AI Can Transform Southeast Asia’s Growth. Is the Region Ready?

By Peng T. Ong and Gullnaz Baig

For years now, Southeast Asia’s economy has been “middle-of-the-pack” in per capita GDP growth as compared to other regions.  

But there is an often missed momentum in the region, with a promise to change all this.

The region is witnessing a rapid rise of tech-enabled disruptors like Grab, AirAsia, Ninja Van and Shopee —entrepreneurial ventures which have leveraged cutting-edge technology to disrupt existing business models. Many of these disruptors are embracing technification with artificial intelligence (AI) engines, involving machine learning and natural language processing (in the form of Large Language Models, or, LLMs), instead of opting for using just traditional technology stack options.

Across Southeast Asia, AI engines are transforming the way businesses operate and expand.  Companies and startups are using AI for everything, from tracking inventory more efficiently to offering innovative medical services; the region’s largest bank DBS has declared its intent to be an “AI-fueled” bank.

The potential is limitless. The question is, do businesses and governments across the region realize the transformative power offered by current technological advancements, particularly AI?  Can they step up to harness it?

 

The Promise of a Break

Over the last few months, the world has been left agape at the rapidly-evolving AI landscape. While AI engines are unleashing a revolution within businesses, it is the unveiling of generative AI algorithms like ChatGPT, followed by its even-more prolific sequels, ChatGPT4 and Chat GPT4o that have fired our collective imagination and blown us away by the possibilities that AI harbors. 

Even as technification in the region gathers steam, Southeast Asia has advantages working in its favor that it has little acknowledged. 

The Angsana Council, along with Bain & Company, reviewed how tech is helping shape businesses in the region. The research found that by 2025, tech-enabled disruptors (TEDs) were likely to be the biggest source of new employment in the region. This was unlikely to remain confined to a handful of sectors—one in every third sector was likely to be impacted by changes that tech-enabled disruptors would bring about. 

These “disruptions” have the potential of finally pushing the region out of its middle-of-pack reputation and transforming it into a region with exciting growth stories and one where global business leaders are created. A Kearney report found that AI-driven technological disruptions could result in an upswing in the region’s GDP by as much as 18%, adding up to $1 trillion to its $3.35 trillion economy. With more than 80% of the region in the early stages of AI adoption, there is much cause to be excited about witnessing the region’s technification.

 

Southeast Asia in A Tech Sweet Spot

Being later in adopting technology brings benefits for Southeast Asia. While the US and China, the clear masters in AI adoption, enjoy the benefits of an early head start and higher spending resources, businesses in Southeast Asia are helped by the fact that their technification is a relatively recent process. The US saw a wave of technification of services as early as four decades ago, most of them centering around the mainframe as its core component. China witnessed technification more recently, within the last two decades. In comparison, Southeast Asia’s technification began only in the last five years or so and is ongoing. Unlike the US and China, businesses in Southeast Asia do not need to go through the costly transition updating  older technologies. 

The region’s tech-driven disruptors began by using the tech stacks that China’s tech-enabled disruptors used in the technification of their services industry. The Grab app started off looking similar to the Didi app. Today, however, more tech-enabled disruptors are emerging, and have started to automate the US$1.5 trillion GDP in services in the region. Businesses and services are experiencing technification for the first time, driven by deep tech and AI, which does not require them to overhaul outdated technology and thus, providing them with more space for agility and innovation.

 

Enter AI That Transforms Value Creation

Technification should not be just about employing tech in businesses or merely digitizing business. It is about creating new models and transforming value creation—and this wave of AI technology enables that. It brings humanity and relationships to the fore—through the creation of ‘Virtual Relationship Managers’ (VRMs).  It is this new form of value creation that holds transformative power for the region. Particularly a region with a growing youthful population, adept at adopting new technology. 

VRMs are service offerings made up of LLMs trained on massive amounts of generic industry data combined with proprietary knowledge, customized to deliver a particular service to a particular person.  They are vastly superior in providing customized support throughout the whole journey of a person’s relationship with the product. AI has the potential to drive down the marginal cost of relationship management to nearly zero. This, in turn, makes AI-based services more accessible, setting it up for mass adoption. The term “life-time value” has been co-opted by transaction-driven tech businesses to refer to the value a business can “extract” out of customers over a short period of maybe six months to a year.  With strong relationship management capabilities, perhaps the industry can start to fully realize the sense of what “life-time value” should mean—the value of a true win-win relationship over an actual lifetime.

For this tech-enabled disruption to be truly transformational for Southeast Asia, it needs to seek to make vital contributions to the core aspects of a person’s life; namely their livelihood, wealth, health, freedom, family and friends, and purpose. These areas are dearest to the individual and thus,  hold the optimum possibilities for AI  to make meaningful disruptions in how business can improve people’s lives. This is particularly so, given the fervent consumer growth in the region, as income levels rise across economic classes. VRMs may  not be as essential in a decision to purchase a pack of noodles from your grocery app, but it becomes extremely relevant when you are trying to manage your personal finances in order to secure your financial future or access better healthcare and insurance plans as you age. That is where data-driven VRMs could give you easy access to accurate financial models or health diagnosis to understand your risk preferences, to help you plan and manage your investments accordingly, to grow your wealth, and, probably, as importantly, to give you reassurances that there is an expert agent working in your interest.

 

Is Southeast Asia Ready?

But even as the promise sounds tempting, much needs to be done by businesses as well as governments in the region to deliver on the promise that this new nature of AI technology holds for Southeast Asia. 

In this, the private market itself will not be enough. Governments play a key role in providing a conducive environment, which facilitates the growth of AI capabilities.  Across Southeast Asia, Singapore and Indonesia lead the region in developing a national AI strategy, with Malaysia and Thailand more vocally committing to modernizing their ecosystem but more fundamental shifts need to be set in place. 

A $1 trillion plus growth opportunity should be a significant temptation to governments prioritizing policy initiatives over the next decade. Based on the Angsana Council’s developing markets growth framework, there are three priority areas for governments “move fast”:

  1. Ensure universities, polytechnics and the broader school system prioritizes incorporating AI into teaching approaches and subject matter. 
    As when the calculator was introduced in the 1970’s, schools will need to balance the use of AI as a productivity tool and its potential as a crutch.  While we do not want children to “forget how to think,” we also need to enable them to compete in a world where most of the other students are “AI-assisted.”

  2. Provide incentives for products and services, including government services, to leverage AI.
    We often find that governments taking the lead both helps to improve services and set standards as well as build a delivery ecosystem that the mass market can leverage

  3. Celebrate early successes in the markets, both start-ups and innovative large companies, to build public awareness of possibilities and accelerate adoption.
    Like every major technological inflection, including mass computing, the internet, social media and self-driving vehicles that are benefits and consequences of change, there will be risks in the AI environment that governments and businesses need to manage.  However, Southeast Asian countries need to commit to “winning in AI” because the countries that do will be the productivity winners in the next two decades.