Originally published in Advancing ASEAN in the Digital Age Book, 14 November 2017.
ASEAN in the Digital Age: Quo Vadis?
Technological advancement, enabled by our emerging digital behaviours and the new business models that deliver economic value, has brought us to the cusp of the digital age, impacting all aspects of human life.
Developments are accelerating in four key areas: (i) Connectivity & Computing power, (ii) Data, Analytics & Intelligence, (iii) Human-Machine Interface and (iv) Physical-Digital collision. This rapid evolution has created a significant opportunity for emerging ASEAN to jump to the forefront of the technology wave.1
With a proper digital agenda and a strategy that harnesses the power of both technology and people, ASEAN could see US$1 trillion added to its GDP over the next decade, a 20-30 percent increment to its overall output by 2025.2
Ten-nation ASEAN has a population of more than 630 million and a robust economy, currently valued at US$2.55 trillion with projected annual growth of more than five percent over the next decade.3 If it was a country, the bloc would be ranked #3 globally in population and #7 in GDP.4
Over 90 percent of ASEAN’s population is literate5 and more than 50 percent of the population is under 30 years of age6, most with internet access. This young population is likely to drive the digital push in three ways: digital innovation, growth in digital spending and the economy, and accelerating digital adoption in the workplace.
In 2015, the AEC mapped out a clear charter for the next 10 years with a clear focus on innovation and technology adoption, and the development of micro, small and medium enterprises (MSMEs)7. This is especially critical in ASEAN as MSMEs contribute 30-60 percent of the overall economy across markets (for example: in Malaysia it is 35 percent, Indonesia 60 percent8), but have low ICT adoption rates (for example, only 30 percent of SMEs in Malaysia using eCommerce and epayments9). This twin focus on innovation and MSMEs could spur wide spread digital adoption across the region. Countries are already taking concrete steps to bring SMEs online – KOMINFO in Indonesia organized programs with employee training and provided domain IDs and free hosting services in order to bring 100,000 SMEs online and help them expand their market reach, nationally and globally. There is also a plan to take 8 Million SMEs online through the Go Digital Vision 2020 program.
Substantial digital and physical infrastructure investments have also been underway. Over 2011-2015, almost US$50 billion10 was invested in building communication infrastructure across ASEAN. For example, Malaysia has taken the lead by setting up the first Digital Free Trade Zone in the region to facilitate SME integration with the digital economy.
Most ASEAN countries have articulated various visions for their digital economies, such as detailed eCommerce roadmaps that integrate SME sellers into the digital economy. For example, the Malaysia Digital Economy Corporation has developed one such roadmap in partnership with A.T. Kearney, which envisions doubling the eCommerce growth rate in Malaysia.
Overall, ASEAN has a conducive demographic, macro-economic, infrastructure and strategic environment for digital adoption that will spur economic growth among the economies.
However, digital growth and its attendant benefits are not a given. There are three key challenges that need to be addressed:
- Weak rural infrastructure development.
- Limited workforce readiness for the digital age.
- Privacy & security concerns – that need to be addressed.
Weak rural infrastructure: Rural parts of most ASEAN countries remain largely unconnected. In addition, more than half of adults in many ASEAN markets do not have a bank account.11 Where banking penetration is substantial, such as in Malaysia (81 percent), cash still dominates with 7 times as many ATM withdrawals as debit card transactions.12 While cash on delivery is being explored as a solution, digital payments will be key to creating a step jump in online transactions, which involves shifting a large proportion of unconnected and unbanked people online.
Limited work force readiness for the digital age: The digital revolution could see the end of employment as we know it. Our assessment broadly indicates three types of impact on employment across sectors: job losses, job augmentation and job enhancement.
Science, Technology, Engineering, Mathematics (STEM) graduates typically play a key role in driving digital innovation and can take up many of the ‘enhanced’ jobs. However, STEM graduates are under-represented in many ASEAN countries – for example, Indonesia produces ~750 STEM graduates per 1 million population, far below China (~1,000), and India (~1,800).13 Despite this, most ASEAN countries do not have a skills roadmap for the workforce. The absence of a coherent plan will hamper workforce development for the digital age.
Privacy & Security concerns: In a recent digital transformation survey with business leaders in the region, cyber-security ranked as the top concern. Among consumers, there are increasing concerns around the security of personal data, financial and transactional data. Over the past few years many ASEAN countries have strengthened personal data and cybersecurity laws. But this will need to be continuously strengthened to enhance people’s trust.
Advancing ASEAN through four Digital Sub-revolutions:
For ASEAN to sail smoothly through the digital revolution, we will need focus in four areas:
1. Continue accelerated digital and connectivity infrastructure investments
Continued investment in digital and physical infrastructure is a must. This will range from increasing broadband internet access and digital services, to enabling the creation of smart platforms and cities.
The focus should be on improving high-speed broadband penetration, as studies have shown that increased broadband internet access drives higher GDP growth. Ensuring healthy operator economics is critical to sustained broadband infrastructure investments. ASEAN mobile operators have high capex intensity compared to global operators (for example, Indonesian operators invest 15-30 percent of sales on capex annually compared to developed market averages of less than 15 percent). Mobile operator economics could be improved through two sets of actions:
- Increased spectrum availability, especially of a lower band such as 700 MHz, so that operators can expand broadband coverage cost-effectively.
- Ensuring that there are no more than four mobile operators per country, so that operators can earn sufficient returns to re-invest in infrastructure.
Countries could consider the rollout of a national broadband network to increase penetration of fixed-line networks and provide enhanced mobile quality.
Payments platforms and mobile financial services:
A single framework that enables countries to harmonise regulations on payments and mobile financial services will greatly bolster digital usage. Policy makers must encourage standardised digital payments platforms – first in-country, then across ASEAN. Systems such as NETS in Singapore or mobile wallets will lower the cost of transactions and encourage daily micro-payments. Further, significant acceleration is needed towards setting up and running Internet-only and payments banks. These limited service institutions are significantly faster and cheaper than traditional brick and mortar banks, enabling deeper financial penetration and ensuring the mass of transactions are digitalized.
Physical-digital infrastructure: Smart City programs show how you can build digital into growing infrastructure. By 2025 ASEAN is primed to have 35 cities with more than 1 million residents and generating approximately 80 percent of the Bloc’s GDP. These cities will need to be “smart” to solve the problems associated with rapid urbanisation. Policy makers should design a common strategy to nurture city standards and economies of scale as these cities develop.14
2. Foster innovation and build local champions
For ASEAN to fully benefit from the digital revolution, its people will need to be not just digital consumers, but also digital producers and innovators.
Lazada, Grab and Go-Jek are some anchors in their respective markets that have shown how local success stories encourage digital entrepreneurship. Observing and learning from such local success stories plays a key role in accelerating digital entrepreneurship.
True innovation requires all stakeholders from policymakers to companies to schools to play a leadership role. Local incubator programs and industry-university collaborations can turbocharge innovation through creating a nurturing environment through research programs, hackathons, and internships/education credits for industry work. Silicon Valley provides a great template for creating such an environment of universities, companies, and investors and demonstrating its positive flywheel impact. Some national initiatives focused on creating a comprehensive ecosystem for innovation are already in action through the SPRINGS SEEDS Capital and Startup SG Equity programs in Singapore and MaGIC (Malaysian Global Innovation & Creativity Centre) in Malaysia. In Indonesia, the Ministry of Communication and Information Technology has set up the ‘1000 Startup Digital National Movement’, aimed at creating 1,000 technology startups with total valuation US$10 billion by 2020.
Establish rules that protect innovation:
Regulations and enforcement to protect developers from those who seek to produce inferior imitations, adopting the “fast follower’ strategy, are paramount to digital innovation success. Studies globally have found that strengthening intellectual property rights increases the propensity to innovate and file patents. Positive regulation to encourage innovation zones as well as ‘short period moratoriums’ from regulation for new technology such as M2M and IoT can encourage development of new technologies and solutions.
Encourage digitally led R&D:
ASEAN could take a similar approach to advanced R&D markets such as the US and Japan to make extensive use of R&D tax incentives to help innovative enterprises get off the ground. Such concessions must be non-discriminatory, applying to startups in all industry sectors.
3. Enhance trust and security
For digital adoption to be widespread, trust and security is paramount. Most ASEAN countries have compulsory National IDs to access certain government services, but they should now implement a national e-ID system as a first step. With national IDs in place, ASEAN can then strive toward cross-border identification, resembling the European Economic Area’s adoption of national ID cards entitling people to free movement.
As everyday services move online, the risk of a breach is high. A resilient regional-wide cybersecurity regime is needed to drive public confidence in e-commerce and cross-border data transfers. ASEAN should consider creating a world-leading agency to fight cybercrimes, like J-CAT of Europol. However, regulations need to be balanced and proportional to avoid deterring businesses from developing electronic and mobile commerce platforms.
4. Ready the workforce for the Digital Age
For ASEAN to take full advantage of the Digital Age, its workforce need to be imbued with the right skill-sets.
Upskill the workforce:
Countries should lay out a comprehensive roadmap for talent development and training. Reskilling and retraining should focus on enabling employees to use technology effectively, fostering curiosity, creativity and collaboration to prepare for a world of continuous disruption. Tighter coordination between Government, Industry and Educational institutions is necessary, with a focus on the practice aspects of digital, and the latest tools and technologies. The Thailand 4.0 model is an example of Government action in this space. The government is promoting lifelong learning through 3,600 community digital centers and is Nurturing Citizens 4.0 by setting up a Strategic Talent Center where they match specialized science and technology skills with private sector needs.
Invest in “21st-century skills” education:
ASEAN schools continue to use curriculums that are no longer future-ready. Some have added new courses such as entrepreneurship and computer studies, others have begun to incorporate technology in its curriculum, but this is not enough. According to the International Computer and Information Literacy Study (ICIL) by the International Association for the Evaluation of Educational Achievement covering 50,000 eighth-graders in more than 3,300 schools from 21 education systems, only 2 percent of students use their critical thinking and that teachers lack confidence in teaching essential computer skills. Governments need to radically transform the current education system to ensure children are prepared for the digital economy. Skills such as critical thinking, problem solving, creativity, digital literacy, and more holistic social and emotional skills will be vital for youngsters to cope with the new technologies and rapidly evolving workplaces of tomorrow. Based on our study, we also see tremendous potential to leverage on technology (e.g. Google Apps, Skype), innovation (e.g. One Laptop per Child – a nonprofit providing low-cost computers to millions of schoolchildren), and new private-public partnerships to re-invent the way we teach the next generation.15
Overseas nationals represent an immediate opportunity to boost the existing local talent pool. Governments should be doing all they can – from financial inducements, to preferential taxes, or other incentives – to attract highly-skilled overseas workers to return home to ASEAN.
The digital age is coming and ASEAN urgently needs to do two things:
- Set up an independent board — the ASEAN Digital Economy Promotion Board to provide strategic direction and guidance to the AEC and its member governments – with country representatives, industry experts and key opinion leaders.
- Set up a Digital Index like the European Union’s Digital Economy and Society Index (DESI) that collates relevant indicators on digital performance and tracks the evolution of member states’ digital competitiveness.
- Rome was not built in a day and neither is a digital economy. The headwinds outlined must be addressed with all stakeholders working together, pushing for an integrated roadmap that will turn the US$1 trillion opportunity into ASEAN’s reality.
1 Technology and Innovation for the Future of Production: Accelerating Value Creation; World Economic Forum in collaboration with A.T. Kearney:
2 The ASEAN Digital Revolution; collaboration between A.T. Kearney and Axiata
3 International Monetary Fund Databases
4 ASEAN Economic Community 2015: Progress and Key Achievements Jakarta: ASEAN Secretariat, November 2015
5 ASEAN Statistical Yearbook 2015
6 ASEAN Economic Community at a Glance 2007-2015 Jakarta: ASEAN Secretariat, August 2016
7 ASEAN Economic Community Blueprint 2025 Jakarta: ASEAN Secretariat, November 2015
8 Asian Development Bank (ADB) 2015; Asia SME Finance Monitor. Manila; Office of Small and Medium Enterprise Promotion (OSMEP). 2015. White Paper on Small and Medium Enterprises in Thailand 2015. Government of Thailand; SME Corporation Malaysia. 2015. Annual Report 2014–2015
9 SME Corporation Malaysia Annual Report 2015-2016
10 ASEAN Investment Report 2016 Jakarta: ASEAN Secretariat, September 2016
11 World Bank Global Findex 2014
12 Financial Stability and Payment Systems Report 2016, Bank Negara Malaysia
13 UNESCO Institute of Statistics 2014 or latest available
14 The ASEAN Digital Revolution; in collaboration with A.T. Kearney and Axiata
15 Rethinking K-20 Education: Transformation for a New Age; collaboration between A.T. Kearney and Ashoka
A.T. Kearney is a leading global management consulting firm with offices in 40 countries. Since 1926, we have been trusted advisors to the world’s foremost organizations, working with more than two-thirds of the Fortune Global 500. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues.
About the authors Soon Ghee Chua is a partner with A.T. Kearney heading the South East Asian operations. He has almost 20 years of consulting and industry experience during which he has advised Business and Government leaders across the region on digital and transformation related topics. He has also co-authored a book on ‘Asian Mergers & Acquisitions’.
Hari Venkataramani is a principal with A.T. Kearney based in Singapore. He has extensive experience advising organizations across Asia-Pacific on digital and transformation related topics.