APG - Atlanta Pacific Group

"Connecting American Business with Asia"

APG Blog

What Is ASEAN And What Does It Mean For Your Business?

ASEAN, the Association of Southeast Asian Nations, is a political and economic organization made up of 10 nations in Southeast Asia. Member countries include Vietnam, Thailand, Indonesia, Malaysia, Philippines, Singapore, Myanmar, Cambodia, Laos and Brunei. Representing a population of more than 625 million people with a GDP valued at upwards of $2.4 trillion annually, ASEAN ranks as the 8th largest economy in the world. When the ASEAN Economic Community (AEC) goes into effect later this year, it will become one of the largest single market economies in the world.

ASEAN Realities

Considering recent economic challenges and civil disturbances in the Eurozone, the idea of a politically and economically united group of Southeast Asian seems daunting. Not only do these countries have historical grudges and vast economic and cultural differences, but each of them also possesses enormous inequalities within their own borders.

Southeast Asia is a geographically diverse region characterized by rugged terrain, remote islands and punishing tropical storms. Indonesia and Philippines combined are comprised of more than 32,000 islands, making them stubborn and difficult lands to govern. The Philippines central government in Manila is broken-down and corrupt, lending very little support to the archipelago’s far-flung and impoverished outer islands. Indonesia, covering a total land area as large as the continental United States, fares no better and struggles to maintain law and order across its vast network of fragmented local governments.

Ethnic and religious tensions create a hurdle for the political and economic unity of the region. Thailand’s southern provinces, once a part of the Malay Muslim Sultanate, have been the scene of numerous bombings and shootings that have claimed the lives of thousands. Although Thailand is an overwhelmingly Buddhist country, the Muslim population of 1.8 million dominates the southern provinces. The Malay-Muslim people desire full independence and have used violence against the Thai state, and have even struck civilian targets such as Siam Paragon shopping mall in Bangkok.

With 135 ethnic groups, Myanmar has a long history of internal conflict and human rights abuses brought on by the heavy hand of the Burmese state, which has dominated the country politically. Recent events in Myanmar have been well-publicized and include disturbing reports of mob violence led by Buddhist monks attacking Rohingya and other ethnic Muslim groups. Ongoing disputes in the country include the Kachin Conflict in the north and the Karen Conflict near the border with Thailand and the Irrawaddy Delta.

There are many more issues across the region including separatist movements in Indonesia and Philippines, religious persecution of Hmong people in Laos and Vietnam, numerous territorial disputes, anti-Chinese violence, government corruption, as well as labor exploitation all throughout the region. For many, even those of us that have traveled to the region, it is easy to dismiss these things simply as newspaper headlines or coffee shop talk that is far removed from the everyday life of Bangkok, Manila or Jakarta. These are, however, very real problems that affect the political dynamics of the region. Sweeping political changes can add to the external risks of American multinational corporations and lead to major losses in capital and shareholder wealth.

The idea of a common currency is even more of a long shot. A common currency would handcuff member countries, barring them from using monetary policy to address the unique needs of each nation’s industries. At its worse, a common currency could even inflame old rivalries and increase animosity, as we are witnessing with the EU experiment. Fortunately, the goals of ASEAN are more realistic.

ASEAN Opportunities

The strength of ASEAN will be its enhanced capabilities to build ties with third party countries and other regional trade blocs. ASEAN will improve economic collaboration and bring down trade barriers, making the region more attractive to third parties in Europe, Japan, USA, China, Korea and Australia. Southeast Asia is due for major infrastructure overhauls and the integration of 625 million people into one financial community brings economies of scale to the region that makes large-scale projects more viable.

Europe, Japan and the United States lead the way in foreign direct investments but when taken together, the combined investments of China and Hong Kong exceed that of America. China has garnered much attention with its commitments to improve road, railway, airlines and telecommunications links with ASEAN.

China is considering an increase in its investments by five-fold, putting over $150 billion into ASEAN within the next 5 years. While recent events in China’s stock market could dampen Beijing’s enthusiasm, the Chinese government seems intent on developing infrastructure and increasing trade ties. They are planning to build a railroad connecting Kunming (China) to Laos, Thailand, Malaysia and Singapore.

While China grabs headlines, Japan has quietly made plans for infrastructure projects and may end up as a leader in the region. The Japanese have deeper experience and a more tactful diplomacy that is more palatable to Southeast Asian governments. They are planning an east-west rail line that would cut through Myanmar, Thailand, Laos and Vietnam. Japan is also backing the Dawei deep-sea port, which will be Myanmar’s largest industrial trade zone, and is pledging money to improve expressways in Cambodia and Vietnam.

Regardless of who gets the job done, it is certain that developing a more productive foundation through better technology will bring business efficiencies to the region. Companies of all stripes, from entrepreneurs to multinationals of every industry will benefit from these investments.

Opportunities for American multinational firms in ASEAN are vast. The prime opportunity so far has been for manufacturers to capitalize on the “China plus One” strategy of opening production facilities in other Asian countries such as Thailand, Vietnam and Cambodia. Even many Chinese firms have engaged in this strategy to stay more competitive with production costs. This approach also helps multinationals diversify risks by making themselves less vulnerable to the capriciousness of China. It also gives them access to new markets, not only in ASEAN but also China’s Southwestern provinces thanks to the ASEAN-China Free Trade Area.

Apart from using ASEAN as a base of manufacturing, the region is a huge market for American multinationals from a variety of industries. The opening of Myanmar brings opportunities for American technology and telecom companies to build up that country’s infrastructure. Land in Cambodia is underutilized so there are ways for American agriculture firms to develop increased capacity for food production. Real estate and property development is another area of growth in Cambodia and all across the region as growing affluence and urbanization will affect the demand for housing and retail space. Increased tourism in the region will bolster demand for hotels in countries like Myanmar, Laos and Cambodia.

From an entrepreneurial perspective, there is no shortage of ways for enterprising Americans to improve inefficiencies and bring fresh ideas to the service sector of these economies. E-commerce makes up just 1% of retail sales in Southeast Asia, as compared with 8% in China and over 10% in America. E-commerce is woefully underutilized, presenting myriad opportunities for savvy American entrepreneurs. There is also a strong need for sales and marketing consultants to help small and medium size businesses in the region to update, or even establish an Internet presence so that they can market their products to overseas buyers. For example, eBay is encouraging more small and medium Thai enterprises to use their website to reach international buyers.

Demand for American education will continue to increase as ASEAN becomes more integrated into the global economy. From bootcamps that teach computer programming and mobile app development to demand for better vocational curriculum, American educators are poised to deliver training and expertise to ASEAN countries. According to Wall Street English, all ASEAN countries agree to use English as the language for business so demand for English training will be robust. With an increase in foreign direct investment in the region, multinational corporations will require local managers with Western business training. There will be no shortage of opportunities for American business schools to grab a piece of this growing market.

The American baby boomer generation loves to travel and has the money to do so. From medical tourism in Thailand to a “bucket list” fantasy trip to Bali, Southeast Asia offers something for every senior citizen. With a bit of creativity, expat entrepreneurs can design exclusive travel services for this growing market.

Other opportunities not discussed here abound. Thailand and Vietnam have competitive costs for establishing foreign offices. Singapore has a deep history of interaction with Western governments and a legacy of doing business in English. Vietnam is exciting for many American companies because of its inclusion in the Trans-Pacific Partnership and history of ties to the U.S. All in all, while doing business in Southeast Asia presents many challenges, the integration of its economy present inestimable opportunities for Americans.

This piece originally appeared here: http://www.jmgasia.com/blog/what-is-asean-and-what-does-it-mean-to-your-business

Questions or comments? Please email Michael Fenton at mfenton@atlantapacificgroup.com