In early 2015, I interviewed eight C-level executives at leading foreign multinationals as part of a KPMG sponsored report exploring the outlook for multinationals (MNCs) in ASEAN. What did they have to say?

It’s easy to get excited by the ASEAN opportunity. The region’s $2,460 billion economy and 600 million consumers rightly capture the world’s attention. The prospect of a single market with the arrival of the ASEAN Economic Community (AEC) later this year makes the story even more compelling.

But headline figures also disguise the region’s complexity. It’s an opportunity spread across 10 countries; incomes per capita can range from just $1,600 in Laos to $56,000 in Singapore; single cities such as Bangkok with its 10 million inhabitants have larger populations than Lao’s 6 million.

And that’s why it’s so important to understand what CEOs from leading companies such as Caterpillar, DHL, Shell, and HP are thinking. It’s one thing to get excited by the numbers, it’s another to successfully execute strategy.

Localization is the way forward

Most multinationals have a single China strategy, but how about a single ASEAN strategy? Perhaps not surprisingly, CEOs are more interested in talking about the need to localize their businesses in response to fast growing but increasingly localized markets, especially as local competition grows in intensity.

In justifying their thinking, CEOs speak most frequently about the need for a firm’s expertise to sit at the country level in order to respond rapidly to changes in the local market, especially as opportunities in single countries grow. In other words, what works in Indonesia may not be easily replicated in Thailand.

All this suggests that multinationals are more likely to localize product lines, but retain regional functional lines, such as HR and IT, where there are greater opportunities to share best practice around the region. To this end, Singapore remains the region’s functional headquarters.

The AEC looks good on paper, but…

The idea of a single market equivalent to the size of Brazil where goods, capital, and labor flow freely is commercially compelling. The problem is that it’s tricky to implement. What do CEOs think? While generally positive towards the AEC’s goals, most are realistic about what it means on the ground.

The key point is that the AEC is a consensus-based agreement. In short, governments for the most part only have to implement the agreement to the best of their ability. And while CEOs praise the fall in tariff barriers they simultaneously worry about persistent non-tariff barriers.

Most are also pessimistic on the prospects of free labor movement. In fact, many argue that labor regulations are tightening, not easing, especially for semi-skilled workers. But this creates inefficiencies as companies must establish specialist teams in each country.

Take the example of Vietnam where one CEO noted there are good welders. By contrast, it’s tough to find decent welders in Indonesia, although the country does have good machinists. But whereas in the EU you might relocate a Polish welder to work in Manchester, that’s much harder to do in ASEAN.

China’s shadow looms large

There’s no doubt China remains the region’s commercial giant; the country’s GDP is expanding at a rate that is equivalent to adding an Indonesia-sized economy each year to its output. But China is also no longer cheap and global buyers are increasingly sourcing from countries such as Cambodia and Vietnam.

But it’s also more than a simple substitution story. One of the CEO’s interviewed for the report noted how the firm has sharply reduced the number of its China-based employees even as it adds in the Philippines, but that ASEAN’s tight labor regulations and automation of China’s factories complicates his decision.

What about the risk from ‘China Inc.’? For now, CEOs suggest Chinese companies are not yet serious competitors; Korean and Japanese firms, by contrast, still dominate. And where there is stronger activity, it tends to be Chinese construction companies building infrastructure in low-income countries.

The region’s new champions

In my conversations, CEOs were meanwhile clearly aware that tomorrow’s competitors are most likely to be local. They are most impressed by the speed at which nimble local competitors, especially family-owned businesses, are responding to fast-changing markets.

What’s less clear is whether local competitors will be regional competitors. CEOs argue that a select group Minister Hun Sen, Indonesia’s President Joko Widodo, and Philippine’s President Benigno Aquino III join their hands during the opening ceremony of the 26th ASEAN Summit in Kuala Lumpur, Malaysia, on Monday, April 27, 2015. (AP Photo/Joshua Paul)

of leading local companies are already well advanced, and, in fact, more focused on global opportunities, such as CP Group’s investments in Europe, or Indorama’s acquisitions in China.

However, a large share of local companies is still struggling. Indeed, many interviewed for the report noted a lack of awareness among mid-sized companies about opportunities elsewhere in ASEAN. Many stick close to home markets where companies believe they have the strongest competitive advantage.

The upshot is that multinationals will enjoy higher barriers to entry in ASEAN relative to China, as they make the most of their ability to operate across national boundaries and still fragmented markets. But they will still have to plan and execute strategy in an increasingly uncertain and volatile environment. –http://www.forbes.com/sites/bensimpfendorfer/2015/07/23/what-do-ceos-think-about-the-asean-opportunity/