ASEAN on the Rise
The New Asian Gold Rush
One of the earth's most complex regions, ASEAN is also currently the world's hottest market. Four major trends are behind this sizzling South Sea Fever.
The New Asian Gold RushBy Fuyuan Hsiao
From CommonWealth Magazine (vol. 373 )
Wow, the whole world has come!” Shining Building Business Company chairman Lai Cheng-i, who made his fortune building luxury apartments in Taiwan, is taken aback at the sight of businesspeople from around the globe coming and going beneath the glittering crystal chandelier brightening the lobby of a five-star hotel in Vietnam.
The ten member nations that form ASEAN (the Association of Southeast Asian Nations) are home to 570 million people – a population that continues to grow by ten million every year. Attracting yearly global investments of US$38 billion, these countries together boast an average annual economic growth rate of 5.8 percent, outpacing the Four Little Dragons of East Asia, as well as Europe, and the United States.
ASEAN has even outdone Japan by growing into the world’s fourth largest exporting region. This has caused the organization’s combined foreign exchange reserves to expand in excess of 90 percent over the last seven years to become the third largest in the world.
A new regional economy, a new Asian power, has taken shape.
Why is Southeast Asia now such a hot destination for trade and investment? Four major trends have converged to heat up this Southeast Asian fever.
In an era marked by the supremacy of energy, Brunei’s abundant petroleum and natural gas resources have made it by far the most affluent member of ASEAN. With a population of just 380,000, Brunei provides the best social welfare in the world.
Trend One: The East Wind Prevails
The wind blowing through the Strait of Malacca carries a languid atmosphere one might expect of the South Seas. Stretching for 1,000 kilometers, this trumpet-shaped passageway is one of the busiest shipping lanes in the world. Half of the world’s oil and a third of its goods squeeze through the Strait as they make their way to and from ports of call all over the globe. Japan, South Korea, and China consider this sea lane their “maritime lifeline.” India, North America, and Europe depend on it more and more. Formerly controlled and occupied by Western powers, the Strait is now back in the hands of Singapore, Malaysia and Indonesia.
This is the pipeline of exchange between East and West, but the region that holds a grip on its throat is no longer the West, but the East.
Likewise, a shift in power towards Asia has taken place on the world’s political and economic stages. Along with the increasingly prominent strategic positions of regional organizations in Southeast Asia, world powers including the Europe Union, the United States, Japan, China and India have been scrambling to cozy up to ASEAN as they vie for opportunities to sign free trade agreements.
First, it was “Ten-plus-One” when the ASEAN-China Free Trade Agreement was signed. This was then expanded to a “Ten-plus-Three” FTA following the signing of agreements with Japan and South Korea. Japan, aiming to diminish the influence of China, established a leadership position for itself which it used last year to draft an “economic globalization strategy” that would bring in India, New Zealand and Australia all at once and form a “Ten-plus-Six” East Asian Economic Partnership Agreement. When it comes into being, this vast free trade zone will contain half of the world’s population and enjoy a combined gross domestic product of US$10 trillion.
K. Kesavapany, Singapore’s former ambassador to Malaysia and currently director of the city-state’s Institute of Southeast Asian Studies, maintains that, among the world’s five major continents, North America and Europe already stand as developed regions and it is only Asia that possess the ability to emerge as a challenge to the West by presenting an alternative route for development.
Furthermore, Toshifumi Inami, president of the Japanese Chamber of Commerce and Industry of the Philippines, has come to appreciate as well that the rigid standards and high costs of globalization as pursued by Europe and the United States have made it difficult for people from other countries to survive, whereas ASEAN applies greater flexibility and is not as stringent. He says, “It is an organic road” that in fact offers greater opportunities.
“To a certain degree, the world today has returned to the 1700s, when 70 percent of the world’s GDP was generated in Asia,” Kesavapany suggests. The center of gravity of world power is shifting to the East.
Trend Two: Regionalism Counters Globalism
One of the important driving forces behind the emergence of Southeast Asia is the rise of regionalism, a force so potent it is even dampening the impact of globalization.
From the perspective of a regional division of labor, ASEAN together with neighboring China and India have come to compose a complete manufacturing supply chain. All of the manpower, brain power, parts, and services required by global manufacturers are to be had within the region, creating the opportunity for “one-stop shopping.”
Toyota, the world’s leading auto company by sales, is a case in point. It manufactures engines in Thailand, body parts in Malaysia and Indonesia, and transmissions in the Philippines, while it obtains some parts from China. The Japanese automaker has formed a production chain circling the region, with each production site located within three hours of the other.
Due to the protection of regionalism, goods produced within the Asian region can be put through some ingenious transshipment schemes in order to avoid trade barriers erected by Europe and the United States. Such Asian export nations as Taiwan, Japan, South Korea and China, for instance, have suffered to one degree or another the imposition of anti-dumping or quota controls by the European Union or the United States. As a result, ASEAN countries, where there are fewer restrictions, have become important transshipment points for these neighboring nations.(Table 2)
With the world’s Muslim population having reached 1.2 billion at the end of 2005, Muslims as a combined market now possess an even greater consumer power than China. Malaysia is working aggressively to become a financial center for the Muslim world.
The European Union discovered recently that, despite there being no increase in garlic production by Cambodian farmers, a dramatic, yet inexplicable, increase in the volume of Cambodian garlic sold to Europe had occurred. Following a detailed investigation, the garlic was found to have been labeled falsely and to have in fact come from China. It turned out Taiwanese trading companies had shipped the Chinese garlic to Cambodia and then put it through a simple repackaging process in order to obtain certificates of origin before shipping it on to Europe under everyone’s noses as Cambodian garlic.
An official EU investigation has revealed that 90 percent of 91 types of products receiving anti-dumping protection in the EU undergoes transshipment. Whether it is garlic from China, clothes from South Korea or shoes from Taiwan, most of these are shipped to a third country in ASEAN for handling before being sent on their way to Europe.
Trend Three: Energy Reigns Supreme
Historically, for a major power to emerge it must gain control of energy resources. Now, in an era marked by skyrocketing natural resource prices and the supremacy of energy, Southeast Asia’s abundant petroleum, natural gas, timber and minerals make it a target of even greater importance, a region the powerful nations must fight for.
Of the ten ASEAN countries, eight produce oil or natural gas. The member state with the lowest per-capita income, Myanmar, possesses enormous reserves of natural gas. Such countries as Japan, South Korea, China and India have been assiduously currying favor with the country’s government, making investments and providing aid.
“Any nation that hopes to become a world power must exert a major influence in Southeast Asia,” asserts NationalChengKungUniversityCenter for Southeast Asian Studies director Jenn-Jaw Soong. Not wanting to fall behind others, the EU greatly boosted its investments in Southeast Asia in recent years and has become the largest source of foreign investment for the ASEAN community.
Japan has been particularly diligent in making inroads in Southeast Asia. Not only has it encouraged its businesses to invest there, but the Japanese government has also become the leading provider of foreign aid to the region. These efforts have all been for the purpose of solidifying Japan’s access to resources.
Two hundred and forty kilometers to the southwest of the Cambodian capital of Phnom Penh the town of Sihanoukville looks out at the Gulf of Thailand. What was once a small harbor town of only a few tens of thousands of people has grown unusually busy. Here, Americans, Chinese, French, Japanese, as well as Bruneians have all staked claim to their own oil fields amongst the area’s rich offshore petroleum and natural gas deposits.
Watching the widespread rush into Southeast Asia, especially the robust overtures of China, the United States, which has always played a decisive role in the region, remains ASEAN’s largest foreign investor. Yet seeing its influence in the region carved up by others must surely be a burr under its saddle.
Think tanks in the United States have issued strident calls for the US to shift its attention away from the Middle East and toward Southeast Asia. During his term of office, US President George W. Bush has made a point of attending every annual Asia-Pacific Economic Cooperation Economic Leaders Meeting and expanding military exercises with nations in Southeast Asia. The US has been generous in providing assistance, as well. This was demonstrated in its accordance of Permanent Normal Trade Relations to Vietnam in order to help its old enemy gain membership in the World Trade Organization. All of these efforts have been aimed at helping the US regain its position as a pillar of strength in Southeast Asia.
The ASEAN countries possess a combined territory half that of China’s, and half the population as well. Yet the region possesses more points of divergence than commonality. Between ASEAN’s most affluent member, Brunei, and its most impoverished, Myanmar, lies a 148-fold gap in per-capita income.
Trend Four: The Tail Grows Long
Chris Anderson, editor-in-chief of Wired magazine in the US, introduced a concept based on a simple mathematical theory that has come to be applied extensively in the world of business – the “Long Tail.” This theory is based on the premise that a very large number, even when it is multiplied by a very small number, still equals a very large number. At a time when the entire world is scrambling to develop business opportunities among the poor, Southeast Asia, with its hundreds of millions of people stricken by poverty, looks to be the optimal experimental market for the Long Tail theory.
The people living in the nations of ASEAN are currently enjoying the highest standards of living ever experienced in their countries. In terms of purchasing power parity, the ASEAN community as a whole rates the fifth strongest purchasing power in the world, ahead of both the United Kingdom and Germany.
Speaking to this awesome buying power, ASEAN’s spending on imports saw it leap into the fourth spot among the world’s leading economic entities for import value in 2006. Though Vietnam’s per-capita GDP stands at only US$700, the world’s leading boutique brands, including Louis Vuitton, Chanel and Armani, have their eyes glued on the country’s population of 84 million, and consider a presence there de rigueur.(Table 3)?B(Table 4)
On top of consumer spending, the world is also looking with a covetous eye to the government procurement budgets of the ten ASEAN member states. Asian Development Bank estimates that over the coming decade the governments of developing nations in Asia will be required to invest an additional US$3 trillion in basic infrastructure. “Government spending and procurements will see a great deal of room for growth,” projects Liu Yau-Jr, associate research fellow at Taiwan Institute of Economic Research, Division II. Liu notes that businesses small and large from around the globe are already competing to edge into this market.
Divergence vs. Commonality
A history of full-scale colonization stretching over more than four centuries, from 1565 when the Philippines became the first in the region to be claimed as a colony by a world power all the way up until 1984 when Brunei gained independence, has impacted every country in Southeast Asia, with the exception of Thailand. Nowadays, the entire world is rushing to Southeast Asia, making this a golden era of opportunity for the region. Moreover, this might just be the best opportunity it has ever had. Global economic resources are storming the beachheads of Southeast Asia on a massive scale.
Yet the very term Southeast Asia is a concept that appeared only after the Second World War. It is the commonly used general term for a region that is composed of ten countries with enormous differences. Wu Tsui-ling, assistant professor at the S. Rajaratnam School of International Studies of Singapore’s NanyangTechnologicalUniversity, observes that ASEAN is unlike the EU in that its ten member states share far more points of divergence than points of commonality.
The territory of the ASEAN countries adds up to an area half the size of China, while the organization’s population is half that of China’s, as well. Along with this considerable scale comes extreme disparity. Between ASEAN’s most affluent member, Brunei, and its most impoverished, Myanmar, there is a 148-fold gap in per-capita income. Indonesia’s population, the largest in ASEAN, exceeds that of Brunei, the member with the smallest citizenry, 584 times over. Singapore, occupying the smallest territory in ASEAN, lies dwarfed by a degree of 2,780 next to Southeast Asia’s largest country, Indonesia.(Table 1)
Southeast Asia is paradoxically home to both the world’s most capable and efficient government and its most corrupt and incompetent. It also boasts the country with the world’s best social welfare, while including a member that hosts more international volunteers fighting poverty than any other country in the world.
Adding to the differences, Southeast Asian society is made up of hundreds of ethnic groups, large and small. However, no single group accounts for over half of the total population of the region. Whereas there are over 100 million ethnic Malays, the region’s largest ethnic group, all the small ethnic minorities combined add up to a figure approximately as large. Singapore has the most balanced distribution of ethnic groups. Consequently, in addition to celebrating the Western new year, it observes national holidays for the Chinese, Malay, and Indian new year celebrations as well.
Southeast Asia is also one of the most complex areas in the world in terms of religious composition. Over 200 million people in the region are followers of Islam, while there are 100 million adherents of Buddhism and over 80 million Catholics. Each of these religious groups commands a nearly equal influence in the region. Religious differences have even become the source of repeated coups in some ASEAN countries.
The Orphan of ASEAN?
As early as ten years ago, Taiwanese businesses saw the opportunities to be had in this region of great diversity. They proceeded to position their operations ahead of others and went quietly about their business. These days, from advanced Singapore and Brunei to remote Myanmar and Cambodia, Taiwanese businesspeople can be found working like industrious ants as they steadily develop their businesses.
But Taiwanese businesspeople do not equal Taiwan. As the rest of the world seeks their fortunes in this South Seas gold rush, it is as if Taiwanese enterprises are being relegated to the sidelines with no opportunity to test their skills.
One after the other, countries from around the world have signed free trade agreements with ASEAN, and players that enter first are sure to enjoy market advantages. Yet, Taiwan has failed to achieve a free trade agreement with even a single member of ASEAN. Worried about this predicament, one Taiwanese government trade official says, “Without an FTA, Taiwan will have even more industries move abroad and foreign investors will be all the less willing to come here.”
Will Taiwan go from being “The Orphan of Asia” to being the “orphan of ASEAN”?
The Taiwanese government clearly wants to break this impasse. In 2005, the Taiwan External Trade Development Council (TAITRA) opened three new offices around Southeast Asia. For its part, the Ministry of Foreign Affairs is planning to establish an association for Southeast Asian issues and is attempting to sign free trade agreements with individual nations, among them Singapore. The ministry hopes that by accumulating individual successes it will be able to avoid being pushed to the edges.
“If we miss the opportunity in ASEAN, even if we have the WTO, the future will be only more and more unfavorable for Taiwan,” says one Taiwanese businessperson who has invested in Vietnam. “Things will change,” he contends. But unable to restrain himself, he continues, “If we don’t wake up, we won’t even know it when we’ve disappeared.”
Southeast Asia is one of the most religiously complex areas of the world. It is home to the country with the largest Muslim population, Indonesia, as well as the Philippines, where Catholicism holds sway. There are also over 100 million Buddhists in the region. The photo shows a scene from a Catholic church in the Philippines.
Taiwan’s Third Leg
After China, ASEAN can complement Taiwan like a third leg, helping Taiwan solidify its standing on the international stage and balance risks. The diversity that makes ASEAN special also makes the region an ideal emerging market for Taiwanese businesses and businesspeople to use to hone their globalization skills. Furthermore, Southeast Asia has not only developed into an important base for labor exports and personnel training, it has proven to be a strong magnet for international talent as well.
The Philippines alone have sent eight million laborers to work around the world, while, collectively, Vietnam, Thailand and Indonesia have around ten million laborers providing service in other countries. Southeast Asian nations also understand the importance of bringing in overseas specialists to train their workers. Thailand, for example, has long made use of foreign corporations to boost its own competitiveness. The three leading Japanese automakers have invested a combined US$35 million in a ten-year training program that will see 4,000 technical specialists dispatched to Thailand to help local technicians upgrade their skills.
Singapore is the ASEAN member with the best understanding of how to recruit overseas talent. Besides offering generous salaries to attract scholars and educational administrators from abroad, it sends delegations overseas in search of the talent it needs. Singapore begins giving scholarships and training to students in high school, and continues all the way through university or graduate school. After completing their studies, the graduates remain to work in Singapore, making valuable contributions to its economy.
While the members of ASEAN are exporting low-level laborers, training local mid-level workers, and attracting higher-level professionals from around the world, Taiwan is suffering from a rapid outflow of mid- to high-level talent. What strategy does Taiwan have to counter this loss?
At a time when the whole world is heading to Southeast Asia, what will Taiwan do to seize the opportunity, to form a triad and establish a third leg outside of China?
The rush is on into the new Asia. What marching tune will Taiwan compose for this mission?
Translated from the Chinese by Stan Blewett