Asia Opportunities: Asean Economic
Community (AEC) in 2015
Under the Asean Economic Community (AEC), a single regional common market of Asean countries will be created by 2015. The regional integration's objective is to create a competitive market of over 600 million people in Asean countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. There will be free flow of goods, services, investment capital and skilled labor following the liberalization. These will include tariff reductions and streamlining of certain administrative procedures. Many businesses have begun preparing themselves three years ahead of time to meet the challenges and opportunities of the Asean Economic Community (AEC).
Even though, according to the Bangkok Post newspaper in Thailand, the AEC Scorecard at the moment shows the region behind schedule, having achieved only 73.6% of Phase 1 goals, it still offers a big opportunity in Asia as it will be viewed as a single large market. Further. the integration will help increase Asean competitiveness with China and India. The delayed issues, such as agriculture, non-tariff barriers, integration of the less-developed CLMV (Cambodia, Laos, Myanmar (Burma), Vietnam) members, and financial integration remain to be worked out. According to the US International Trade Commission report on AEC (www.usasean.org/ASEAN/pub4176.pdf), the challenges were seen in the area of importing and exporting which vary widely among Asean members. For example, procedures for trading are relatively easy to complete in Singapore, Thailand, and Malaysia, but very difficult in Laos and Cambodia. The quality of logistics services also varies among the Asean members, such as customs brokerage, freight forwarding, and express delivery. Logistics services are world-class in Singapore but poor in Laos, Cambodia, and Burma. In many Asean countries, restrictive regulations hamper the delivery of high-quality logistics services.
Benefits of the Asean Economic Community (AEC)
- It will open more regional cooperation and will improve the scale efficiencies, dynamism and competitiveness of Asean members. AEC will enable easier movement of goods, services, investment, capital and people. Ultimately, it will offer new ways of coordinating supply chains, or access to new markets for established products.
- All Asean countries are more important to foreign investors if they are considered as one node in a larger regional market of nearly 600 million people - a single market. The Asean Free Trade Agreement will be expanded to zero tariffs on almost all goods by 2015. Asean plans to remain engaged with the global economy through regional-level free trade agreements - today, Asean has such agreements with China, Japan, Korea, India, Australia and New Zealand.
- The USITC's Asean: Regional Trends in Economic Integration, Export Competitiveness, and Inbound Investment for Selected Industries Report noted that the AEC is coming at a time when it is recognized that investment in emerging markets is more desirable than in the US and Europe. "There will be no shortage of funding coming from within Asean, the Asia Pacific or even the US and Europe. These investments can bring about badly needed capital for some countries, allowing them to leapfrog from the 20th century into the 21st in terms of competition in mature countries such as Thailand and Malaysia", said the report.
- SMEs accounted for 96% of enterprises and between 50-85% of domestic employment across Asean. Integrating these SMEs and supporting them in the inital period will be a challenge throughout ASEAN but particularly in the lesser developed ASEAN countries. Recently I was in SIngapore and it is obvious that the Singapore government fully realizes the challenge and the opportunity that the AEC will represent to SMEs and is putting both the planning talent and the resources to better support their SMEs. I was also in Vietnam and Thailand and although both countries are starting to verbalize and meet to develop more effective plans for SME integration and support, it is obvious that these plans are probably behind where they need to be. In countries, such as Cambodia, Laos and Myanmar (Burma), plans are even further behind and more in need of support and resources.
- Tourism opportunity. Asians travels more in the region and there are more travelers from other countries that have begun to reach out to Asia as new visitors. The trends were evident at the recent Hub City Forum, held by the Pacific Asia Tourism Association (Pata), where more than 100 travel industry executives discussed the tourism potential, government's spending to upgrade facilities both for leisure attractions like museums; and also MICE facilities such as convention centers, reported the newspaper. MICE tourism opportunities are particularly large and hopefully countries that have the most experience in this area such as Thailand and SIngapore will render their assistance to those with weak MICE experience - recent examples of this are Thailand with Vietnam and also some talk in Thailand about rendering assistance in Laos and possibly Cambodia.
- Internationalization of health care under the AEC. Health care is one of the sectors to be internationalized. This is definitely a big challenge as it is more complicated than just the popularity of Singapore and Thailand's "medical tourism" that patients travel from one country to another seeking better care at lower cost. The legal and licensing frameworks are still needed to be worked out. However, it offers potentials for the free-flow of health services, etc. in the region. Recent examples here were noted in the Bangkok Post in mid-March which noted programs by Thailand's largest medical service BGH and other Thai hospital groups to step-up the pace of mergers and acquistions and joint ventures in other AEC countries to help give them a better platform to better take care of developing AEC opportunities.
Current Situation
- The
AEC development has been criticized for being "too slow" and some observers have
said that the issues that have been delayed were those of importance
and could make or break the success of the integration. Some
specialists also commented about the lack of leadership on this issue -
the role of Asean chairmanship is a rotating position and a series of
officials from the poorer, less developed Asean countries will be the
chair of Asean for the next few years which means that leadership will
be inexperienced and possibly be less interested in pushing ahead
quickly with integration on all fronts. Furthermore, Asean will
suffer the departure of a strong leader as the current Asean Secretary
General, Thai diplomat Surin Pitsuwan, is completing his 5-year term as
Asean Secretary-General this year. As an experienced diplomat
Surin Pitsuwan and prior to him the equally experienced Ong Keng Yong
from Singapore have pushed ahead on integration. Some observers
note that the less experienced officials from poorer and less developed
Asean countries set to follow them will not have the same leadership
skills, experience or knowledge and that this will tell on future
progress.
- Infrastructure development among the Asean countries: both the development of hard infrastructure such as roads, ports, airports, etc. and soft infrastructure such as human resource and training are being concentrated.
- The banking sector will particularly need to stay ahead of the game to facilitate investors and to support their moves throughout the region. Singaporean and Malaysian banks and telecoms, for instance, have invested heavily in the region and seem to be slightly ahead of other competitors in better preparing themselves for the AEC.
- Executives have to adjust strategy. Inside the AEC, managers will increasingly have to pursue sales opportunities across the region while focusing relentlessly on cost efficiencies by integrating their operations across the region, managing through lean techniques but also developing effective corporate centralization. Externally, managers in countries such as the US, Canada and Europe are going to have to start paying better attention to this new opportunity. Many of them right now seem to have eyes for only China and India. Asia is much more than either of these two countries and western managers need to study and better understand the opportunities that the AEC presents. In China and India, the AEC also is not fully appreciated nor understood and both Indian and Chinese managers need to also focus more attention and to travel and address the opportunities that the AEC presents.
- Asean members still view each other as competitors, for inbound investment and jobs, reported USITC. Ultimately, these distinctions should start to fade to some extent but in the future the line between competitor and collaborator within Asean may become less clear. The Asean members will need legally binding means to enforce compliance with the objectives of the roadmaps, suggested the report.
- Infrastructure development among the Asean countries: both the development of hard infrastructure such as roads, ports, airports, etc. and soft infrastructure such as human resource and training are being concentrated.
Hard infrastructure: Many countries'
governments have plans to upgrade their infrastructure, such as the
plan of three highways linking Asean - the North/South one linking
South China through Myanmar, Thailand, Lao and Vietnam; the East/West
Corridor linking Myanmar, Thailand, Laos, and Vietnam; and the
South/South one linking Myanmar’s Dawei deep seaport, Thailand’s Laem
Chabang and Cambodia (link to our infrastructure article).
Thailand's government has also been talking to China about the
high-speed train project linking Laos and Thailand’s Nong Khai to the
southern border and Malaysia.
For soft infrastructure, better English speaking countries in Asean, such as Singapore, Malaysia and the Philippines will have an advantage over countries like Thailand. According to the Bangkok Post, Thailand has established the ‘‘English Speaking Year 2012’’ program in preparation for the merging of the AEC. This is a step in the right direction but what is ultimately needed is not only a program but a new mind-set. Thailand has not given enough attention to improving English skills throughout its education system and now is in a somewhat weaker position to countries such as Vietnam who have given increased attention to this and also benefit from having a western alphabet that makes learning of English both reading and writing easier than in Thailand.
For soft infrastructure, better English speaking countries in Asean, such as Singapore, Malaysia and the Philippines will have an advantage over countries like Thailand. According to the Bangkok Post, Thailand has established the ‘‘English Speaking Year 2012’’ program in preparation for the merging of the AEC. This is a step in the right direction but what is ultimately needed is not only a program but a new mind-set. Thailand has not given enough attention to improving English skills throughout its education system and now is in a somewhat weaker position to countries such as Vietnam who have given increased attention to this and also benefit from having a western alphabet that makes learning of English both reading and writing easier than in Thailand.
- The banking sector will particularly need to stay ahead of the game to facilitate investors and to support their moves throughout the region. Singaporean and Malaysian banks and telecoms, for instance, have invested heavily in the region and seem to be slightly ahead of other competitors in better preparing themselves for the AEC.
- Executives have to adjust strategy. Inside the AEC, managers will increasingly have to pursue sales opportunities across the region while focusing relentlessly on cost efficiencies by integrating their operations across the region, managing through lean techniques but also developing effective corporate centralization. Externally, managers in countries such as the US, Canada and Europe are going to have to start paying better attention to this new opportunity. Many of them right now seem to have eyes for only China and India. Asia is much more than either of these two countries and western managers need to study and better understand the opportunities that the AEC presents. In China and India, the AEC also is not fully appreciated nor understood and both Indian and Chinese managers need to also focus more attention and to travel and address the opportunities that the AEC presents.
- Asean members still view each other as competitors, for inbound investment and jobs, reported USITC. Ultimately, these distinctions should start to fade to some extent but in the future the line between competitor and collaborator within Asean may become less clear. The Asean members will need legally binding means to enforce compliance with the objectives of the roadmaps, suggested the report.
Whats Next?
These are vast and ambitious pursuits, and 2015 is less than three years away. Businesses need to have an international mindset, which gives them the appetite and ability to make cross-border investments and acquisitions. Momentum has been established, as seen from many investments and merger and acquisition activity that has occurred in the region. In Thailand, Siam Cement, one of Thailand's largest conglomerates, is gearing up to spend 75% of its $5-billion investment budget for 2012-16 to acquire assets, many in Asean countries, according to the Bangkok Post, and there are other large companies such as CP or BGH that are doing the same. In the Philippines, the Philippine pharmaceutical company Unilab markets its affordable analgesics and cough and cold mixtures all over Southeast Asia through joint ventures, while the Axiata group of mobile operators is looking into network-sharing, according to the Manila times. Indonesia's AirAsia, Asia's largest budget airline, is opening a regional office in Jakarta to engage with the Asean Secretariat there and work toward a single Asean sky and aviation authority, reported the Jarkata Post. In late 2011, a group of business luminaries, including the CEOs of CIMB Bank, AirAsia, Bangkok Bank and Ayala Group launched the Asean Business Club, a private-sector initiative to engage in Asean's community building efforts.
The AEC is definitely a work in progress. Some efforts will go faster and bear quicker fruit than others; others will face more challenges and may be less crisply implemented. Still, we believe the future is clearly in favor of the AEC and that it offers clear opportunities and challenges that all businesses need to be thinking about and preparing for. Those who fail to do so, have no one to blame but themselves for missing out on a wonderful new opportunity for sales, investment and engagement with Asia.
About the Author:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations.
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