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.

View from the Bottom

Ladprao Soi 1 in the Jatujak district is an object lesson in why I like Thailand. Nowhere else in this city is the clash between traditional and modern, feudal and capital, rich and poor so prevalent. The short walk from my apartment to Phayon Yothin MRT offers a similar sense of Ying and Yang in otherworldly balance; on the way, I pass the seamstress who refuses to ever charge me for suit repairs on the basis that I am foreign, and hence always confused and in need of some help, on past the barbecue chicken woman who won’t let me pass without handing me a drumstick, before I reach my favourite place to buy Chang beer; it is literally just a family kitchen with a chiller on the wall, a pocket calculator and a jar of change on the desk. The final three minutes of my walk are conducted in the shadow of the Ericsson building, all gladiatorial, cold and humourless.

Yet, I welcome the shade it brings. I also know that if the day is particularly humid and I am feeling somewhat stressed, I will soon be in the comforting bosom of UCC Coffee Shop, with its powerful air-conditioning and a menu in English. Curiously, I will go out of my way to avoid Starbucks, though; it’s not because I’m trying to be cool, and it’s not because I’m anti-capitalist. It’s because I think the coffee is better from the guy with the small cart, and it’s cheaper too.

Maybe those firms that are set to truly develop their operations in a gentle, manageable and sustainable way in the future will be those that eschew the western capitalist norms in favour of something more unique, more local, something altogether more definitely Thai. At UCC, I can grab a reasonably-priced latte whilst I wait for my pad thai, and so I keep going back there.

Bangkok in particular is caught in an ever-developing battle between the new world order and its more established and long-cherished sensibilities. In one sense, the traditional world, with its bright colours and wealth of diversity, hangs by but one sliver of thread; underneath our tentative perch sits the iron fist of the insatiable west, with its glistening metal hand ready to catch us as we fall. Yet, it is ourselves who hold the scissors, and for this reason, it is us who must choose to snip or to slip.

Perhaps there is a possibility for co-existence; a veiled means of reconciliation between these diametrically-opposed and seemingly incompatible worlds. Indeed, the switch from a needs-based economy to one of surplus must have happened at some discernible stage. Maybe a haired Neanderthal, haggard and withdrawn from the days foray, returned home one evening and slammed two delicious fish upon the table, instead of the usual one. At this point, the traditional methods of value must have appeared to have been fired into the terrifying abyss, because now there is more food than they could possibly eat, and it all belongs to one. Don’t smirk; this happened last year too, except that it was financial products that multiplied and subsequently decayed; a neo-modernist, rotting counterpart to the once-beautiful and thriving barramundi sea-bass.

In a way, we as potential customers are stakeholders in your business, because your profitability and revenue will be based on how we perceive the way in which your company treats our planet, and we are all stakeholders in that. The information age has made it more important than ever that companies conduct business in an ethical way, because now there is no place to hide, and no Neanderthal cave that the digital dinosaur does not prey into or bellow upon. Only a deft political slight of hand kept the trusting masses from seeing through the bank bailout illusion.

Now the queue at the trough rotates to make way for other greedy entrants; those who sit under the table and rely on cheap coffee and chicken legs as scraps occasionally get a sight of that silver basin. Yet its beguiling form and promise antagonises, for the fact that it seemingly is kept at arms length from us. Despite this, our contributions are relied upon to keep it ever-filled.

There are business leaders who will read this and maybe postulate, “Hmm, maybe there is a fifth dimension, a fresh way of looking at opportunities without being seen as being an opportunist.” Then there is the common myopia, the prevalent mid-ground, the others who will pay it no mind, or simply treat is a giggle amid swigs of Starbucks Mocha.

However, in between the quad-polar extremes of capitalism, anarchy, communism and fascism (all of which seem to ebb and permeate everyday life in the thanons of our beloved Krung Thep), there are a lot of very confused people still with money to spend.

Won’t someone please help us?

Miles And Miles of Smiles

Welcome to Bangkok. City of Angels. Thailand; the Gateway to Asia. Land of Smiles. Hmm.

I’ve been here for eight months now, and I’m not overly sure the global goodwill and limp-wristed catch-phrasing lives up to its reputation. From recent personal experience, I’m always quite concerned when a Thai person is smiling at me because it normally means I’m being screwed over on the price of something.

I knew very well, long before I came here, that as a (relatively) wealthy falang, I would be expected to pay more than as would a local Thai. I accepted this fully, reasoning that, given my decent level of standard income, these small and irregular cases of over-charging would be completely non-bothersome.

What’s really annoying me now is the alarming regularity. It’s quickly become apparent that local Thais freely charge more to expats and travellers because they know we are idiots and will pay without argument. Given the incredibly basic standard of living that a typical street vendor must endure, this stance is somewhat understandable.

The thing that really gets under my skin is that the big chain stores have quickly latched on to the concept to.

In the West, we are accustomed to large stores like Asda spending millions on subliminal marketing and placement strategies; complex little underhand routines designed to get us to buy shit we don’t need. So what? Karl Marx’s wish sadly never came true, so the world remains a cruel place run by the moneyed oligarchs. We live in a capitalist economy, hence all this is to be expected.

What’s occurring in Thailand right now takes this insidious reprehensibility to a whole new level.

Today’s particular example is Watsons Pharmacy, but in truth, it could be any franchised store here in the Angels.

Standard routine. You go in, peruse the selection of over-priced shampoos until you find one that’s less than one hundred baht and has more than 100ml of simple, goopy liquid in it. Bargain. Job done.

Except it isn’t. You are.

You get to the checkout, only to be charged 119 baht for your 79 baht promotional-offer shampoo. With a limited knowledge of the Thai language, you resort to the globally accepted communication method of shouting and pointing. So the shop assistant reluctantly tows behind you to see how you’ve come to the ridiculous conclusion that your small bottle of soap and water in a shiny white plastic bottle might be reasonably priced. In heavily broken Tinglish, you get the equivalent of “member card only.”

So in order to get your Pantene Pro-Supplement Pro-Biotic V5 Protein-shake monkey-jizz conditioning shampoo, you actually have to have a loyalty card of some description.

The notation on the promotional sticker at the shelf’s edge will explain this to you, of course. Except it’s in Thai, with no English explanation. They had no trouble writing the promotional price in English to grab your attention, but this courtesy does not seem to extend to actually explaining the terms of your brief purchasing agreement. Ergo, you are wrong, so pay up.

Non-confrontational lefty types and general do-gooders will probably offer something along the lines of there being limited shelf space, and so truncated messaging is necessary to accommodate the broad range of quality cosmetic products that the modern pharmacy must now stock in order to survive.

Bollocks.

It exists for the same reason many of the things in Bangkok exist; to take money off of gormless foreigners.

There is a sliver of hope, though.

On the way home, I stopped to grab a red bush iced tea from one of the dirty little carts, on the basis that it was a bit early for a vodka. I gave up the standard twenty baht, and proceeded to complete my huffy walk home. As I paced away, all red faced, sweaty and disenfranchised, the little fellow dashed from around the other side of the cart and ran after me. “God, what now,” I thought. “ I don’t really want to hit this old boy; that would look awful in my Press Accreditation Review.” “Here,” he says, in that unique combination of non-schooled, `taught by TV’ English language cross-absorption; “15 baht only”.

And this is the reason I smiled all the way home.