When the U.S.-China trade war began, it triggered a sudden rush to rethink and diversify supply chains. Some in Hong Kong sought to deploy the first sale rule, while others looked to strengthen their footprint in other markets in a bid to round out their Asia presence.
But as geopolitical relationships have grown increasingly terse in the age of COVID-19, and Hong Kong’s National Security Law has shaken business confidence in the finance hub, businesses in Asia are looking to approach the region more strategically.
Chris Burton, managing director for Southeast Asia at Vistra, says that countries like Japan, South Korea and Singapore are starting to be seen as viable alternatives, noting that they benefit from “a highly developed infra-structure, excellent intellectual property (IP) rights regimes and trusted legal systems.”
And more recently, Japan and South Korea have taken a proactive in their approach to attracting foreign investment.
“Japan recently announced it was considering changes to its visa processes and looking at streamlining approvals for investment management licences, and in South Korea, the government has offered additional tax breaks for financial firms in Busan,” notes Burton.
But while these are promising signs, establishing an office base in Japan and South Korea can still be difficult for foreign companies, with complex labour laws and local regulatory systems to consider, apart from “higher labour costs and significantly higher tax rates.”
As a result, Singapore emerged as the strongest option.
“Over the past decade, Singapore has secured its spot as Southeast Asia’s predominant financial centre given its low corporate tax rate, business-friendly environment and its political stability. The country’s physical proximity to China and India, along with its cultural links and language capability, make it a great strategic location for many companies interested in doing business in the region,” says Burton.
Playing a significant role in cultivating this reputation, is Singapore’s government, which has worked to enhance its competitiveness with other financial centres in a number of ways — including a new corporate structure, the variable capital company (VCC).
“This structure is designed to appeal to alternative fund managers in particular, and there is increasing demand being seen in this space,” says Burton.
Additionally, Singapore boasts a multilingual workforce and “smart immigration policies,” pitching it as a strong competitor to Hong Kong.
“In addition, Singapore’s legal system follows British law and has evolved to become an international hub for arbitration and mediation. In the long run, this may be viewed as a differentiating factor against Hong Kong in the advent of the recent Security Law,” Burton adds.
But for businesses looking to establishing a physical presence within Asia, preparation is key, as the process is often far from simple.
“As a foreign investor, setting up a physical presence in any of these countries will require extensive preparation and a thorough understanding of the country’s compliance and regulatory requirements. Companies will also need to consider the local labour laws, which can vary drastically from one Asian country to another,” notes Burton.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.
