and Vietnam
Both Cambodia and Vietnam put so much value in mutual trust that is related to personal relationships. How business works in Cambodia really depends on mutual trust where a personal relationship is important and indirect communication plays a role to build that and solve a problem. The same thing as Cambodia, personal relationships also play a large role in Vietnamese business culture. They honor the elderly and the trust of a single ancestor in the family. People in Vietnam enjoy working with those they know and trust. Trust is fundamental to good business for them and it can be very difficult to regain their confidence once you have broken a ‘promise’. Both countries use face concept which is a fundamental factor in the way they communicate and behave with each other. Showing respect, giving compliments, or doing something to increase their self-esteem are huge factors in individual interaction.
Myanmar and Laos’ Buddhism Influence
The next two countries we are going to talk about are Myanmar and Laos. Both countries are influenced by Buddhism and the geographical factor, most likely they have similar traits in their culture. Myanmar people are pretty conservative so there are few things that need a little more attention. It is important to know the identity of the other party so that we can avoid misunderstanding and do not offend certain parties. Personal relationships and indirect communication still have a huge role in business culture. They work with someone they can trust that making a third party introduction is a necessity. Small talk might be necessary but they will also focus on body languages such as the speaker’s posture, expression, gestures, or tone of voice to draw further meaning. For Laos, one crucial thing to focus on is respect behavior to their culture as simple as dressing style. Businesses are often based on personal relationships developed by social circles. Also, regardless of whether the words are mispronounced, simple greetings or several main phrases can serve as a good ice breaker and display keenness to understand Lao culture.
The Islamic Brunei Darussalam
Brunei Darussalam will be the last country to talk about. This country is an independent Islamic sultanate so the majority of the population is Muslim. Related to that fact, handshakes are usually normal for the same sex only. Like the other countries, Bruneians are indirect communicators and always look for personal relationships to start a business. They avoid embarrassing another person, which would cause that person to lose face while being indirect. It is important to know about the local Sharia Law because it will affect how the business works.
How to Lead in Southeast Asia: Lessons-Learned from Experienced Global Leaders
Due to its diverse culture, language, and ethics, the Southeast Asia region is a complex and challenging place to do business. Regardless of how an ideal leader should be, the most dominant leadership style in Southeast Asia is authoritarian, with a preference for conformity and orderliness (Taormina, 2016). Many global businesses struggle to find local leaders in the region, and often appointed expatriate executives to fill in the gaps (Harvard Business Review, 2015).
However, leading in this region is not an easy task. Naturally, to successfully lead in the Southeast Asia region, one must keep in mind that acknowledging the influence of cultural values in business behavior (Varhezen et al., 2016: Doing Business in ASEAN Markets). In this section, we will discuss the experiences of global leaders in the region on how they adapt to the culture in Southeast Asia, based on the book by E. Antoine (2016), and Hofstede’s country comparisons.
Inequality is not unusual and often accepted.
The organizational power in the Southeast Asia region is often centralized and concentrated. People with less power in the region recognize, and usually accept, that power is unequally distributed. A global leader working in Malaysia stated that their subordinates rarely think outside the box, usually expect to be told what to do, and are less innovative. They also avoid speaking to their bosses directly, especially when their opinions might be controversial.
However, the power gap acceptance varies in each society. Based on the power distance index (PDI) by Hofstede, Malaysia has the highest score (100), while Thailand scored 64. This means the countries in Southeast Asia are regarded as more of hierarchical societies than many western nations.
Maintaining a good relationship is more motivating.
To effectively and successfully do the work, understanding people’s motive is important. Many global leaders often think that Southeast Asians have the same motivation as they are, which is a mistake. Western workers often use ‘achievements’, ‘competition’, and ‘money’ as their motivation. Meanwhile, Antoine (2016) stated that what motivates people in Southeast Asian organizations the most is relationships.
Money is still important, but it is found that employees usually work better if they work collaboratively and could maintain relationships with their colleagues, bosses, associates, and partners. Even the way they resolve conflict is different. In some countries, such as Indonesia, Malaysia, and Singapore, conflict resolutions are often done by indirect negotiation. Why? Because direct negotiation can put their relationship in jeopardy. Southeast Asian are all for face-saving. Specifically in Indonesia, we have previously discussed the five common bargaining techniques that can be useful.
Cross-cultural capabilities and mindset change.
Global leaders in Southeast Asia have noted that to effectively and successfully lead in the region, it is important to have cross-cultural capabilities. It also requires mindset change and openness. Having the capability to adapt and change one’s mindset will ease the process of acquiring cross-cultural capabilities.
Global leaders should first observe, analyze, and understand the culture and environment in the region. Then, communicating and building trust is another step to lead in the region. Developing shared value and meaning will lead to better collaborative works. Keep in mind that building relationships and trust is a key factor to lead in Southeast Asia.
Southeast Asia’s Future Business Leader
Total Early-stage Entrepreneurial Activity (TEA) for youth varies from 2.8% of working-age adults in Malaysia to 18.9% in Indonesia. In most countries, TEA is higher for youth than for older entrepreneurs (aged 35 to 64), highlighting the dynamism of youth entrepreneurship. Especially due to the pandemic situation where youth in Southeast Asia are learning about personal financial management and found many business models and new ways to improve income. Youth do not differ from older individuals in Asia and the Pacific in their perceptions of having the right skillset to start and run a business, or in their fear of failure. Higher levels of education in the region contribute to higher entrepreneurial attitudes and practices, regardless of age.
This survey has been conducted by the World Economic Forum where they asked what type of organization people work for today and where they would like to work in the future. 34.1% of young people already work for themselves in Indonesia. The level in Thailand is just marginally smaller. And more than one-quarter of Vietnam’s youths have shared entrepreneurial ambitions. The country has its own successful tech start-ups, such as agricultural technology firm Hachi, which uses internet-of-things sensors to drip-feed water to plants, with the idea of managing waste and boosting productivity.
Another question was asked in the survey which shows future possibilities about working prospects and interests for youths. When entrepreneurs and those working at start-ups are combined, nearly one-third of youth in ASEAN countries are accounted for in total, further strengthening the appeal of owning a company. The desire to be an entrepreneur in some countries or circumstances may be motivated more by desperation than big business ambitions because people feel like they have no other choice but to work for themselves.
The attraction of working for a multinational corporation is also gaining popularity aside from being a business owner. Twice the number of individuals who already work for multinationals would like to do so in the future. It is less desirable to work for a small or medium-sized enterprise (SME) than in previous years, although these enterprises form the backbone of many economies in the region. In the coming years, this shift in behavior could cause recruitment challenges for the sector.
Considerations
Southeast Asia is a culturally diverse region that possesses huge market opportunities for businesses. The region consists of many developing countries with emerging markets, one of which is projected to be the fourth-largest economy in the world by 2045. As a geographically expansive region with different cultures, behavior, and ethics, the way Southeast Asian people do business is diverse. Thus, learning and understanding a country’s business culture and behavior can be really profitable and could be one of the key successes in doing business in the Southeast Asia region.
Therefore, global businesses should really consider the local’s culture and business behavior as a part of their market expansion strategy. The diversity across the region makes each country unique, thus, it is important to understand and adapt to each countries’ business culture and behavior. The similarities between each country in the region are its leadership style, and how important a relationship between a business partner is.
BRIGHT Indonesia would Help You to Connect to ASEAN Market
Southeast Asia is one of the world’s most interesting areas for doing business. Most of the countries like Indonesia, Malaysia, The Philippines, Thailand, and Vietnam are having fast-growth markets, as well as the region’s hub Singapore are at the forefront of SEA’s economic growth. Greenhouse.co (2020) added that this condition also summoned an interest for ASEAN FDI from all over the world to start expanding and spreading their business market in Southeast Asian countries.
BRIGHT Indonesia would help foreign businesses to enter the ASEAN market through our services such as Business Registration and Establishment, Foreign Direct Investment Promotion ,Management and Strategy Consulting, and Business Incubation and Accelerator. The services will help your business to:
- Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
- Supporting client companies from the private sector with the development of corporate or business unit strategies or helping your company from public sector organizations with public policy.
- Help client companies obtain the work and stay permit for your foreign employee in the Indonesian office: expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).
- Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.
For more information, email info@brightindonesia.net.
Co-Written with Ristya Sangaji
