2011/2012 ASEAN Business Outlook Survey
Report compiled by The American Chamber of Commerce in Singapore In cooperation with The American Cambodian Business Council The American Chamber of Commerce in Indonesia The American Chamber of Commerce of the Philippines The American Chamber of Commerce in Thailand The American Chamber of Commerce in Vietnam (Hanoi) The American Chamber of Commerce in Vietnam (Ho Chi Minh City) The American Malaysian Chamber of Commerce
SPONSORED BY
CONTENTS 1 2 3 4 6 7 8 8 9 10 11
Introduction & Methodology Economic Outlook ASEAN Integration and FTAs Business Expansion in ASEAN Strengths and Challenges Workforce Expansion Expat Assignment Satisfaction Comments from Respondents across ASEAN
The 10th ASEAN BUSINESS OUTLOOK SURVEY August 2011 12 13 14 15 16 16
PHILIPPINES REPORT Highlights SINGAPORE REPORT Highlights THAILAND REPORT Highlights VIETNAM REPORT Highlights Key Findings Acknowledgements
Special Features by Control Risks
CAMBODIA REPORT Highlights
17 Political, operational and Security Outlook 2011/2012
INDONESIA REPORT Highlights
19 Managing Corruption in South-east Asia
MALAYSIA REPORT Highlights
Introduction & Methodology The American Chamber of Commerce in Singapore (AmCham Singapore), in cooperation with other AmChams in the ASEAN region, conducted a study among members of AmChams in seven Southeast Asian countries: Cambodia, Indonesia, Malaysia, Singapore, the Philippines, Thailand, and Vietnam. The purpose of the study, now in its 10th year, is to understand members’ outlook on business growth and their perceptions about a series of local factors. The members surveyed are senior executives, working with a company held by or with an American majority interest. This regional report presents collective feedback received from main members of: The American Chamber of Commerce in Singapore, The American Cambodian Business Council, The American Malaysian Chamber of Commerce, The American Chamber of Commerce of the Philippines, The American Chamber of Commerce in Indonesia, The American Chamber of Commerce in Thailand, The American Chamber of Commerce in Vietnam (Hanoi), and The American Chamber of Commerce in Vietnam (Ho Chi Minh City).
Survey Methodology Sample Size:
A list of AmCham members from U.S. companies with e-mail addresses was provided by each AmCham: • Cambodia: List of 62 members, response rate was 29% (18) • Indonesia: List of 129 members, response rate was 29% (38) • Malaysia: List of 127 members, response rate was 16% (20) • Philippines: List of 271 members, response rate was 18% (48) • Singapore: List of 392 members, response rate was 19% (73) • Thailand: List of 286 members, response rate was 31% (88) • Vietnam: List of 207 members, response rate was 20% (42) • Overall: List of 1,474 members, response rate was 22% (327)
Data Collection Method:
Web-based, self-administered survey. No enforcement on participation.
Data Collection Period:
May 18 to June 8, 2011
2011/2012 ASEAN Business Outlook Survey
2 Economic Outlook World Economic Outlook
After the drastic downswing and upswing of 2008 to 2010, in 2011, the economic outlook has settled to moderately positive, with half of the respondents expecting the world economy to perform better or much better compared to 2010. The 2011 world economic outlook therefore represents a stabilization of expectations. Singapore continues to have the most optimistic outlook, with 70% of respondents expecting a better or much better performance of the world economy. Indonesia, Thailand, and the Philippines have the next most optimistic outlooks, with 54%, 50%, and 46% respectively expecting a better or much better performance of the world economy.
In 2011 what are your expectations for performance of the world economy in comparison with 2010? 6%
7%
0%
10%
6%
6%
11%
11%
29% 30%
44%
40%
33%
44%
43%
40%
45%
10%
3%
Thailand
Indonesia
63% 60%
40%
33%
40%
39% 23% 20%
11%
7%
Regional
Singapore
15%
12%
Malaysia
Vietnam
Worse
Philippines
About the Same
Better
22% Cambodia
Much Better
Profit Outlook The majority of respondents (67%) expect companies’ profits to increase in 2011 and 78% expect a profit increase in 2012.
Compared to 2010, do you expect your profits in ASEAN to Increase, Decrease, or Remain the Same in 2011 and 2012? 94% 85% 78%
81%
80%
77% 70%
67%
70%
28% 22% 16% 7% 1% Regional
17%
15%
6% 0% Singapore 2011 Decrease
15% 10%
15%
12%
0%
2011 Remain
64%
26%
2011 Increase
27% 13%
7% 0%
Vietnam
59%
28%
15% 5%
Malaysia
70%
70% 61%
58%
23%
81%
Philippines 2012 Decrease
3%
24% 12%
11%
6% 0% Thailand 2012 Remain
0% Indonesia 2012 Increase
6% 0% Cambodia
2011/2012 ASEAN Business Outlook Survey
3 Financing and costs of borrowing
Overall, the number of respondents experiencing significant financing constraints has decreased steadily over the past three years, from 42% in 2009 to 24% in 2010 to 20% in 2011. Regional experiences with costs of borrowing remained similar to those of the past two years with some variance across the region. Financing Constraints by Country “Yes” Responses
Costs of Borrowing Results by Country “Yes” Responses
Is your company facing significant financing contraints
Is your company facing higher costs of borrowing?
55% 48%
47%
41%
39%
37%
38%
30% 24% 20%
24% 14%
28%
22%
21%
19%
15%15%
29%
27%
26%
24%
50%
48%
42%
30% 25%
28% 27% 26% 26% 25% 17%
30%
34% 29% 24%
33%
27% 26% 18%
15%
14%
10%
8%
6% 0%
0% Regional
Singapore
Malaysia
Vietnam
2009 “Yes” Response
Philippines
Thailand
2010 “Yes” Response
Indonesia
Regional
Cambodia
Singapore
2011 “Yes” Response
Malaysia
Vietnam
2009 “Yes” Response
Philippines
Thailand
2010 “Yes” Response
Indonesia
Cambodia
2011 “Yes” Response
ASEAN Integration & FTAs Importance of ASEAN Integration ASEAN integration is clearly valuable to most respondents, with 75% finding it important to helping their companies do business in the region.
Is ASEAN integration important to helping your company do business in the region? 80%
79%
75%
79%
78%
76% 69%
62%
38% 31% 25%
Regional
21%
Singapore
20%
22%
Malaysia
Vietnam
Philippines
Yes
No
24%
21%
Thailand
Indonesia
Cambodia
2011/2012 ASEAN Business Outlook Survey
4 ASEAN Trade Agreements
80% of respondents said their companies use the tariff benefits of the ASEAN FTA. Nearly half of respondents’ companies use the ASEAN-China FTA. Does your company use the tarriff benefits of the following ASEAN free trade agreement? 77% 80% 48% 49% 27% 27%
ASEAN FTA
ASEAN - China
ASEAN Australia-New Zealand
24% 21%
22% 23%
21% 22%
ASEAN - India
ASEAN - Korea
ASEAN - Japan
2010
2011
Business expansion in ASEAN 85% of respondents’ companies plan to expand or expand significantly in ASEAN over the next two years. This figure is a slight increase from the 2010 data (80%). Almost none plan to contract.
ASEAN Expansion in the Next Two Years (By Country) 73% 67% 59%
56%
55%
50% 44%
45%
42%
44% 33%
29%
26%
26% 21%
17% 12%
11%
0%
0% 0%
Regional
0%
Singapore
12%
12%
11% 6%
5%
5%
1%
12%
10%
0%
Malaysia
Contract Significantly
0% 0%
Vietnam Contract
2%
0%
Philippines Remain About the Same
0% 0%
0%
Thailand Expand
0%
Indonesia Expand Significantly
Cambodia
2011/2012 ASEAN Business Outlook Survey
5 Location of Business Expansion in ASEAN
Vietnam and Indonesia are key focuses for expansion in ASEAN, similar to 2010, followed by Thailand and Singapore. Indonesia nearly doubled, from 15% of respondents citing it as their top area of growth in 2010 to 29% in 2011. 31%
29%
25%
11%
10% 10% 7% 2%
4% 1%
Myanmar
6%
7%
15%
13% 13% 9%
5%
2%
Laos
0% 1% Cambodia
Philippines
Singapore
Malaysia
2010
Thailand
Indonesia
Vietnam
Brunei
2011
ASEAN’s Contribution to Global Business Most respondents (73%) expect ASEAN’s contribution to global business to continue to increase over the next two years.
ASEAN’s Importance of Global Business over the Next Two Years
65%
70% 73%
75%
72% 68% 64%
82%
72% 70% 69%
66% 67% 69%
56% 55%
83%
77% 78%
72% 71%
71% 60%
0% Regional
Singapore
Malaysia
Vietnam
Most Important in 2009
Philippines
Most Important in 2010
Thailand
Indonesia
Cambodia
Most Important in 2011
Diversifying Operations from China to ASEAN Only 15% of respondents plan to diversify some operations into ASEAN from China, although results varied across the region. The majority of respondents (59%) state that their company does not plan to diversify some investments or business from China into ASEAN over the next two years. However, in Vietnam, more than a third of respondents plan to diversify business from China to ASEAN.
Does your company plan to diversify some investments or business from China into ASEAN over next two years? 15%
59%
14%
71%
21%
53%
11%
12%
11%
59%
61%
64%
30%
27%
25%
Thailand
Indonesia
34%
6% 44%
41% 50%
25% Regional
15% Singapore
26% Malaysia
24% Vietnam
Yes
Philippines
No
Not sure
Cambodia
2011/2012 ASEAN Business Outlook Survey
6
Strengths and Challenges Local Business Environment Excluding respondents from Singapore and Malaysia, corruption continues to be a source of dissatisfaction for respondents, similar to findings in 2010 and 2009. Dissatisfaction with corruption decreased significantly in Malaysia, from 63% in 2010 to 35% this year. Sentiment towards the U.S. remains highly positive across the ASEAN region and is a major strength in nearly every country, with satisfaction above 60%, except Indonesia (41%). Respondents across the region are satisfied with “the availability of low-cost labor,� and it is a major strength in all the countries except Singapore and Thailand. Factors
Malaysia
Philippines
Singapore
Thailand
Vietnam
Indonesia
Cambodia
Infrastructure
70%
51%
93%
59%
73%
70%
50%
Availability of raw materials
65%
Availability of low cost labor
60%
62%
59%
68%
84%
Availability of trained
45%
66%
59%
56%
49%
61%
56%
58%
57%
Housing cost
77%
58%
51%
57%
56%
Laws & regulations
84%
43%
60%
68%
61%
80%
61%
72%
89%
88%
66%
50%
42%
61%
Office lease cost
Corruption (or lack of)
79%
Local protectionism (or lack of) Tax structure
43%
74%
Personal security
84%
58%
64%
65%
Stable government& political system
89%
59%
54%
72%
New business incentives by government
67%
Ease of moving products through customs
60%
61%
Free movement of goods within the region Sentiment towards the U.S.
54%
63% 65%
76%
86%
67%
76%
*Red boxes are major concerns and indicate levels of dissatisfaction; green boxes are major strengths and indicate levels of satisfaction.
61%
2011/2012 ASEAN Business Outlook Survey
7 Workforce Expansion Overall Workforce by Country
Most respondents (66%) predict an increase in the overall workforce. Only 6% expect a decrease in the workforce, while 27% expect it to remain about the same. This data is comparable with the 2010 figures.
Do you expect your total number of employees in the response location to increase, decrease, or remain about the same in 2011? 74%
72%
71%
67%
66%
66% 58%
50% 40% 27%
22%
19% 10%
10%
7%
6%
Singapore
Malaysia
8%
2%
0% Regional
32%
31%
26%
25%
Vietnam
Decrease
Philippines
Same
Thailand
6%
Indonesia
Cambodia
Increase
Expat workforce Most respondents (66%) predict that the number of expatriates working for their companies will remain about the same in 2011. 20% anticipate that the number of expatriates will increase, double the number that believe that the expatriate workforce will decrease. In every country except Cambodia, 63% or above of the respondents feel that the size of the expatriate workforce will remain about the same. Cambodia has the highest percentage of respondents (33%) predicting an increase in the workforce.
Will the number of expatriates working for your company in your response location increase, decrease, or remain about the same in 2011? 77% 70%
66%
74% 65%
64%
63%
44% 33%
10%
Regional
24%
23%
20% 11%
Singapore
15%
10%
Malaysia
Decrease
10%
23% 8%
Vietnam
Same
10%
Philippines
9% Thailand
Increase
18%
22%
5% Indonesia
Cambodia
2011/2012 ASEAN Business Outlook Survey
8
Expat Assignment Satisfaction The percentage of respondents that stated their companies regularly receive requests from employees based in other locations to work in their response locations increased from 37% in 2009 to 39% in 2010. Satisfaction rates remain at a high rate of 92% — the same rate as in 2009. Results show that increasing numbers of expatriate employees attempt to extend their time in their response location within ASEAN. Respondents stating that their expatriate employees attempt to extend their assignments rose from 79% in 2009 to 82% in 2010.
97%
94%
84%
83%
81%
76%
94%
88%
83%
77%
76%
60%
69% 59%
56%
51%
40%
39%
35% 21%
Regional
98%
93%
Singapore
Malaysia
Receive Assignment Requests
21%
Vietnam
Philippines
Happy with Assignments
19%
Thailand
Indonesia
Cambodia
Ask to Extend Assignments
Comments From Respondents on Business Issues Across ASEAN Respondents were given an option to contribute additional comments to some of the questions asked in the survey. Below are some of their comments. Q: What are the top 3 reasons why your company plans for business expansion in ASEAN? “Adoption of our technology”
“To support our client expansions”
“Huge untapped population base”
“To be close to existing production facilities”
“[To] serve local markets, create a local market”
Q: What does your company see as the most significant barrier to conducting business within ASEAN? “Corruption in most ASEAN countries undermines fair competition and increases the administrative costs of running a business”
“Non-tariff trade barriers such as local content rules and preferential consideration of domestic suppliers”
“The variety of laws, rules and regulations that govern professional practice”
“Lack of experienced and talent people”
“Costs are rising in US$ terms”
Q: What are the top 3 reasons why your company feels that ASEAN markets will be more important for its worldwide operations and revenues in the next two years? “Increasing purchasing power of middle class”
“Opportunity for business growth”
“Resource opportunity, raw material”
“Increased investment due to rising costs in China”
“Other regions have matured, ASEAN remains uncultivated”
2011/2012 ASEAN Business Outlook Survey
9
Cambodia Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook:
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy
• 44% predict a better or much better performing economy in 2011 than in 2010.
Much Better 11%
Worse 22%
Current Business Climate: • 23% face significant financing constraints in 2011. • 38% face higher costs of borrowing in 2011. Importance of ASEAN Markets in Global Business:
Better 33%
• 67% of respondents report that ASEAN markets have increased in importance to their companies in the past two years.
About the Same 34%
Figure 2: Growth of ASEAN Importance over Next Two Years
• 78% of respondents expect ASEAN importance to increase in the next two years.
76%
Effectiveness of ASEAN:
78%
• 74% of respondents find ASEAN integration important to helping their companies do business in the region. • 71% of respondents use the ASEAN FTA. • 48% of respondents use the ASEAN-China agreement.
18%
17%
Business Direction and Movement in ASEAN:
0%
• 77% of respondents’ companies expanded in ASEAN in the past two years.
More Important
Remain the Same 2010
0%
Less Important
2011
• 77% plan to expand in ASEAN in the next two years. • The largest rate of respondents (31%) plan to expand in Thailand.
Figure 3: Profit Outlook 2011 Decrease 6%
Profit Outlook: • 81% expect a profit increase in 2010. • 94% expect a profit increase in 2011.
Figure 4: Expectations of Expansion of Cambodian Economic Growth Contract 8%
Remain 12%
Neutral 22%
Workforce Expansion: • 72% of respondents expect a workforce increase in 2011. • 31% of respondents expect an increase of 10% to 15%, and 31% expect an increase of more than 50%.
FACTORS IMPACTING BUSINESS IN CAMBODIA Economic Conditions: • 72% expect overall Cambodian economic growth to expand. • 71% expect an increase in cost of living. • 44% expect an increase in housing cost. • 44% expect an increase in the interest rate. • 17% expect the Cambodian Riel to appreciate against the U.S. Dollar.
Expand 72%
Increase 82%
Major Strengths (% Satisfied) Availability of low cost labor (84%) Stable government and political system (72%) Personal security (65%) Sentiment towards the U.S. (61%) Housing costs (56%)
Major Concerns (% Dissatisfied) Corruption (88%) Availability of trained personnel (61%) Laws and regulations (61%)
2011/2012 ASEAN Business Outlook Survey
10
Indonesia Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook: • 54% predict a better or much better performing economy in 2011 than in 2010. • 61% of respondents in the 2010 survey predicted a better or much better economy in 2010 than in 2009.
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy
Current Business Climate: • Respondents facing significant financing constraints decreased from 29% in 2010 to 22% in 2011. • Respondents facing higher costs of borrowing increased from 6% in 2010 to 14% in 2011.
About the Same 43% Better 43%
Importance of ASEAN Markets in Global Business: • 62% of respondents feel that ASEAN markets have increased in importance to their companies in the past two years. • 71% of respondents expect ASEAN importance to increase in the next two years.
Figure 2: Growth of ASEAN Importance over Next Two Years 83% 72%
69%
71%
Effectiveness of ASEAN: • 69% of respondents find ASEAN integration important to helping their companies do business in the region. • 81% of respondents use the ASEAN FTA. • 58% of respondents use the ASEAN-China agreement. Business Direction and Movement in ASEAN: • 67% of respondents’ companies expanded in ASEAN in the past two years. 81% plan to expand in ASEAN in the next two years. • The largest rate of respondents (72%) plan to expand in Indonesia. Profit Outlook: • 59% expect a profit increase in 2011. • 70% expect a profit increase in 2012. Workforce Expansion: • The rate of respondents expecting a workforce increase from 21% in 2009 to 44% in 2010 to 58% in 2011. • 45% of respondents predict a workforce increase of 5% to 10%.
FACTORS IMPACTING BUSINESS IN INDONESIA Economic Conditions: • 91% expect overall Indonesian economic growth to expand. • 95% expect an increase in cost of living. • 84% expect the Indonesian Rupiah to appreciate against the U.S. dollar. • 78% expect an increase in housing cost. • 49% expect the interest rate to increase.
Worse 3%
Much Better 11%
28%
24% 17% 10%
7%
2%
6% 0%
More Important 2007
Remain the Same 2009
Figure 3: Profit Outlook 2011
Decrease 11%
Less Important
2010
2011
Figure 4: Expectations of Expansion of Indonesian Economic Growth
Don’t Know 3%
Neutral 3%
Contract 5%
Remain 27% Increase 59%
Major Strengths (% Satisfied) Availability of low cost labor (68%) Housing cost (57%) Office lease cost (49%)
Expand 91%
Major Concerns (% Dissatisfied) Corruption (89%) Infrastructure (70%) Laws & regulations (68%) Local protectionism (61%) New business incentives offered by government (54%) Tax structure (53%)
2011/2012 ASEAN Business Outlook Survey
11
Malaysia Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook: • 40% predict a better or much better performing economy in 2011 than in 2010. • 60% predicted a better or much better performing economy in 2010 than in 2009.
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy Much Better 10%
Current Business Climate: • Respondents facing significant financing constraints remained at 15% in 2011, the same as in 2010. • Respondents facing higher costs of borrowing increased from 30% in 2010 to 37% in 2011.
Better 30% About the Same 40%
Importance of ASEAN Markets in Global Business: • 60% of respondents stated that ASEAN markets have increased in importance to their companies in the past two years. • 75% of respondents expect ASEAN importance to increase in the next two years. Effectiveness of ASEAN: • 67% of respondents use the ASEAN FTA and ASEANChina • 80% of respondents find ASEAN integration important to helping their companies do business in the region. Business Direction and Movement in ASEAN: • 70% of respondents’ companies expanded in ASEAN in the past two years. 95% plan to expand in ASEAN in the next two years. • The largest rate (40%) of respondents plan to expand in Malaysia. Profit Outlook: • 70% expect a profit increase in 2011. • 80% expect a profit increase in 2012. Workforce Expansion: • The rate of respondents expecting a workforce increase dropped from 55% in 2010 to 50% in 2011. • 40% of respondents expect a workforce increase of 10% to 15%.
FACTORS IMPACTING BUSINESS IN MALAYSIA Economic Conditions: • 55% expect overall Malaysian economic growth to expand. • 100% expect an increase in cost of living. • 100% expect an increase in housing cost. • 75% expect an increase in the interest rate. • 75% expect the Malaysian Ringgit to appreciate against the U.S. Dollar.
Worse 20%
Figure 2: Growth of ASEAN Importance over Next Two Years 75%
51%
59% 56% 55% 43% 36%
40% 33% 20% 6%
More Important 2007
Remain the Same 2008
2009
Figure 3: Profit Outlook 2011
Decrease 10%
5%
3%
5%
5%
Less Important 2010
2011
Figure 4: Expectations of Expansion of Malaysian Economic Growth
Don’t Know 5%
Contract 10%
Neutral 35%
Remain 15%
Increase 70%
Major Strengths (% Satisfied) Infrastructure (70%) Sentiment towards the U.S. (65%) Availability of raw materials (65%) Availability of low cost labor (60%) Ease of moving your products through customs (60%)
Expand 55%
Major Concerns (% Dissatisfied) Availability of trained personnel (45%) Laws and regulations (40%) Personal security (35%) Corruption (35%)
2011/2012 ASEAN Business Outlook Survey
12
Philippines Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook: • 46% predict a better or much better performing economy in 2011 than in 2010. 74% of respondents predicted a better or much better economy in 2010 than in 2009.
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy Much Better 6%
Current Business Climate: • Respondents facing significant financing constraints decreased from 39% in 2009 to 10% in 2010, but increased to 24% this year. • Respondents facing higher costs of borrowing decreased from 29% in 2009 to 8% in 2010, and rebounded to 24% in 2011. Importance of ASEAN Markets in Global Business: • 57% of respondents feel that ASEAN markets have increased in importance to their companies in the past two years. • 69% of respondents expect ASEAN’s importance to increase in the next two years.
Better 40% About the Same 39%
Figure 2: Growth of ASEAN Importance over Next Two Years
65%
Profit Outlook: • 61% expect a profit increase in 2011. • 70% expect a profit increase in 2012. Workforce Expansion: • The rate of respondents expecting a workforce increase rose from 39% in 2009 to 51% in 2010 to 71% in 2011.
FACTORS IMPACTING BUSINESS IN THE PHILIPPINES Economic Conditions: • 77% expect overall Philippine economic growth to expand. • 85% expect an increase in cost of living. • 75% expect an increase in housing cost. • 62% expect the Philippine Peso to appreciate against the U.S. Dollar. • 35% expect an increase in the interest rate.
69%
69% 66% 67%
33%
Effectiveness of ASEAN: • 62% of respondents find ASEAN integration important to helping their companies do business in the region. • 94% of respondents use the ASEAN FTA. • 68% of respondents use the ASEAN-China agreement. Business Direction and Movement in ASEAN: • 62% of respondents’ companies expanded in ASEAN in the past two years. 85% plan to expand in ASEAN in the next two years. • The largest rate of respondents (32%) plan to expand in the Philippines.
Worse 15%
23%
30% 29% 27%
8% 2% More Important 2007
Remain the Same 2008
2009
Figure 3: Profit Outlook 2011
Decrease 7%
4%
2%
0%
Less Important 2010
2011
Figure 4: Expectations of Expansion of the Philippine Economic Growth
Don’t Know 4%
Contract Don’t2%Know 2% Neutral 19%
Remain 28%
Increase 61%
Major Strengths (% Satisfied) Sentiment towards the U.S. (76%) Availability of trained personnel (66%) Availability of low cost labor (62%) Office lease costs (56%) Housing costs (49%)
Expand 77%
Major Concerns (% Dissatisfied) Corruption (79%) Laws and regulations (62%) Infrastructure (51%)
2011/2012 ASEAN Business Outlook Survey
13
Singapore Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook: • 70% predict a better or much better performing economy in 2011 than in 2010.
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy Much Better 7%
Current Business Climate: • Respondents facing significant financing constraints decreased from 24% in 2010 to 14% in 2011. • Most respondents (83%) do not face higher costs of borrowing. Importance of ASEAN Markets in Global Business: • 67% of respondents report that ASEAN markets have increased in importance to their companies in the past two years. • Most respondents (68%) expect ASEAN importance to increase in the next two years.
About the Same 23%
Better 63%
Figure 2: Growth of ASEAN Importance over Next Two Years 72% 65% 58%
64%
Effectiveness of ASEAN: • 79% of respondents find ASEAN integration important to doing business in the region. • 73% of respondents use the ASEAN FTA. Business Direction and Movement in ASEAN: • 76% of respondents’ companies expanded in ASEAN in the past two years. • 86% of respondents plan to expand in the next two years. Profit Outlook: • 77% expect a profit increase in 2011. • 85% expect a profit increase in 2012. Workforce Expansion: • 67% expect a workforce increase in 2011. • 29% expect an increase of 5% to 10%. • 29% expect an increase of 10% to 15%. • 73% expected a workforce increase in 2010.
FACTORS IMPACTING BUSINESS IN SINGAPORE Economic Conditions: • 92% expect the Singapore economic growth rate to increase. • 94% expect an increase in cost of living. • 91% expect an increase in housing cost. • 87% expect the Singapore Dollar to appreciate against the U.S Dollar. • 48% expect an increase in interest rate.
Worse 7%
68%
37% 27%
28%
29% 22% 8%
More Important 2007
Remain the Same 2008
Figure 3: Profit Outlook 2011
2009
5%
8% 6% 0%
Less Important 2010
2011
Figure 4: Expectations of Expansion of Singapore Economic Growth
Decrease 6%
Contract 8%
Remain 17%
Increase 77%
Major Strengths (% Satisfied) Infrastructure (93%) Stable government & political system (89%) Sentiment towards the U.S. (86%) Laws & regulations (84%) Personal security (84%) Corruption levels (80%) Tax Structure (74%) New Business incentives offered by government (67%) Ease of moving your products through customs (61%) Availability of trained personnel (59%)
Expand 92%
Major Concerns (% Dissatisfied) Housing costs (77%) Office lease costs (58%) Availability of low cost labor (40%)
2011/2012 ASEAN Business Outlook Survey
14
Thailand Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook: • 44% predict a better or much better performing economy in 2011 than in 2010. 54% of respondents predicted a better economy in 2010 than in 2009.
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy Much Better 6%
Current Business Climate: • Respondents facing significant financing constraints decreased from 27% in 2010 to 21% in 2011. • A small but increasing portion of respondents face higher costs of borrowing (34% in 2011, 27% in 2010)
Better 44%
Importance of ASEAN Markets in Global Business: • 66% of respondents feel that ASEAN markets have increased in importance to their companies in the past two years. • Respondents expecting ASEAN importance to increase in the next two years rose from 60% in 2009 to 71% in 2010 and 82% in 2011. Effectiveness of ASEAN: • 79% of respondents find ASEAN integration important to helping their companies do business in the region. • 80% of respondents use the ASEAN FTA. • 61% of respondents use the ASEAN-China agreement. Business Direction and Movement in ASEAN: • 71% of respondents’ companies expanded in ASEAN in the past two years. • 85% of respondents plan to expand in the next two years. • The largest portion (31%) of respondents plans to expand in Thailand. Profit Outlook: • 64% expect a profit increase in 2011. • 81% expect a profit increase in 2012. Workforce Expansion: • 62% expect a workforce increase in 2011. • 33% of respondents expect an increase of 5% to 10%. • 49% expected such a workforce increase in 2010.
FACTORS IMPACTING BUSINESS IN THAILAND Economic Conditions: • 76% expect the overall Thailand economy to expand. • 83% expect an increase in cost of living. • 72% expect an increase in interest rate. • 67% expect the Thai Baht to appreciate against the U.S. Dollar. • 60% expect an increase in housing cost.
Worse 10%
About the Same 40%
Figure 2: Growth of ASEAN Importance over Next Two Years 82% 71%
67% 60% 53%
37% 32%
36% 20% 14% 9% 1%
More Important 2007
Remain the Same 2008
2009
Figure 3: Profit Outlook 2011
3%
4%
1%
Less Important 2010
2011
Figure 4: Expectations of Expansion of Thailand Economic Growth Don’t Know Contract 2% 3% Neutral 18%
Don’t Know 5% Decrease 3%
Remain 28% Increase 64%
Major Strengths (% Satisfied) Sentiment Towards the U.S. (67%) Infrastructure (59%) Housing Cost (58%) Personal Security (58%) Office Lease Cost (57%) Availability of Low Cost Labor (48%)
Expand 76%
Major Concerns (% Dissatisfied) Corruption (88%) Stable Government & Political System (59%) Local Protectionism (50%)
2011/2012 ASEAN Business Outlook Survey
15
Vietnam Report Highlights BUSINESS OUTLOOK
GRAPHS AND CHARTS
World Economic Outlook: • 29% predict a better performing economy in 2011 than in 2010, 59% predict the economy to remain the same, and 12% expect it to worsen.
Figure 1: World Economic Outlook in 2011 in Comparison With 2010 Economy Worse 12% Better 29%
Current Business Climate: • Respondents facing significant financing constraints decreased from 30% in 2010 to 19% in 2011. • The majority of respondents (62%) do not face higher costs of borrowing. Importance of ASEAN Markets in Global Business: • 50% of respondents state that ASEAN markets have increased in importance to their companies in the past two years. • Most respondents (69%) expect ASEAN importance to increase in the next two years.
About the Same 59%
Figure 2: Growth of ASEAN Importance over Next Two Years 67%
70% 72% 70% 69%
Effectiveness of ASEAN: • 78% of respondents find ASEAN integration important to doing business in the region. • 93% of respondents use the ASEAN FTA.
31% 28% 28%
26% 14% 0%
Business Direction and Movement in ASEAN: • 74% of respondents’ companies expanded in ASEAN in the past two years. • 88% of respondents plan to expand in the next two years. Profit Outlook: • 58% expect a profit increase in 2011. • 70% expect a profit increase in 2012. Workforce Expansion: • 74% expect a workforce increase in 2011. • 29% predict a workforce increase of 5% to 10%. • 75% expected a workforce increase in 2010.
FACTORS IMPACTING BUSINESS IN VIETNAM Economic Conditions: • 50% expect overall Vietnamese economic growth to expand. • 83% expect an increase in cost of living. • 78% expect an increase in interest rate. • 41% expect an increase in housing cost. • 7% expect the Vietnamese Dong to appreciate against the U.S Dollar.
More Important 2007
Remain the Same 2008
2009
Figure 3: Profit Outlook 2011
Decrease 12%
0%
2%
0%
Less Important 2010
2011
Figure 4: Expectations of Expansion of Vietnam Economic Growth
Don’t Know 8%
Contract 19%
Remain 22%
2%
Don’t Know 2%
Neutral 29% Increase 58%
Major Strengths (% Satisfied) Sentiment towards the U.S. (76%) Personal security (64%) Availability of low cost labor (59%) Stable government & political system (54%)
Expand 50%
Major Concerns (% Dissatisfied) Infrastructure (73%) Corruption (72%) Laws & Regulations (60%) Availability of trained personnel (56%) Ease of moving products through customs (52%) Housing costs (51%) Local protectionism (42%)
2011/2012 ASEAN Business Outlook Survey
16 Key Findings
• Respondents have moderate expectations for economic recovery, and do not face significant financing constraints or high costs of borrowing. • Companies find ASEAN integration very important and make use of ASEAN trade agreements, particularly the ASEAN FTA. • ASEAN is predicted to continue to increase in importance and business expansion is expected to continue region-wide. • Companies are expecting much higher profits in 2010 and 2011 than they experienced in 2009. • Corruption is a major concern for all ASEAN countries except for Singapore, in which it is a major strength, and in Malaysia, in which dissatisfaction rates with corruption have decreased significantly since 2010. • Expectations for overall workforce expansion are high, though the majority of respondents predict that the numbers of expatriate employees are to remain the same. • Expatriate satisfaction remains high, especially in Thailand and Singapore.
Acknowledgements This report was compiled and published by The American Chamber of Commerce in Singapore. • Editor-In-Chief / Media Outreach – Liyana Othman, Corporate Communication Manager, AmCham Singapore • Editor – Anne-Marie Brooks, Government Relations Manager, AmCham Singapore • Research and Analysis – Molly Ma, Government Relations Intern, AmCham Singapore • Production of ASEAN Outlook Survey Video – Parissa Khayami, Committees & Communications Executive AmCham Singapore would like to thank the following Executive Directors of the following AmChams in the region for their expertise and support: • Jim Swander, The American Cambodian Business Council • Sarah Howe, The American Chamber of Commerce in Indonesia • Fui Soong, The American Malaysian Chamber of Commerce • Jeffrey Woodruff, The American Chamber of Commerce of the Philippines • Judy Benn, The American Chamber of Commerce in Thailand • Adam Sitkoff, The American Chamber of Commerce in Vietnam (Hanoi) • Herb Cochran, The American Chamber of Commerce in Vietnam (Ho Chi Minh) AmCham Singapore would like to thank Citi and Control Risks for sponsoring this survey report. For more details on survey findings, please visit www.amcham.org.sg/aseanbusinessoutlook.
© Copyright The American Chamber of Commerce in Singapore 2011
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South-east Asia: Political, operational and security risk outlook 2011-12 Control Risks is a leading global business risk consultancy specialising in political, security and integrity risk. Since 1975 we have worked in over 130 countries for more than 5,000 clients, including more than three-quarters of the Fortune 100. Through 34 offices worldwide, we enable our clients to succeed in complex and hostile environments.
Introduction With fears of double-dip recession and even sustained stagnation looming over the US and Europe, investors and businesses continue to look to emerging Asia for growth and opportunities. In conjunction with AmCham Singapore’s ASEAN Business Outlook Survey Report 2011/2012, Control Risks presents this overview examining the opportunities and risks of doing business in Southeast Asia in the year ahead. In this section, we provide a qualitative analysis and forecast of key political, economic, regulatory and social developments that may affect existing and new investments in the region. This overview is not designed to be comprehensive, but adds an important perspective by assessing macro-level issues that cannot be captured in the survey but could influence the business environment over the year ahead. Analysis is drawn from a wide range of Control Risks’ country, issue and sector experts, with a view to helping businesses and governments identify emerging trends, and related risks and opportunities.
Indonesia
Having had one of the strongest recovery records – both economic and political – after the 1997-98 Asian financial crisis, Indonesia has again been a stand-out performer following the global financial crisis. It remains the region’s democratic, emerging-market success story, and its resilience amid global financial turmoil since 2008 has underscored the country’s improved economic fundamentals. GDP growth is likely to exceed 6% this year and will probably be even higher next year. After a series of sovereign-debt rating upgrades, investment-grade status seems almost certain by early 2012. Although high-profile corruption cases attract negative media attention, the Corruption Eradication Commission (KPK)’s huge caseload can be seen as a reflection of intensified efforts to combat corruption, rather than an increase in levels of graft. And while doing
business has become only marginally easier, economic stability and increased regulatory certainty in key sectors are contributing to a solid expansion in manufacturing and mining. Having tackled debilitating power supply shortages in 2010, and with steps underway to massively expand ports, roads and rail nationwide, infrastructure development is better set to keep pace with business demand. In this context, investor sentiment remains strong despite emerging threats on the political front. Yudhoyono can be credited with having provided stable leadership as Indonesia’s young democracy puts out deeper roots. However, his seeking consensus on all major decisions frustrates business almost as much as civil society, and old-style ‘crony capitalist’ interests are strengthening their grip on the political scene. Meanwhile, in contrast to robust counter-terrorism efforts, the elite’s weak response to hard-line religious vigilantism is weakening law and order in some areas. Such developments are a reminder that increased political uncertainty lies beyond 2014, when Yudhoyono steps down, but for now the country looks set to remain stable and continue growing strongly.
Thailand The political environment is likely to remain relatively stable over the next twelve months, but uncertainties persist despite the clear election outcome in July. The Puea Thai party will be in a strong position to determine policy after having won an outright majority, while Prime Minster Yingluck Shinawatra has increased her leverage over various factions within Puea Thai. A repeat of the situation in 2008 – when a faction defected and the government fell to the opposition – is thus highly unlikely. Nevertheless, fundamental political divisions will remain a longer-term threat as the military, higher courts and parts of the bureaucracy and royal establishment all seek to undermine the new government. The ruling coalition is unlikely to interfere in military affairs or indict military officers or members of the outgoing administration, meaning that a military coup remains unlikely. Policies such as constitutional reform and a possible amnesty for former prime minister Thaksin Shinawatra (2001-06) are likely to prove controversial, but may be postponed to the latter half of the administration’s four-year term.
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Contracts signed by the previous administration are likely to be scrutinized for corruption or technical irregularities, risking contract renegotiation, cancellations and delays. The direction of policy in key industrial sectors will depend heavily on which faction or coalition party controls a given ministry (portfolios were not decided at time of writing). Meanwhile, there remains the possibility that the elderly, deeply revered King Bhumibol Adulyadej could die; the mourning period and royal transition that would follow would greatly disrupt the business environment. Relations with Cambodia will improve significantly, and negotiations over overlapping claims to oil and gas fields in the Thai Gulf are likely to resume. A new memorandum of understanding (MoU) and revenuesharing agreement is likely in the second half of the administration. Puea Thai’s electoral victory does not improve prospects for a negotiated settlement of the southern insurgency in the next year. Any push towards implementing regional autonomy would be likely to be lengthy, and would face significant resistance from the military.
Malaysia
revenue collection, and has showed signs of greater fiscal discipline – both positives for investor confidence. Anti-corruption efforts continue to appear selective and partisan, rather than focused on fundamental systemic change, but some signs of progress have emerged. Aquino still has the political capital to pursue reforms over opposition, so there remains scope for progress after a mixed first year in office.
Burma (Myanmar)
The military will remain in control over the next year, despite having transitioned to an ostensibly civilian government; former long-standing junta leader Than Shwe will continue to play a dominant role behind the scenes. The senior military leadership will remain stable but vulnerable to infighting. Heads of newly founded political institutions will seek to define their roles and assert the power of their particular institution. Opposition figurehead Aung San Suu Kyi and the National League for Democracy (NLD) may increasingly test the regime’s tolerance. She will take advantage of the government’s current desire to project a more moderate, reformist image, using this to push for more substantial political reforms.
Prime Minister Najib Razak and his ruling Barisan Nasional coalition are likely to tread water until the next election, which is due in 2013 but may be held earlier. Political and economic decision-making will remain focused on poll preparedness. Najib may want to call elections before the leadership elections within the United Malays National Organisation (UMNO – which dominates the ruling coalition) scheduled for next summer. A strong general election win would increase his chances of retaining the UMNO leadership. Pro-Malay policies rooted in the New Economic Policy (NEP) will remain in place, even as talk of easing positive discrimination economic policies continues. Ethnic-Malay opposition to reforms that would limit their economic privileges will be strong; changes in the next year will thus be minor and limited to areas that would boost services.
Suu Kyi is likely to draw large crowds at public appearances; such events and opposition pressure create scope for security incidents, a renewed crackdown or the reimposition of her house arrest. Any of these events would almost certainly extinguish any prospect of US or EU sanctions being lifted, and prevent even a partial inclusion in the EU’s generalized system of trade preferences in 2012, which is otherwise conceivable. Persistent insecurity will continue to pose a significant risk to major infrastructure projects in areas controlled by ethnic-Karen and Kachin rebels. Peace talks may temporarily suspend hostilities, but a more lasting solution still appears distant.
Najib will establish a committee to study the electoral system, in a concession that will partially ease tensions over demands for sweeping political reforms. Changes to the election process are likely to be very minor, and will not undermine the ruling coalition’s dominance. Meanwhile, judicial proceedings for the trial of opposition leader Anwar Ibrahim are unlikely to destabilize the government or the security and operational environment. Further rallies calling for electoral reform are a more likely source of (limited) disruption to business than Anwar’s trial.
This article is produced by our team of South-east Asia political and security risk analysts. For a more detailed analysis for individual countries, subscribe to Control Risks’ Country Risk Forecast (CRF) online service. Country Risk Forecast gives you up-to-date analysis of the latest, political, operational, security, terrorism and travel developments in 200 countries worldwide. We analyse and forecast the effects of these developments on business environments and how they can affect your operations, assets, travelers and supply chain.
Philippines
After more than a year in power, President Benigno Aquino’s administration continues to promise change but provide few indications that it possesses a longer-term agenda. Economic growth in the first quarter of 2011 was an annualized 4.9% in year-on-year terms (second quarter figures were not available at the time of writing); full-year growth is likely to be of a roughly similar magnitude, well down from the 7.3% posted in 2010. While the economy is still growing steadily and has considerable unrealized potential, it remains susceptible to external shocks and overly dependent on remittances from Filipinos working overseas. More than a year into office, public confidence in Aquino remains relatively high, but the president’s approval ratings, particularly in poorer rural areas, have begun to decline amid doubts over his ability to deliver on the reform agenda outlined in his campaign promises. His administration has had some success with programs to improve
In-depth forecast, analysis and advice
To request a bespoke assessment or to gain added insights into the projections and analysis of political developments and their commercial implications, together with an explanation of the reasoning behind it, subscribe to Control Risks’ Political Risk: Insight, Monitoring, Expertise (PRIME) services.
Contact us Robert Boyd, Managing Director, South-east Asia E: robert.boyd@control-risks.com Dane Chamorro, Director, Global Risk Analysis, Asia-Pacific E: dane.chamorro@control-risks.com
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Managing corruption in South-east Asia As respondents to the survey have indicated, corruption is a significant barrier to businesses operating in the region, and as the macro-level outlook suggests, this will remain the case over the coming year. A growing number of U.S. corporates are neither missing out on deals nor breaking the law – instead, they are mixing realism and transparency with a healthy dose of ingenuity.
Is it possible to do business without resorting to corruption or bribery? Control Risks has been working with clients to devise creative yet practical strategies to combat corruption in South-east Asia. Common among the experiences of companies operating sustainably in corruption-rife environments has been the patience to suffer a loss of business in the short term without resorting to making illicit payments or gestures, in an attempt to distribute products, gain unfair competitive advantages, or win contracts and licensing agreements. It is important to note that the strategies which we outline below are not ‘one size fits all’. Companies need to be prepared to adapt and modify these strategies to suit their specific circumstances and environments.
Strategies for combating corruption Phased zero tolerance Identify and focus on the greatest areas of exposure: big tenders or perhaps daily small requests from customs officials. Just saying ‘no’ is tedious, disruptive and requires deep reserves of patience, but it can also be surprisingly effective. Local legislation – not just the FCPA – criminalizes corruption, and corrupt officials might be unwilling to escalate your failure to pay bribes to their bosses. However, if used in isolation, this strategy may have a debilitating impact on your business.
Bribe-free relationship building Find good partners from the outset. Sometimes finding a ‘good’ partner can involve a measure of Machiavellian creativity. A client, seeking an agent in Malaysia, was in despair after sifting through a rogue’s gallery of incompetence and illegality. Eventually we helped them find an agent whose highly partisan news publications had been created to enable them to curry favor with the ministry to which they were tendering. No money changed hands – just plenty of tedious copy.
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Collective bargaining
Seeking the region’s real business people
Collective bargaining is a very powerful tool. For example, an enterprising business on a new Vietnamese industrial park successfully formed a working group to rebuff the state-owned utility company that was threatening to cut gas supplies to the park. Although this is not an option for all companies, bargaining is often most efficient when it is accompanied by the clout of your own government. One client, exasperated with a Vietnamese local authority’s rent-seeking requests on a concession renewal, passed the bureaucratic element of the negotiation to their government’s trade mission. Another large US firm uses the full force of US foreign policy clout to entreaty the governments and officials of prospective markets to abide by their anti-corruption rules, “if you want us in your country”.
South-east Asia has its fair share of corruption, but it also has some operators with exemplary behavior. Good local partners are out there, and their ingenuity, competence and/or professionalism can force the local authorities and officials to take them seriously. They want to make money, work with US firms and form long-term partnerships, and corruption therefore costs them. You can help them using creative, patient, considered and multi-faceted anticorruption procedures, and they can be very loyal in return.
Know your stakeholders and respond creatively Work out who you are likely to be dealing with and determine their agendas. Political figures and officials who vocalise their anticorruption credentials can be particularly powerful allies. This tactic can be especially useful when responding to a shakedown that is accompanied by threats. One client, facing a paralysing concession revision on spurious legal grounds after they refused to pay a bribe to the administering transport authority, commissioned Control Risks to conduct a threat assessment and provide advice about mitigation strategies. The authority in question was struggling to complete a ‘go green’ initiative that was a central tenet of the leadership’s election platform. With the next election looming, our client offered to implement green upgrades across their concession and invited the authority’s leaders to take the photo opportunity – and the credit. The rent-seeking stopped.
Contact us Steve Wilford, Director, Corporate Investigations, South-east Asia E: steve.wilford@control-risks.com Rupert Evill, Associate Director, Corporate Investigations, South-east Asia E: rupert.evill@control-risks.com
Conclusion What ties all these strategies together is the fact that the companies that deploy them have decided to make a particularly applied response to the threat of corruption in this region. Like most US firms, they have elegant anti-bribery policies sitting on their intranet, but they also have gone much further. In effect, they have turned strategies of FCPA compliance into a competitive advantage. This article is written by Steve Wilford and Rupert Evill, who have extensive experience in assisting senior leadership teams and the legal and regulatory departments of leading multinationals in developing strategic anti-corruption policies down to assessing the integrity of key business personnel, partners and operations of companies across a spectrum of industries. They also have experience in advising companies in confidential investigative and problem-solving cases.
2011/2012 ASEAN Business Outlook Survey
Report compiled by The American Chamber of Commerce in Singapore In cooperation with The American Cambodian Business Council The American Chamber of Commerce in Indonesia The American Chamber of Commerce of the Philippines The American Chamber of Commerce in Thailand The American Chamber of Commerce in Vietnam (Hanoi) The American Chamber of Commerce in Vietnam (Ho Chi Minh City) The American Malaysian Chamber of Commerce
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