The tycoons narrow it down to one problem: the struggle of dealing with vested interests masquerading as national interests
MANILA, Philippines – What does ASEAN integration really mean for business?
It’s a breathtaking vision, creating a market of more than 630 million people in the world’s fastest growing region (outside China). The Organisation for Economic Cooperation and Development (OECD) forecasts GDP growth for ASEAN countries to be about 6% a year from 2011 to 2016. Nielsen estimates a middle class that will more than double to 400 million by 2020.
Adding to the numbers is sheer optimism. Neilsen’s Global Consumer Confidence Survey says ASEAN consumers are “among the most confident in the world with respect to their economic outlook.” Indonesia and the Philippines are in the top 5 most confident nations globally, with Indonesia at #1 and the Philippines at #3.
The ASEAN Economic Community or AEC 2015 could bring disruptive change – an opportunity for growth, greater competition, elements that lead to a potential strategic inflection point, “an event that changes the way we think and act.”
Yet, there has been little discussion about how the markets will shift and how businesses can prepare. Instead, the focus has been on whether ASEAN can meet its targets.
Much has been written about how ASEAN will miss its December 2015 deadline for economic integration. Since March, ASEAN has staunchly defended itself saying it’s more than 75% done, but it won’t make it.
“We’re only conceptually ready,” says 67 year old Manny Pangilinan, CEO of Hong-Kong listed First Pacific, who runs companies such as top Indonesian noodle-maker Indofood, Philippine Long Distance Telephone Company (PLDT), TV5, Philex Mining and Metro Pacific Investments Corporation (MPIC).
Tessie Sy-Coson, one of the Philippines’ most powerful women, agrees. She sits on the ASEAN Business Advisory Council (ABAC) and is seen as the heir apparent of retail magnate Henry Sy, dubbed the Philippines’ richest by Forbes.
“It’s not possible,” says the 61-year-old Sy-Coson, vice chairman of SM Investment Corp., or SMIC. “I think right now it’s more about awareness. The actual integration may come five years later – which is actually the original date of integration.”
In 2007, ten ASEAN member nations – Singapore, Malaysia, Indonesia, Thailand, the Philippines, Brunei, Vietnam, Cambodia, Laos and Myanmar – signed an agreement to establish a single market and production base, with free movement of goods, services, investments, capital and labor. The original deadline was 2020 but ASEAN, surprisingly, rolled it back to December, 2015.
So if the deadline won’t be met, does it matter? Apparently not, according to some of ASEAN’s top industry leaders.
Fernandes: First believer
Malaysian tycoon Tony Fernandes, the 50-year-old CEO and founder of AirAsia, embraced ASEAN before the idea of one economic community was formalized.
“I was in the ASEAN Economic zone way before it even came up,” says Fernandes. “I said 12 years ago, I was going to build an ASEAN airline. People thought ‘what the hell is he talking about.’ Look, I take a different view. You can wait for things to happen or you can effect change. I think you can sit on your backside and wait for change or you can go out there and make change yourself.”
Many companies were investing outside their nations in the 90s, says 55-year-old Jaime Augusto Zobel de Ayala, CEO of the Ayala Group, the Philippines’ oldest family conglomerate that includes Bank of the Philippine Islands, Ayala Land Inc, the Manila Water Company, and Globe Telecom.
“We tend to be a little bit insular around the ASEAN arena,” says Ayala. “There was a lot happening between ASEAN countries in the 90s – people forget that. Then 1997 happened (referring to the Asian financial crisis), and people retreated back to their homes and their countries and national boundaries. Then they started coming out again in 2008.”
That was when the US subprime crisis hit, and global markets crashed. “That was a more global phenomenon, and people paused again.”
Ayala says what ASEAN formalizes is already happening. “There has been a natural movement while many companies are not fully aware – a lot of them small and medium-sized enterprise,” says Zobel de Ayala. “I generally think they’ve all been adjusting in their own way to a new reality, and even if they don’t really know it, they’re feeling it in the price of goods, the way things are done, how transactions take place.”
These are far more optimistic views than a recent study by the Asian Development Bank, co-authored by a former ASEAN secretary-general, which showed that 77% of companies surveyed in the region did not benefit from lower tariffs of any free-trade agreement, the precursors for AEC 2015.
This was one of the main points of a private meeting of the World Economic Forum on ASEAN in Manila – how communications with ordinary people and businessmen must become a priority. Still, Fernandes says this is more than a communication issue.
“There’s a disconnect between what private industries want and what governments are pushing,” says Fernandes. “ASEAN has a way to go before it hits consciousness. Politicians have lots of meetings. ‘We’re going to do this, we’re going to do this.’ You’ve got to talk to the guys on the ground to really know what needs to be done!”
Still, Ayala says what needs to be done is happening.
“There’s a positive process that’s taking place,” adds Ayala. “The momentum of lifting all the standards in the region to a new level is good for all of us. We’re all growing as countries, and the region has increased its trade among our countries. It’s an exciting time for all of us.”
There are dangers ahead.
Defending market share
Dominant players are going to have to defend their market share against possible new entrants. At the same time, these companies now have the opportunity to capture greater market share and drive sales growth by investing in other ASEAN nations.
“We would like to see more people coming in,” says Sy-Coson. “Business models will evolve. There will be more cooperation among businesses in this region, but of course, there will be more competition.”
There will be winners and losers. Winners will build agility into their processes as new laws and processes are adapted by member nations. That allows them to take advantage of lower supply-chain costs as margins and sales opportunities increase.
“Very entrenched domestic industries that have lived in a fairly protective environment will have a tough time,” adds Ayala. “Anyone who has not had the kind of pressures to bring down cost, to be more efficient, to take productivity up, to look for talent that is imaginative, find solutions – anyone in industries that have been very closed will have a tough time adjusting.”
Ease in the movement of labor, a new way of attracting talent – these turn ASEAN issues into potential domestic gains and losses.
“ASEAN is no longer a foreign policy issue,” Dewi Fortuna Anwar, senior strategist to Indonesia’s vice president Budiono and an ASEAN expert, tells Rappler in Jakarta. “It’s wrong to assume that only foreign policy specialists should pay attention to ASEAN because the moment we have the ASEAN community, our economies will be integrated whether we like it or not. It deals with local laws on labor, health, education.”
“We have quite a surplus of good doctors and nurses, but can they all of a sudden be exported to other ASEAN countries?” asks Manny Pangilinan, whose core businesses span across Indonesia, the Philippines and other ASEAN nations. “I’m not saying it won’t happen, but I don’t think it will happen in my lifetime. We have to be specific in what we are integrating.”
The tycoons narrowed it down to one problem: the struggle of dealing with vested interests masquerading as national interests.
Malaysia’s Fernandes says it’s time to bulldoze over these concerns: “Let’s say the film industry – Filipino guys who want to sell movies to a Malaysian TV station. The Malaysian film industry will say, ‘no, no, block it.’ And it could happen reversed. Governments have to be strong. We may not be able to do everything, but let’s pick 3 or 4 industries and go for it. Really open up, and see the results. Success will lead to more people wanting to do more.”
Conventional wisdom already shows possible movements ahead: developed countries like Singapore and Malaysia, higher on the value chain with investments in technology and HR (among others), can become regional hubs while poorer countries like Cambodia, Laos and Myanmar, with low labor costs, can become manufacturing centers. The danger is to the middle countries like the Philippines and Indonesia.
“The challenges for countries in the middle? There is no escape from education, education, education,” says Anwar. “The second one is governance, governance, governance. The third is connectivity, connectivity, connectivity.”
So how do businesses survive change ahead?
Be aware that the old way of doing business will change, that new players will emerge, that disruption will not only come from technology, but from the basic infrastructure of doing business across the region.
Look for opportunities. Collaborate. Assess your strengths and weaknesses. Review your business workflows and processes. Drive efficiencies and growth and look closely at your neighbors. –Maria A. Ressa, Rappler.com
ASEAN 2015 is only the beginning. – Rappler.com
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What They Say About Us
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