Several surveys indicate that Shanghai, Hong Kong and Singapore are the three most popular Asia-Pacific locations for multinational corporations’ regional headquarters. The top criteria cited for this popularity include close proximity to markets, a favourable regulatory and political environment, and a supportive business and tax regime. Although it appears likely that Singapore will remain the favourite location for companies interested in accessing south-east Asia’s markets, and Shanghai’s proximity to the mainland China will maintain its appeal as a regional headquarter, the dominance of these three cities is not a given.
Upcoming tier-two cities could shift the competitive landscape. For example, Malaysia’s Iskandar region, which contains nine economic clusters, could develop as an international metropolis. This follows a wider trend of growing clustered economic development zones, which are encapsulated in the Asian Development Bank’s (ADB) 2020 Strategy. Developed in 2008, this strategy promotes the use of city cluster development (CCD) as a tool for policymakers, to spark overall economic growth over the long term. It advocates using state planners to test and manage innovative city clusters, urban corridors, megacities and special economic zones. Nonetheless it will take some time for this concept to be widely accepted by multinational companies.
Indeed the concept of CCD faces challenges. While state planners can use public finance tools and incentives to make their locations attractive, the downside is corporate income tax rates in Asia are already low, as companies that have regional headquarters in Asia enjoy rates of between 15% and 17%. Thus the only way to manage public finances with reduced corporate income taxes is to incur more government debt, and shift higher tax burdens onto consumers. So some short-term gains could come with future unintended long-term consequences.
Considering businesses which target the Asian consumer segment and locate close to these markets, such changes could affect consumer spending. This could cause these businesses some negative effects in the short term, thus the accountability to stakeholders is itself another big challenge. In the interim, it remains to be seen how the ADB’s 2020 Strategy, which favours CCD, will shift corporate location strategy over the long haul, and which Asian cities will emerge as the winners.
Lawrence Yeo is CEO and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm providing Asia market research, business strategy development and export/FDI promotion services. Website: www.asiabizstrategy.com.