Research by the Economist Corporate Network (ECN) and sponsored by Baker & McKenzie suggests that global companies are optimistic about the opportunities that the ASEAN Economic Community will bring.
Riding the ASEAN elephant: How business is responding to an unusual animal? summarises the results of a poll of senior executives from 147 multinational companies operating in the ASEAN region about their companies’ strategies in the region. 95% of respondents believe that ASEAN will achieve its vision of creating an economic community with a free movement of goods, service and labour, and the majority are factoring ASEAN integration into their strategic planning. Receiving seven-times the amount of foreign direct investment per capita than India in 2012, and almost as much as China, the ASEAN region is a quiet achiever on the world economic stage.
A full copy of the report is available from this link.
The 10 member-states of the Association of South East Asian Nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – aim to create an ASEAN Economic Community by 2015. The enormous project of harmonising laws across the region has begun, and companies from across the globe are attracted by impressive rates of economic growth in the region and expanding consumer spending.
The uncertain legal environment was cited as the number one challenge to doing business across ASEAN. There remains considerable work to harmonise laws across the region, and complex foreign investment regulations and trade barriers remain impediments to companies’ confidence in investing across the bloc.
Respondents to the survey also cite diversity in ASEAN as presenting opportunities and challenges. The region’s diversity creates enormous opportunities to drive innovation and specialisation, but many companies are forced to adopt a “multi-local” strategy across the region, tailoring sales and go-to-market strategies to individual markets. Singapore continues to develop as South-east Asia’s natural hub, with 74% of the surveyed companies selecting Singapore as the base for their ASEAN head office.
The report also found:
- Companies see opportunities in ASEAN’s short-term and long-term growth potential. The region grew in real terms by an annual average rate of 5.5% between 1999 and 2012, and the number of middle class households in ASEAN is forecasted to rise from 40 million in 2010 to 85 million by the end of 2017. This provides a strong base for consumer growth.
- The top-down policies from the ASEAN Secretariat are only part of the integration story. Just as important are the bottom-up integration dynamics with local companies pushing into neighbouring markets and investment flows across ASEAN borders picking up.
- South-east Asia is fast becoming a manufacturing hub and the region has a huge pent-up demand for infrastructure and other fixed assets like housing and factories.
- The region’s unpredictable legal environment was cited by surveyed companies as their number one concern when doing business in ASEAN, followed by shortages of the right type of workers and local protectionism.
“The ASEAN region presents enormous opportunities for our clients and for our Firm,” said Winston Zee, Baker & McKenzie’s Asia Pacific Regional Chairman. “We’ve witnessed, first-hand, our global multinational and regional clients assess and execute on opportunities in ASEAN. There are clearly still concerns about the probability the ASEAN Economic Community will reach its deadline by 2015. But as this ECN report demonstrates, even if ASEAN is 70% successful in its goal, the growth that we will see in the region will dramatically change the way we view the ASEAN region, and will be a further lever in re-balancing the global economy in this Asian Century.”
“The European Union is ASEAN’s second-largest trading partner, and is, by far, the largest investor in ASEAN markets, spending around EUR9.1 billion annually on average. The EU’s investment into the region is expected to grow, fuelled by the region’s positive economic outlook, access to a large consumer base, as well as new free trade agreement negotiations that are taking place,” said Clive Cook, a senior consultant at Baker & McKenzie who has extensive experience in advising multinationals with regard to their investments in South-east Asia and Myanmar. “The region’s diversity and uncertain legal environment remain major challenges for many multinationals. What companies are looking for from their legal advisors are not just local insights into a single market, but the ability to assist them in navigating the complex legal environment across multiple ASEAN markets, and to deliver coherent legal advice that aligns with their overall regional goals.”
“Trade liberalisation and economic convergence have matured into facts of life right across ASEAN. The region is already home to a number of successful multilateral free trade arrangements, including the ASEAN Free Trade Area and the ASEAN Economic Community. With the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership negotiations moving quickly now, prospects for a near-term trade and investment stimulus effect are very good. It is imperative that companies start preparing for regional economic integration, otherwise, it will mean missed opportunities for some, and for others, new challenges as protectionist barriers come down” said Fred Burke, Managing Partner of Baker & McKenzie in Vietnam.
Riding the ASEAN elephant: How business is responding to an unusual animal? was launched at the Firm’s Asia Pacific Meeting held in Manila this week. The meeting also marked the Firm’s celebration of its 50 years in the the Asia Pacific region. More than 300 partners and clients from across the Asia Pacific and many of Baker & McKenzie’s 72 offices worldwide convened together to discuss what companies need to do to get ready for the 2015 ASEAN Economic Community.