Introduction

Globalization is a comprehensive term for the emergence of a global society in which

economic, political, environmental, and cultural events in one part of the world quickly
come to have significance for people in other parts of the world. Although most people
continue to live as citizens of a single nation, they are culturally, materially, and
psychologically engaged with the lives of people in other countries as never before.
(“Globalization" Microsoft® Encarta® Online Encyclopedia 2004) Items common to our
everyday live such as the clothes we wear, the food we eat, and the cars we drive are the
products of globalization. Globalization involves the growth of multinational
corporations (businesses that have operations or investments in many countries) and
transnational corporations (businesses that see themselves functioning in a global
marketplace) (ibid).

Globalization has removed barriers to international trade and investment, allowing capital
to be allocated more efficiently and giving consumers greater freedom of choice. With
free-market globalization, investment funds can move unimpeded from where they are
plentiful (the rich countries) to where they are most needed (the developing countries). In
other word, globalization encouraged free trade between countries all over the world,
which we called multilateralism. This is why international institution such as WTO,
World Bank, etc has been formed to encourage multilateralism, because it’s believed that
lifting trade barriers and increasing the free movement of capital across borders would
narrow the sharp income differences between rich and poor countries. But these
international institutions have been criticized as only give benefit to rich countries, while
the poor countries have not enjoyed the benefit. This is the reason many countries try to
form their own free trade agreement with other countries, which we know as Regionalism
and Bilateralism.

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1.1 Reason for Regionalism

Regionalism can be defined as concentration of economic activities (trade in goods and

services, capital, people, etc) in a particular region. Regionalism has become the major
trend in East Asia. The development of regionalism in Asia has been triggered by the
growing economic regionalism in the world economy since the mid-1980. (Cai, 2003) Of
the three global economic centers, East Asia is the only region that is not yet formally
organized, while Western Europe has been well-established in EU and North America
has its NAFTA. Because East Asian economies are highly depended on these two major
markets and their outward-oriented development strategies, the intensifying regionalism
in other areas has raised concern among East Asian economies over the diversion of trade
and investment flows. Moreover, EU and NAFTA have not only formed themselves into
increasingly closed markets but have also come to the bargaining table in multilateral
trade negotiations as blocs (ibid). This leaves individual East Asian states frequently in a
much weaker bargaining position in multilateral trade negotiations. All this has brought
home a strong feeling of East Asia being excluded and isolated in the arena of global
economic competition.

While regionalism was intensifying elsewhere, there has also been a concomitant
acceleration in economic ties among East Asian countries since the mid-1980s, as
illustrated by rising intra-regional trade and foreign direct investment (FDI) flows
(Beeson, 2003). In particular, there has been a relative decline in importance of the
United States as a market and concurrent increasing importance of the regional markets
for East Asian economies over time. As a result, a sense of increasing interdependence,
regional community, and common interests has both emerged and strengthened

Countries pursue regionalism for a number of reasons. First, the lack of a mechanism for
close policy coordination and cooperation among the region's governments is widely
cited as being responsible for the rapid and unchecked contagion of the crisis. This bitter
experience not only proved that East Asian economies were now so closely
interdependent, but also revealed how each of them was exposed, fragile, and vulnerable

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to an economic crisis that might originate anywhere in the region. Second, the Asian
financial crisis is widely believed to have resulted from the financial liberalization that
the International Monetary Fund (IMF) and Washington pushed hard on East Asian
economies in the early 1990s. Once the Asian financial crisis set in, the IMF imposed
policy prescriptions supported by the U.S. government - strategies which soon resulted in
catastrophic economic and social consequences for the crisis-hit countries. It is within
this general context of global and regional political economy that the Asian financial
crisis of 1997-98 provided a direct and vigorous catalyst for the most recent push to
establish an East Asian grouping. The Asian crisis, which started in Thailand on 2 July
1997 as a financial crisis, rapidly spread to the whole region and evolved into a broader
region-wide economic crisis. Third, the Asian financial crisis has shown that APEC and
ASEAN, with their current structures, are unable to help East Asian states pursue their
common interests of maintaining regional economic stability and promoting prosperity.
(Bushifer, et al, 2003)

1.2 Reason for Bilateralism

The Major difference between Regionalism and Bilateralism is that the later one referring
to trade or political relations only between two states. Most of the bilateral are between
developed countries or in a few cases between a developed and a developing country;
examples of the latter are the agreements Mexico has agreements with the EC and EFTA
countries (Job, 2002). When the larger size of the markets in developed countries and
especially the US and the EU is taken into account, there is no doubt that the increase in
market access resulting from bilateral has gone overwhelmingly to developed countries
and not to developing countries. The one significant exception among the developing
countries appears to be Mexico, which has secured mostly free access to its major
markets in both North America and Europe. In the APEC area, the countries that have
gained improved market access from the bilateral are all the higher income countries of
the region, again with the exception of Mexico. Of most concern, none of the bilateral
links a Least Developed Country to a Developed Country. (ibid)

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2.1 The development of Regionalism in Asia

The idea of forming an East Asian grouping was first explicitly proposed by Malaysian
Prime Minister Mahathir Mohamad in 1990 when he called for the formation of the East
Asian Economic Grouping (EAEG), but his proposal not only received strong opposition
from the United States, which feared it might evolve into an exclusive East Asian bloc,
but also met with cold response from other East Asian governments which were under
American pressure to withhold support for this idea.(Cai, 2003)

In the late 1990s, the East Asian grouping idea was revived through the APT forum.
Initiated by ASEAN, APT first emerged from the need of ASEAN and the three
Northeast Asian countries - China, Japan and South Korea - to prepare for the Asia-
Europe Meeting (ASEM), which was first held in 1996. APT soon evolved into an
institutionalized forum for consultation and cooperation between ASEAN and three
Northeast Asian countries over a growing range of regional issues. (Dent, 2001)

The East Asian Vision Group (EAVG) and the East Asian Study Group (EASG), based
on a proposal by President Kim Dae-jung of South Korea, were established in December
1998 and November 2001 respectively "to explore practical ways and means to deepen
and expand the existing cooperation" between ASEAN and the three Northeast Asian
countries, "and prepare concrete measures and, as necessary, action plans for closer
cooperation in various areas"(www.aseansec.org, 2002)

A significant move under the APT framework was the creation of a regional currency
swap arrangement in 2000 known as the Chiang Mai Initiative. (Cai, 2003) Under this
currency swap arrangement, a bilateral currency swap and repurchase mechanism was
established on the basis of the ASEAN swap arrangement. The swap arrangement
requires that each state commit a certain amount of currency to be used whenever a
partner state experiences a currency crisis and needs to borrow foreign exchange. When
an East Asian state under the arrangement faces a currency crisis, other states within the
framework should come to its rescue by providing emergency aid to help ease that state's

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liquidity problem and prevent the spread of its currency crisis to other parts of the region.
Although this is a regional mechanism based on bilateral arrangements, this move reflects
the resolve of the East Asian governments to commit themselves to closer regional
cooperation. It is within this process of growing regional consultation and cooperation
that there has emerged a call for APT to be transformed into an East Asian FTA. At the
2001 meeting in Brunei, while participants discussed the possibility of establishing an
APT secretariat, South Korean President Kim Dae-jung went as far as to propose the
formation of an FTA that would include all APT members.(ibid)

2.2 The Development of Bilateralism in Asia

The first concerns the reaffirmation and reorientation of existing bilateral ties, in
particular the keystone of U.S. engagement in the region, that is, the U.S.-Japanese
alliance. Its reaffirmation in 1996 helped to solidify confidence within the region
regarding the continued role and presence of the United States. Equally significant for
the longer term was the reorientation of the rationale for this relationship as a central
element in promoting regional security. In effect, there is movement in Washington and
Tokyo away from a narrow bilateralist conception toward an expansive bilateralist
perspective-a transition of substantial import for the regional security architecture of the
future. (Job 2002)

The second concerns efforts in the other direction, to reinforce narrow bilateralist
relationships. It has not been surprising, for instance, to see North Korea seek to secure a
bilateral relationship with the United States and to attempt to insulate it from outside
interference. While this is clearly a nonstarter in the longer run, even as the United States
has resisted North Korean efforts to shut out other players, it has (allowed itself to)
become maneuvered into a position that gives the North Koreans greater leverage
regarding benefits for staying at the table than would have been possible in any
multilateral context. (ibid)

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Third, and in some contrast to the above, have been the significant steps taken by China
to resolve tensions along its land borders. These include agreements reached with
Russia, a Sino-Indian agreement, and the so-called Shanghai agreement with the Central
Asian states. Apart from their direct substantive relevance in assuring China's "back
door," these bilateral events have interesting and possibly positive implications for
regional security development. (Acharya, Desjardins, 1997)

Fourth is the formation of bilateral ties involving states already enmeshed in multilateral
arrangements. For the small states in Southeast Asia, this is not a new strategy. While
actively promoting the advancement of ASEAN, member states such as Singapore and
Malaysia have sought bilateral relationships with the United States, in effect "insurance
policies" to assure U.S. attention should their security be at risk. The more intriguing
recent bilateral event is the "alliance" arrangement between Australia and Indonesia. The
circumstances of the negotiation of this agreement and its exact provisions remain
unclear, as does its logic. (ibid)

2.3 Benefits and Pitfall of Regionalism

Asia was going towards regionalism because of its benefits for the member countries.
The First benefit that they will gain is favorable environment. When a country is in a
group, automatically they are in stronger position, either economically or politically.
Growing economic regionalism will resulted in political commitment, which will
provides the requisite motivation for a group of countries which had limited bargaining
power individually, to stick together to improve their position. The second benefit is
closer ties. With regionalism, the economic linkages among member countries for
example through trade and FDI will be bond closer, which will increase trading between
countries in the area. The third benefit is low tariffs, which include binding of tariffs at
zero under duty-free entry provisions within the RTA and prevention of contingent
protection actions by fellow members (anti-dumping, countervailing actions and
safeguard action. The forth benefit is Growing intra firm flows. As a result of economic
integration and the formation of intra regional company networks as well as the growth of

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intra firm flows, most of the existing NTBs have become less binding and therefore their
removal is unlikely to generate strong opposition. The fifth benefit is the ease of
negotiations with fewer parties. (Llyod, 2002) Since Regionalism only consist of few
countries in the specific area, the negotiations between countries will be easier, because
normally the more members you have, the more different opinions and requirements
there will be, which resulted in a lot more trouble to form an agreement that can pleased
everybody. And finally, the last benefit is the benefits of deep integration resulting from
the cross-border harmonization of national economic policies and regulations (ibid), for
example if there is no barrier, a company in one country will be able to do business in
other companies in other countries without much obstacles such as government
regulations, etc.

However, the huge gap in economic development levels among East Asian countries also
works against effective economic cooperation in East Asia. Because of their economic
differences, East Asian governments have varying policy priorities and pursue diverse
economic and social policies. Policy coordination and cooperation among such diverse
members within a regional grouping would be difficult. Furthermore, it could be argued
that successful regional integration largely hinges on the willingness and capacity of a
hegemonic state to assume a leadership role. (Mattli, 1999)

In addition, the lack of cooperation between Japan and China remains another important
obstacle to East Asian integration. Seeing each other more as rivals than anything else,
Tokyo and Beijing remain suspicious of each other’s intentions in regional affairs rather
than cooperative on the promotion of an East Asian grouping. To some extent, Sino-
Japanese rivalry constitutes the single most intractable obstacle to the formation of an
FTA within the framework of APT. (Cai, 2003)

In view of all these difficulties, it is not surprising that regional cooperation in East Asia
within the APT framework depicts two important features. The first feature is that this
process of regional cooperation has been initiated and led by small players, rather than by
major powers, as is the case in the process of regional integration in Western Europe and

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North America. This proves to be a wise strategy to promote integration in East Asia,
given the complexity of regional politics and distrust of major regional powers. As this
process of East Asian cooperation is initiated by small players in the region, it is therefore
possible for all the states in the region to be less suspicious of the idea of a regional
grouping and more comfortable about getting involved, which could hardly have
happened if the process had been initiated by a regional power, for example, Japan or
China.

3.0 Regionalism or Bilateralism ?

Founded 37 years ago, Kalbe Farma currently is the market leader of Indonesia’s
Pharmaceutical Industry in term of market share. They have expands their business not
only manufactured drugs, but also into health foods and packaging business. Kalbe
Farma has been listed in Jakarta and Surabaya Stock Exchanges since July 1991, and
nowadays they has been focusing much effort to International market, particularly
ASEAN and several countries in Africa, in anticipation of globalization and AFTA, and
also fierce from local companies. This markets are very similar to Indonesian market, and
therefore do not required much adjustment. Until the end of 2003 Kalbe Farma has
establish representative offices in Malaysia, Myanmar, Sri Lanka, Vietnam, Cambodia,
Philippines, and South Africa. (Kalbe Farma Annual Report 2003)

Kalbe has placed a team in the selected major export destinations to conduct direct
marketing activities. As for no major destination, Kalbe only conduct trading activities
with local distribution. Export sales in 2003 has reached Rp 180 billion (around US$ 20
million), mainly contributed by sales in Malaysia, Singapore, Myanmar, Nigeria, Sri
Lanka, and South Africa and Zimbabwe. The obstacles faced are because some of these
countries such as Sri Lanka, Nigeria, and Zimbabwe have continued to experiencing
prolonged economical and political crisis. (ibid)

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As a CEO of Kalbe Farma, I would see regionalism as the preferable trend in doing
international business. Looking at current situation, Kalbe International businesses were
mainly contributed by ASEAN countries such as Malaysia Singapore, and Myanmar.
Special attention were also be given to Vietnam, which currently having a high economic
growth and soon may join Malaysia, Indonesia and Thailand as New Industrial
Economies. The reasons why Kalbe Farma chooses to do business in these countries
included:

1. Location. Geographically, ASEAN countries were the nearest to Indonesia,

therefore they will have a better control and manage of the business.
Transportation cost (for shipping, etc) will be less because of the shorter
distances.
2. Culture similarity. Asian countries (especially South East Asia) have a lot of
culture similarity, for example: language being used in Malaysia and Singapore is
similar with Indonesia (Malay, Chinese, and English).
3. Kalbe Farma has not developed their brand name in international market,
therefore they have to start with the nearest counties or countries that have
economic level which is equal or below Indonesia, and therefore their products
will be easier to penetrate into their market. And once they become a dominant
players in the region, then they can start to expand to other countries.
4. As a multinational company, Kalbe Farma doesn’t have a very strong financial
reserved compared to other multinational pharmaceutical company, therefore they
have to be careful in investing their money into overseas market, which is why
they choose to do business mostly within South East Asia Region.

By having regionalism such as European Union, Kalbe Farma businesses in South East
Asia will growth very fast. One of the reasons why Kalbe Farma international businesses
still having slow growth mainly caused by government regulations from destination
countries. For countries such as Malaysia and Singapore, getting working permit was the
major problem. Although Kalbe Farma already set the representative office in those
countries, to get working permits for their employees is still difficult, and very limited.

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That’s why business in those countries is still very much depends on partnership with
local distributor, and has caused the growth to be limited. Such problem will not be arise
if regionalism was formed in the area just like in European Union where the citizen of the
member countries would be able to work in any other member countries anytime they
wanted without have to worry about visa and etc. Another benefit that Kalbe Farma will
enjoy from regionalism is low tariff, which means we will get more profit from the
international business because we won’t need to pay high tax and tariff to export our
product to other countries.