There will be clear winners and losers when the ASEAN Economic Community comes into force next year, according to a new report.
The increased competition will hit small and medium-sized enterprises (SMEs) across South-east Asia.
On the other hand, companies that already have a strong presence regionally stand to benefit most from a more integrated ASEAN, the report from the Boston Consulting Group (BCG) said.
The ASEAN Economic Community (AEC), which is due to come into force by the end of next year, aims to create a single market and production base across the region, with minimal barriers to trade and investment.
The report also includes a survey of more than 230 business leaders and senior government officials, both within and outside the region, who were polled on their views about ASEAN.
It found that 80 per cent of those polled regard the AEC as a good business opportunity and believe it will accelerate growth in their industries.
However, the same percentage of respondents said they are bracing themselves for tougher competition when the AEC comes into force.
While 70 per cent of the poll’s respondents said they believe more intense competition will encourage ASEAN companies to internationalise, 81 per cent said they expect SMEs to lose out.
BCG partner and managing director Michael Meyer, and its senior partner and South-east Asia head Vincent Chin, speaking to The Straits Times, said SMEs need to be “of a certain quality” to expand regionally.
Said Dr Meyer: “If you operate in a protected domestic market, you might not have the managerial capabilities and level of sophistication needed to compete internationally.”
National agencies such as enterprise development agency Spring Singapore and trade agency IE Singapore can play a role in helping SMEs become resilient enough to reap the benefits of a more integrated ASEAN, said Mr Chin.
Dr Meyer and Mr Chin co-authored the report with BCG senior partner and managing director Bernd Waltermann and Ms Evelyn Tan, the firm’s lead knowledge analyst for its Global Advantage practice area.
The survey also compared levels of optimism about the AEC across ASEAN countries.
Malaysian companies were found to be the most optimistic about integration, while the Indonesian ones were the least upbeat.
Malaysian companies are keen on greater access to the larger ASEAN market beyond the country’s relatively small population of 28 million, said Mr Chin.
But Indonesian companies are apprehensive because of the anticipated influx of competitors into the country, as the region becomes increasingly integrated.
BCG’s report, which will be officially launched next month, also identified 50 ASEAN companies best positioned to take advantage of the AEC.
There are 10 Singapore companies in the list, including BreadTalk Group, UOB, CapitaLand and Swiber Holdings.
The companies generate annual sales of at least $500 million, are growing and profitable, and hold top market positions across ASEAN in their respective industries. These companies, and the rest of the private sector, will lead the way in integrating ASEAN through their efforts at regional expansion, said the report’s authors.
Mr Jimmy Koh, the group head of investor relations at UOB, said the bank has almost 500 branches and offices across South-east Asia to support clients keen on expanding in the region.
The local lender is on track to generate 40 per cent of its profits from outside of Singapore by next year, said Mr Koh. “As our home market matures, we will see slower growth in the longer term and that makes our regional strategy even more crucial.” –Chia Yan Min, The Straits Times
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