Gearing up for the ASEAN Economic Community

Organisations that fully understand and embrace the opportunities that the AEC will bring about can be the regional champions of tomorrow; those that continue to do business as usual may find themselves becoming a thing of the past.

The rules are changing

The AEC – scheduled to be in place by end-2015 – will bring the 10 economies of ASEAN closer together than ever before. The goal is to create a single market and production base with free flow of goods, services, investment, capital and skilled labour: a plan that is huge in ambition, but one that is necessary if the pace of economic development that has so benefited Southeast Asia in recent decades is to be sustained. The AEC can be the impetus to further boost one of the world’s fastest growing regions to become even more competitive and better integrated into the global economy.

The creation of the AEC is a progressive process which will unfold over a period of years. It is not, as many believe it to be, a “Big Bang” on a defined date. Much has already been done, a fact that is neither widely known nor well understood. This reflects the “top down” approach to liberalisation, which has been employed to date, with only very limited engagement and consultation with the private sector. It is to be hoped this will change, as much more remains to be done and the involvement of the private sector is critical to long term success.

There will be doubtless delays and difficulties in the implementation of further change: this is almost inevitable, given the consensual manner that characterises ASEAN and has been agreed for the AEC initiative. To focus on the potential for further delay though is to miss the point: the direction is plain, the intent could not be clearer and the momentum is building.

A good story that just got better

A more integrated Southeast Asian market is an enticing prospect for business in general and Singapore companies in particular.

Taken as it is, Southeast Asia is the fourth most populous economic bloc in the world and consistently amongst the fastest growing. It has, at its heart, over 600 million consumers that are for the most part young, increasingly urbanised, tech-savvy, outward-looking and optimistic. It also has a deep pool of factor inputs, which most will agree have only been partly tapped into. Liberalisation and integration will surely increase the pace of growth and development and allow those resources to be channeled into more effective uses.

The AEC in its proposed format will not make Southeast Asian markets uniform, but it will make the region easier for firms to access and to navigate.

Winners thrive with competition

But where there are winners, there must also be losers. Along with this unprecedented access to new markets will come unprecedented levels of competition. Firms will have to raise their game: adding more capabilities, increasing productivity, innovating in the use of technology, new products and services or improving their customer experience in order to stay relevant in the market.

It is often perceived that the winners in the AEC will be the major multinationals who have experience working across borders. Interestingly, it does appear that multinationals at this time have a greater awareness of the changes to date and in prospect, a greater preparedness on their part to act. It certainly is true that Southeast Asia will be a larger and more attractive investment destination for multinationals and they seem to be aware of the need to prepare accordingly. Those that are already here can be expected to develop and invest further; those that are not here yet will surely consider pushing Southeast Asia up their list of priority markets.

But it is also perfectly feasible for larger local companies to win big in this changed landscape as they have their own set of advantages built-in already. Local companies have strong initial positions, deep market knowledge, high degrees of adaptation and (habitually) strong financial positions. For these firms, new markets will open up at the same time that their existing positions are challenged and for both such situations, firms will find that they must adapt the basis upon which they compete. Most likely, they will need to focus attention and resources on a smaller range of activities, but build bigger and stronger positions for each.

The elements of a game plan

For the majority of Singapore firms, the immediate imperative is to understand the scale and nature of change that the AEC initiative will bring to their sector and industry. Those most likely to be successful will adopt a regional mindset and embrace the opportunity to switch from winning within national boundaries to competing on a regional basis.

With greater understanding, firms can then decide as to where they can and will stand in the enlarged marketplace. There will be those who have the ambitions, capabilities and means to become regional champions. Some will wish to defend their existing positions, believing that those positions can continue to yield good returns in the medium to long term: most important is to avoid a position of indecision.

In the first instance, adaptation is likely to be organic. New markets will be explored, most likely by expanding sales channels stand-alone or in partnership and alliance. At the same time, internal processes and arrangements will be revisited. The overall aim will be to build further reach and scale as well as to lower costs, by taking advantage of a much greater pool of resources across the region.

The subsequent rounds of adaptation will be conditional upon the experience with organic change, as well as competitive actions and reactions as the new opportunities become better understood. It is widely anticipated that the AEC will drive industry-wide restructuring, rationalisation and consolidation, as the benefits of scale begin to change competitive positions. When and how that occurs will differ by sector and industry, but further concentration seems likely to be on the cards. For the savvy firm, mergers and acquisitions will be a core part of the game plan both to leapfrog competitors and gain access to new markets, technologies and resources.

A call to action

The rules by which business is done in Southeast Asia are changing and will continue to do so.

Companies that will be successful in the future need to embrace these changes to make the most of out of the AEC. They will understand how their marketplace will be affected and will have a clear strategy and plan of action, irrespective of whether that plan is to protect existing positions or to expand into new markets and become a regional champion.

Those that continue to postpone their planning, predict an ineffective ASEAN bloc or who are indecisive in the face of change may find that they have missed out on a potentially once-in-a-lifetime economic opportunity for Southeast Asian businesses.

*This article was originally published by the Business Times, Singapore.

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