ASEAN Economic Community Integration and its Potential Effects

The ASEAN Economic Community aims to increase regional competitiveness by reducing the cost of cross-border trade, thereby increasing the flow of both people and goods through the 11 (10 full time) member states. It achieves this with simplified visa processes, equitable economic development, low import duties and the development of a single market. All of these things are positive contributors to a growing number of regional travellers for both business and leisure purposes, and greater integration between companies who operate internationally.

As the effects of ASEAN integration will impact a broad spectrum of companies in Thailand, it is important that organisations are ready to not only cope but also capitalise on the growth effects of the impending liberalisation brought about by full ASEAN Economic Community integration.

 

Which countries are part of ASEAN?

Currently, ASEAN (Association of South East Asian Nations) consists of 10 full members:

Indonesia

Malaysia

Philippines

Singapore

Thailand

Brunei

Myanmar

Cambodia

Laos

Vietnam

East Timor (bid stage)

“ASEAN plus 3” includes South Korea, China and Japan, who have pledged support to certain rules concerning the reduction in cross-border legislation and cost reduction, but who are not full members of the ASEAN community.

 

There are both opportunities and threats in the emerging single market and production base framework. For my company, what are the potential benefits and dangers?

In terms of benefits, the AEC effectively means an integrated total consumer base of over 600 million potential customers. This is the most exiting facet of economic integration. Reduction in the cost of moving people and goods across borders will bring a real opening-up of the regional market particularly in terms of hospitality and the MICE sector, where more people in Asia will be encouraged to discover a wider variety of business and leisure destinations at a lower cost. This will result in huge growth in the tourism, hospitality and international business sectors. The lower cost bases will also encourage healthy competition, raising the bar universally on a variety of industries in Asia. It has the potential to increase the appeal of this area for both international business and leisure visitors. Overall, ASEAN Economic Integration is seen as being a highly exciting prospect and many organisations welcome it warmly.

In terms of threats, the ASEAN Economic Community will bring increasing levels of high quality overseas competition to market, so firms with an advanced market position have to ensure that their operations support the maintenance of their position as regional leaders in this regard. For this reason, industries in Thailand need to offer a unilaterally high standard of service, a more sophisticated product offering and the ability to fulfil the demands of international and regional business and leisure customers, without losing the uniquely charming Thai approach to business, leisure and tourism in Thailand.

 

Independent National Identity under ASEAN

Two cornerstones of the ASEAN Community since its inception in 1967 have been national existence and national identity. This is significant in sectors involving inbound travel or inbound business to Thailand because a core part of the appeal of travel to various countries is to enjoy a local experience which is in-keeping with a national identity. In the case of Thailand, this means world famous hospitality, culturally significant sites and attractions, low cost of doing business, a liberalised economy, a pro-business government (regardless of political differences and shifts in leadership) and a fundamentally sound economy which is capable of sustained growth. ASEAN will remove barriers in terms of cultural integration, but it’s important that Thailand is able to retain its intrinsic “Thai-ness” for both business and leisure travellers to the country.

 

For Thailand, what are the country’s strengths and weaknesses in the 11-country ASEAN grouping, generally?

Strengths

A famously service-minded culture

A strong reputation of being able to take care of international and regional visitors

A visitor experience that is exotic, welcoming, relaxing and fun.

Great value with excellent return on investment

An already liberalised trade economy

A pro-business government

Continued investment in infrastructure projects

Unique blend of traditional and modern elements that have become synonymous with the country

A quintessentially Thai experience which guests to the country expect and enjoy

 

Weaknesses

Poor reputation for hygiene, cleanliness, health and safety,

Lack of knowledge and quality of training of staff in certain sectors

Prices have become subject to recent inflationary pressures

A lack of a baseline standard across many professional industries

Unstable and unpredictable political environment

Widespread corruption at ministerial, devolved regional and independent policing tiers

Saturated retail and leisure markets

Increasingly sophisticated demands of customers

 

What measures should industries be taking universally in preparation for AEC?

All organisations at various levels have to join together to improve and leverage the standard of their industry in Thailand to maintain the country’s market position and cultural integrity. New innovative developments in terms of products and services should help to evolve the industry as Thailand remains a forward-looking environment for business. Development of facilities and infrastructure (again, with a universal standard) will support future growth. Thailand is able to leverage its international reputation for service regardless of the sector being considered. The country will need to maintain a strong government that is pro-business and pro-investment in order to support this objective. Centralised business operations (in Thailand or overseas) and control of licensing and franchising will help to evolve an international standard domestically, which positions the country to be most effective post-integration. The country needs to implement effective monitoring of hygiene, sanitation, cleanliness and the development of personnel across a variety of public facing sectors.

Whilst it is impossible for a single organisation to fully spearhead these widespread initiatives, companies should be looking at their own internal operations, structure, procedures and strategic planning and resources to be ready to exploit opportunities for growth, and mitigate any country-level perception threats.

 

Trade and Export

Thailand’s baseline growth has been enigmatic over the last fifteen years; economic crashes in Asia and Europe, political coups, widespread corruption, floods, issues with the Red Shirt political movement, turmoil in the far South of the country and recent bomb threats in the capital, yet still the economy grows. This is potentially the result of Thailand’s efforts towards becoming a more diversified economy, as it moves away from being simply a tourism hot-spot and exporter of rice. Thailand currently enjoys a strong global reputation in finance, manufacturing, produce & commodities, technology, healthcare, education, automobile manufacturing and software development – an excellent GDP mix that has managed to overcome myriad issues in the last two decades. This mix should mean that Thailand will not only prosper after integration, but be able to drive regional growth as both a thought leader and model for improving baseline revenue generation amidst its peers. However, several countries within the region are also enjoying strong growth levels, and from a lower base cost of production; ASEAN economic integration will provide a platform for the accelerated growth of competitors, which may or may not prove to be detrimental to Thailand’s own designs on a thrust towards sustained expansion.

 

Labour Market

One of the key benefits that integration has afforded to people within the EU is the unprecedented level of mobility it gives to those of working age. The common market has resulted in a highly reactive workforce which has little hesitation in relocating to find (or improve) their working life. It also raises issues in terms of uncapped immigration, as France, Germany and the UK have discovered to be detrimental in a number of ways. Inbound flow of skills and a readily-employed labour force is great for a growing GDP contribution, but teething troubles in the system’s checks and balances results in hundreds of thousands of people moving between borders, obviously having a considerable impact on citizens of a sovereign state. Once signed up, it is impossible for a member country to limit the number of immigrants from other member states, creating demands on housing, healthcare and policing resources. It also opens up a potential easy channel for “Brain Drain,” where the most educated members of society leave to pursue opportunities in regional competitor labour markets.

 

Travel, Tourism & Hospitality

An industry which is likely to see huge benefits (and challenges) after integration, the travel and tourism sector is on the front line of key changes through integration. It is easy to assume that with travel restrictions being reduced that inbound traveller numbers to Thailand will increase, but the sector needs to be aware that this increases the mobility of traditional domestic “staycation” markets. One effect of EU integration was a huge reduction in the cost of overseas holidays, which meant that it was often cheaper for holidaymakers to go for cheap overseas packages rather than taking holidays in other parts of their own country. This has an effect on the economy’s revenue-generating abilities at large. In terms of inbound numbers, there could be a profound effect on hospitality demand, but with Thailand already oversupplied with hotels, condos and resorts, the effect is yet to be fully understood. Most within the industry see ASEAN as a key game-changer for the next decade; although a need for increasing levels of competitiveness are necessary for Thailand to remain a regionally attractive destination over other exotic and new-to-market destinations like Laos and the Philippines. Thailand’s reputation for untrustworthy vendors, capitalising taxi and tuk tuk drivers, high visitor attraction costs for foreigners compared to Thais and other security concerns leave the sector exposed to “new neighbours” in many respects, and illustrative of a focused, industry-wide approach being conducive to domestic competitiveness.

 

Logistics

An early adopter of infrastructure-driven strategy for the benefit of capitalising on integrated cross-border activity, the logistics industry understands full well what integration will mean for this sector; reduced transportation costs, simplified documentation, improved integrated scanning and reading technology, cost sharing, hub sharing and expedited delivery times are all exciting benefits of integration. Areas including Laos and Myanmar remain a challenge, but the breaking down of (perceived and administrative) borders should help cross-border trade hugely. There is also the added benefit that extends beyond the logistic sector; that is, reduced costs mean higher volumes for importers and exporters, and in theory, a much larger volume of chargeable haulage for integrated logistics providers.

 

Education

Reduction in legislative barriers to students wishing to study in other countries within the community will likely have a similar affect to that seen within the EU. Effectively, a student may choose where to study, with a single pool of education (conceptually) open to all. There are limitations, of course. For example, a student from Laos may wish to study at a top ranked university in Singapore, although the cost may be prohibitive. The positive effect lies in the fact that after integration, all education centres may be judged from a common baseline; the hope is that this will give schools in countries where education is substandard more impetus to improve to at least meet a regional average. There is also the possibility that a liberalised South-east Asia will be capable of attracting a greater number of high-calibre students from Europe and America.

 

Food & Beverage

Asia has for many years enjoyed something of an integrated single market in terms of F&B import and export. A quick walk around a mall in Thailand will reveal huge cross-over in the restaurant market with Japanese, Korean and Vietnamese food popular with many Thais. Thailand also enjoys a strong export market, with a low cost base being a positive contributor towards healthy levels of outbound canned and bottled goods trades. Integration may possibly mean that more cross-over products becoming available in all member countries, with Laos and Myanmar representing potential growth markets for exporters. Weak infrastructure has been a barrier to this flow so far, but reduction in legislative difficulties and duties should help promote two-way trade in this sector, and the opening up of a vast regional single market.

 

SWOT Capitalisation Case Study – The Retail Market

The Mall Group, a successful Thai-owned developer and manager of shopping malls, wants to enhance the skills of its employees and prepare all of its business units for the formation of the ASEAN Economic Community in 2015. It opened an Academy earlier this year at The Mall Ngam Wong Wan to train 1,000 managers on creativity and a wider business perspective with the ASEAN single market in mind.

“The Academy will provide knowledge to our mid-level executives , covering areas including general business, the ASEAN retail market, good preparation in response to market integration and dealing with the threat of growing competition from the AEC,” said Chairman Maytaprechakul, Senior Chief Marketing Officer.

The AEC is supposed to allow a wider flow of products, investments and skilled workers within the region, so when tourists visit any ASEAN country, they will expect to see similar products when they go shopping. The Mall has negotiated with brand owners of fashion products in other ASEAN countries to carry these items.

“Some fashion items available in Japan will have to be here as well. That’s why our people have to understand the trends and know the regional market,” he said. Staff language skills are also important to the firm. Therefore, a number of English-speaking sales staff will be available at Siam Paragon, Emporium and other branches of The Mall.

The company is excited about the AEC’s potential as there is huge purchasing power across the region, and Thailand is one of the most popular tourist destinations.

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  1. #1 by Ghislaine Bovy on March 9, 2012 - 3:05 pm

    Great content & straight to the point. I wish some companies would see the added value to hire a consultant like me used to multi-cultural and multi-lingual environments.

    • #2 by Dave Swinfen on March 9, 2012 - 3:37 pm

      Thanks Gigi! Well, you always sound really busy so you must be pretty much in demand!! x

  2. #3 by things to do in guilin china on April 10, 2013 - 11:12 am

    bookmarked!!, I love your site!

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