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1.0 Summary
The article is about ASEAN regains its place in the sun by Manu Baskaran which is
published in The Edge Malaysia. The article is to address ASEAN as one of the major
destinations for global flows of foreign direct investment (FDI).Based from Economist
Corporate Network survey indicates that China and India still top the preference lists of
investment destinations for global corporations compare to Indonesia, Malaysia, Thailand,
Vietnam and Singapore. Form this survey it shows ASEAN share of global FDI flows has
returned to the high levels of 7% to 9% in the 1990s its share in 2011 leapt to 7% compared
with just 2.3% in 2008, and 1.4% in 2000. The ranking of FDI shows, Indonesia is now ninth
in the world from 21st in 2007, Malaysia was ranked 10th in 2012 from 16th in 2007, while
Thailand has gone from being unranked to No 16.
The author also discuss about China working-age population fell by 3.45 million
people to 937 million in 2012 where ASEAN demographic advantage is demonstrating its
power a young and growing workforce. Investors are shifting labour-intensive activities to
ASEAN countries such as Indonesia, Vietnam and Cambodia.
Japan investment to ASEAN countries market because of labour and other costs are
cheaper. The main concern it about power shortages and the risk of another major earthquake
in Japan and seek to diversify out of home based production. Other issues that been concern
by Japan is the escalating tensions between China and Japan over the East China Sea
territorial disputes have led to anti-Japanese protests and the yen movement against the US
dollar, but its average change against all its important trading partners currencies, or the yen
effective exchange rate.
Investment to ASEAN can be issues if will be political convulsions, in 1997 political
weaknesses in countries such as Indonesia and currency shock from the Thai baht devaluation
into a systemic crisis that set the region back for more than a decade. Tensions in the South
China Sea over territories disputed by China, Vietnam and the Philippines could derail the
region in the unlikely event of an armed conflict. Domestic political discord and insurgencies
still plague Thailand and Myanmar while a potentially game-changing parliamentary election
is in the offing in Malaysia.
Other issues that will be affected, in the labour market, have recently seen moves
towards raising or introducing minimum wages. Some ASEAN countries continue to be slow
in ensuring a conducive business climate. There are also signs of increased nationalism in
some economic policies.
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2.0 Main Issues
The main issues been highlighted by author is:
Shifting comparative advantage in labour-intensive activities.
Japan to raise its investment profile in ASEAN because of anti-Japanese protests in
Main issue about a crisis that was partly brought about by political and policy failures
within the region.
Other issues is in the labour market, conducive business climate and increased
The change is partly a result of political issues such as recent territorial tensions
between Japan and China (Exhibit 1) which are diverting some Japanese investment to
ASEAN. But is it also driven by social and economic factors such as demographics .For the
Japanese government, this FTA was an important target as it tries to achieve a stronger
position in Asia vis--vis China, Korea and United States.
The Japan-ASEAN FTA (officially a Comprehensive Economic Partnership) is a
comprehensive one, covering trade in goods, services, investments, rules of origin, dispute
settlement, sanitary and phyto-sanitary regulations, technical barriers to trade, economic
cooperation and, on Japans request, intellectual property rights. For groups in Southeast
Asia, it is seen as formalising ASEANs role as a regional manufacturing hub for Japanese
corporations. It is now easier and cheaper for Japanese firms to move components (of
automobiles, electronics, etc) from one ASEAN country to another, in a regional assembly
1. Political disputes benefit region
Japan is currently in a territorial dispute with China over the Senkaku
(Japanese)/Diaoyu (Chinese) Islands in the northern sea. This political battle has
significantly reduced their investment flows into each other, with both countries showing
reduced investment in each other .As a result, Japan has now shifted investments from
China into the ASEAN countries. China has also increasingly diverted funds to the
2. Structural changes
Some of the change is structural as some of the manufacturing jobs from China
have moved given the rising wages in China, putting the ASEAN countries at a cost
advantage. At the same time, demographic changes further benefit ASEAN when
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compared with China, whose labor force has started to shrink while that of the ASEAN
countries is projected to continue expanding for the next three decades. According to data
of the Economist Intelligence Unit (EIU), labor costs in China have a substantial increase
of nearly four times in the recent 10 years. The labor cost per unit hour increased from 0.6
U.S dollar in 2000 to 2.9 U.S dollar in 2011, a rate equivalent to 1.5 times that of
Thailand 2.5 times that of the Philippines, and 3.5 times that of Indonesia. Some sectors
of the worlds manufacturing industry are shifting to soma ASEAN countries with
cheaper labour cost. (Exhibit 2)
For example, over 40 percent of Nike shoes were produced in China in 2000 and
Vietnam produced only 13 percent. In 2009, both sides yielded 36 percent equally. By
2010, Vietnam had replaced China and become the world's largest producer of Nike

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FDI data ( Exhibit 2) for these countries show that for both 2011 and 2012, the FDI
for the group was equal to those for China, and are now following a similar trend. This trend
will fuel growth in the region and diversify, reducing the ASEAN dependence on China.
Main issue concern is a crisis related by political and policy failures within the
ASEAN countries. Since the Asian Financial Crisis of 1997-98, ASEAN countries has
enhanced on economic cooperation in trade in goods, services and investment. FTA among
ASEAN countries, is based on the existing form of economic integration of the ASEAN, a
signed ASEAN-China FTA framework and wide discussion on furthering economic
integration among ASEAN (for example, the signed framework for comprehensive economic
partnership between ASEAN-JAPAN). There are many factors that might be behind the
current ASEAN. Some were explicitly stated goals, such as ASEAN-China FTA agreement.
Some objectives, stated or implicit, were:
Governments wish to bind themselves to better policies, and to sign such bindings to
domestic and foreign investors.
A desire to obtain more secure access to major markets.
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The pressures of globalization, forcing firms and countries to seek efficiency through
larger markets, increased competition, and access to foreign technologies and
A desire to help neighbouring countries to stabilize and prosper.
The fear of being left out while the rest of the world swept into regionalism.
3. Impact on individual countries
1. Thailand
Thailands export structure is similar to Chinas for many important product
groups. There are not so much intra-industry trades in various production groups
between Thailand and the two competing new members China and Japan. ASEAN
would increase the competition significantly in export markets, especially those
sectors targeting Japan. The new FTA will negatively impact sectors in Shoes and
Accessories, Telecommunication related products, printed circuits and Electrical
Appliances and Parts. Chinese imports would also have an impact on domestic
industries. However there will be much potential for trade and investment in China.
Big businesses stand to benefit a lot.
For example, Thailands CP Group is already a major investor in China.
Tourist industry and high quality Thai rice would increase market share in China.
Other positive impact might include increasing FDI from Japan and Korea. Thailand
should be able to maintain advantage in agriculture and food related sectors as well as
service based sectors such as tourism.
2. Singapore
Singapore is one of the most industrialized countries in this region and known
for its trade dependent policy, so East Asian FTA would benefit Singapore
significantly. The flow of trade and investment flows would be enhanced by the lower
tariffs. Singapore-based companies will enjoy cost-savings from the elimination of
customs duties and improved market access.
3. Malaysia
Malaysia is also relatively industrialized country as well as exporter of natural
resources. It can benefit from greater market access and enhance the competitiveness
of Malaysian exporters. The FTA will also further facilitate and promote trade,
investment and economic development; enhance its position as an attractive
destination for FDI, particularly in relation to competition from other investment
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seeking regions. It is also expected to build capacity in specific targeted areas through
technical cooperation and collaboration. Possible negative impact would be
liberalization in car industries, where Malaysian government wants to protect two
national car manufactures in the country.
4. Indonesia
Indonesia, an important exporter of commodities and importer of industrial
goods in this region, is considered to have following positive and negative effects.
Positive impacts includes, market expansion for Indonesian commodities, increase of
FDIs to Indonesia and developed countries provision of technical aid, such as
capacity building programs for small- and medium-sized enterprises in Indonesia. On
the other hand, there will be negative impacts as well, especially, necessity to tackle
the issue on environment and intellectual property rights and liberalization of
domestic industrial and agricultural sectors which are still behind in terms of
competitiveness and efficiency.
5. Brunei
In the current FTA agreement between ASEAN and Brunei three agreements
were reached: investment protection, long-term contract on China's purchase of crude
oil, and a MOU on tourism. This would carry forward benefiting Brunei especially
with regard to purchase of Oil. Other fields in which it stands to benefit from
cooperative agreements with other countries are education, health, and civil aviation.
6. Vietnam, Cambodia, Laos, Myanmar
All of these countries are in a similar stage of development. Currently facing a
problem of high levels of poverty and dependence on foreign aid the countries would
vie for aid and FDI. Being attractive centres to provide cost advantages, these
countries would probably attract FDI from companies interested in accessing the
ASEAN markets and looking for cost efficient bases. They would thus need to
safeguard the development of their industries while making concessions to attract
FDI. In terms of FDI however, these countries potentially face competition from
countries like Thailand and Malaysia which offer a more skilled workforce. Other
sectors to potentially benefit are Tourism, Banking (which would be forced to
modernize to be at par with the rest of the FTA countries) and Infrastructure.

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3.0 Conclusion
Obstacles can be divided into three categories; economic obstacles, political
obstacles, and historical obstacles. The major economic obstacles, expected in almost every
country, are oppositions to trade liberalization from particular domestic sectors. Non
competitive sectors, which will be imposed structural adjustment, would strongly oppose to
this liberalization.
In terms of political obstacles, lack of political leadership is a significant one. In this
region, there is no apparent leadership to push this FTA forward now. China and Japan, the
two strong powers in this region, have historical problems between them, so that they do not
lead formation of FTAs together, but do compete with each other. From the experiences in
Europe, we learned the crucial role that strong political leadership played in the formation of
the EEC and subsequent deepening experiences. So no leadership could make the formation
of FTA slow, or make it stop in the middle. Another political obstacle is the existence of
different political systems. China, Myanmar, and Vietnam have authoritarian systems, while
other countries are democracies. Furthermore, different views on regional security can be
another complication in this region
About historic obstacles, several countries form a free trade agreement or free trade
zone, a community spirit as a whole region and mutual understanding are greatly helpful. In
this context, historic problems between China and Japan can be regarded as sources of big
complications. In order to successfully form this FTA, each country must try to seek ways to
overcome these obstacles. Here are some ideas of possible measures:
Implement programs to deal effectively with structural adjustment necessitated by
trade and FDI liberalization, such as economic assistance to impacted workers
(income compensation, technical assistance to improve quality of labor) and
comprehensive FTA (Economic Partnership Agreement, EPA) to include economic
and technical assistance
Pursue economic cooperation programmes covering broad range of issues with
common interests: energy, food, environment, etc.
Deepen mutual understanding through closer communications and active exchange of
people of all levels (e.g. exchange programs for high school and college students,
politicians and bureaucrats)
Strong support from the general public, where education and advocacy, role of mass
media are keys to generate them.
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Reference to-come-