ASEAN companies need to map out M&A and boost their marketing mojo to win in the AEC.

Southeast Asian companies need to create a regional game plan, map out an M&A strategy, and start investing more in branding over the next two years if they want to emerge as regional champions when the ASEAN Economic Community comes into effect in 2015. (According to a report by JWT Asia Pacific and A.T. Kearney) Southeast Asia is on the precipice of a new era. In two years, the ASEAN Economic Community (AEC) will come into effect to form a single market and production base with a free flow of goods, services, investment, and skilled labor.

ASEAN's population is projected to reach more than 650 million people by 2020, with half under the age of 30. By 2030, 51 percent of the population (not including Myanmar, Laos, and Brunei) will be in the middle class, according to the Brookings Institute. This young population is educated and technology-savvy. They are also among the world's most optimistic consumers. "Southeast Asian companies that map out a regional strategy now and start investing in building solid brands are poised to emerge as winners in the AEC. Those that don't have a regional game plan risk becoming their competitor's lunch," said Chua Soon Ghee, A.T. Kearney's Southeast Asia Managing Partner. JWT, one of the world's best known marketing communications agencies, and A.T. Kearney, one of the world's leading management consulting companies, conducted an in-depth survey and interviews with key ASEAN executives to determine what impact corporate leaders think the AEC will have on their business and how it fits into their strategy. Our conversations with 50 corporate leaders, the majority from domestic companies across Southeast Asia, show the AEC is high on their radar screens. Sixty-four percent say their organizations plan to enter new markets in the region once the AEC kicks in. About four in 10 companies are considering M&A as a way to expand quickly in order to deal with more intense future competition. Most CEOs in our study cite "the need for scale to deal with more intense competition" as the main reason for increased M&A activities in their industry. Additionally, 60 percent of executives will expand their current portfolio of brands and products, and 24 percent will create new brands or product lines altogether after 2015 in order to reach more consumers. Southeast Asian companies are positioned to carve out a place as regional champions. They need to start planning now, so that they can make tactical moves that will put them ahead of the curve as integration occurs and the AEC is fully established. It is crucial that companies build a sound strategy, which includes M&A conducting proper due diligence and establishing a post-merger integration plan. However, it's not enough to simply expand. Companies with regional ambitions need to invest more in brand building to woo consumers, stave off competitors, and move up the value chain. Many domestic players created scale through mass production of low-cost goods, with little thought to building real brands. Nearly 40 percent of the companies with annual revenue under $100 million we surveyed concede that their top-selling product does not have a clear brand idea-or has no brand idea at all. And one-third of the companies who do have a brand proposition say they'll need to rethink it in order to connect with more consumers in other markets post AEC. "Companies have to make the switch from manufacturing products to selling brands. The region's consumers are moving fast into the middle class and are much more sophisticated, in terms of what they buy and what they expect," said Bob Hekkelman, JWT's Southeast Asia CEO. "It's time to get out of the commodity game, move up the value curve and form a long term relationship with consumer through brands." JWT and A.T. Kearney advise Southeast Asian companies that want to leverage the AEC to:

1. Recognize the larger market. The region's economies are growing, and the population is becoming more affluent. ASEAN countries have more than $2 trillion GDP, making this the fifth largest market in the world. Consumers, although diverse, are connected by culture and values and take pride in local quality products. 2. Appreciate and embrace change. Even if the AEC does not come into full effect on deadline, ASEAN is committed to freer trade and economic integration is inevitable. 3. Understand that regional champions will rule. The M&A data shows your neighbours and competitors are on the prowl. Our survey shows ASEAN companies plan to expand post AEC. It will soon be an eat-or-be-eaten world. Solid brands with regional reach will be in the best position to grab a dominant share of this newly enlarged market. 4. Prepare a regional game plan. The old world of simply appointing a distribution line will not be enough to become a regional player. Operating in new countries will require making complex choices on marketing and branding, products, supply chain, and manufacturing. 5. Increase scale through M&A. Integration will happen. Companies will move fast to acquire competitors to gain access to new markets, technologies, brands, and resources or as a defensive maneuver. To build scale through M&A, adopt a methodical approach. 6. Build marketing muscle. Being first or selling cheaply doesn't mean you'll remain a market leader. Become more savvy and sophisticated in your marketing and branding. 7. Move up the value chain. ASEAN consumers are spending more on higher value items. Your products can't command a higher premium unless they have a clear brand idea. 8. Take a page from the winner's book. Global companies and big regional players spend more than half of their communications budget on brand campaigns. Start investing more in brand communication, and stop focusing solely on tactical ads. 9. Don't get lost in translation. As we head toward the AEC, approach product innovation and brand development from a wider perspective, beyond your own territory. 10. Next stop, the world. Forward-thinking players that capture the region will have a strong foothold to go global.

By A.T. Kearney

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