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Thai-Norwegian Business Review 2014 – 01

Thai-Norwegian Chamber of Commerce

Norway-Asia Business Summit 2014 Special Issue


Contents President’s foreword

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Cover story: The Summit

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Yara - Feeding the Future

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Sustainable Transportation for the Future

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Aibel Delivers Again

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Is it Worth the Risk?

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Can Corruption be Stopped?

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Education - Can we keep up with the Demand?

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China - Is the Steam running out of the Global Growth Locomotive?

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Reimagining India: Asia’s next Superpower?

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The Bicentenary of The Norwegian Constitution

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AEC - Getting ready for the 500 million people marketplace

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All Praise Global Warming: Opportunities and Challenges as the Northeast Passage Thaws

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Accelerating the hunt for mobile talent

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VIP Reiser: Assiting Norwegians with Travel Needs

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Thailand’s economy at a glance

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Getting to know the members

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Dr. Kristian Bø Honoured

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Membership Directory

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Editor: Thitikul K. Opdal Advertising: Anders Magnusson Journalists: Eric Baker, Ezra Kyrill Erker Graphic Design: Graphics-Related Co., Ltd. www.norcham.com

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President’s foreword Life is for

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The current and the next issue of Thai-Norwegian Business Review are entirely dedicated to the Norway-Asia Business Summit 2014. The summit is the most important event in the Chamber’s history and we are proud to have been chosen to host it here in Thailand and in Myanmar this year. We have put a significant amount of resources and efforts into securing a high-quality programme with close to 40 speakers covering subjects of interest across Asia as well as in Norway. Norway-Asia Business Summit is the single most important forum for Norwegian industry in Asia. The conference hosts key business leaders from Norway and the region, international experts on the development in Asia as well as official representatives from Norway. One of the reasons behind our efforts is to make sure that Norway-Asia Business Summit continues as the annual meeting-place for Norway in all of Asia where Norwegian business policies towards Asia are formed, co-ordinated and communicated. It will be a pleasure for me to pass the mantle onto 2015’s organiser of the Norway-Asia Business Summit, to be chosen by the Executive Committee of Norwegian Business Associations in Asia at the end of 2014’s summit. On a different note, one of the questions I am often asked by investors in both Asia in Norway is: “Why Thailand?â€? On 1 April 2014, I attended an important milestone event which took place on Thailand’s Eastern Seaboard; the celebration of the completion of the Troll A 3&4 project. And let me tell you, this was no April fool’s joke! The largest module, M11, is has been built at Aibel’s yard in Laem Chabang in Thailand. M11 is a compressor module that will expand the capacity of the Troll A platform in the North Sea. The two new compressors will enable gas production from the Troll field right up to the year 2063. The project couldn’t have come more timely as developments in Russia continue to threaten the flow of gas to Europe. This is the first time such a complicated project for the Norwegian continental shelf has been built outside of Europe. The commissioning company, Statoil, was full of praise for the work done by Aibel. As one Statoil executive explained: “This project is the Rolls Royce version of a gas compressor. We couldn’t have been more pleased with the precision and super high quality deliveredâ€?. That answers the “Why Thailandâ€? question. It makes me a proud to be a Norwegian working with highly skilled and dedicated Thai workers and it strengthens my belief that Thailand still has lots to offer Norwegian companies. Vibeke Lyssand LeirvĂĽg President Thai-Norwegian Chamber of Commerce

Thai-Norwegian Business Review

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Cover story

The Summit

This issue of Business Review is intended to provide a backdrop for the presentations at Norway-Asia Business Summit 2014. As a consequence, the articles have been written with a broader geographic coverage than what would normally be the case for this magazine. ASEAN and ASEAN Economic Community will receive wide coverage at the summit; so will the powerhouses China and India, a combined market place of 2.6 billion people which will affect economic development throughout Asia. The magazine also looks at endemic challenges for the world such as scarcity of food, water and energy as well as global warming and global transportation efficiency. Education both in terms of quantity and quality will be raised at the summit. Business Review has researched this subject on an Asian scale.

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Finally, when writing about Asia, it’s impossible not to mention corruption which has almost become institutionalised in some countries. World renowned academic and expert in corruption, Dr. Robert Klitgaard, shares his view on the subject and suggests solutions for solving this deeply entrenched challenge affecting many of the countries in the region. Read on and find out more on the topics covered by the summit.


Yara - Feeding the Future By Eric Baker

T

he future for Asia undoubtedly looks bright, with several pundits already dubbing this the “Asian Century”. But it will not be without challenges. The global population is expected reach 9 billion by 2050, with much of that centred in this continent. These people will need food and water, even as climate change makes weather more severe and thus harder for farmers to cultivate crops on a limited amount of arable land. And energy demand is likely to outstrip supply in many growing Asian economies as they develop. Sustainability must be the priority if Asia is going to continue to develop as a successful, stable region. As for sustainable food supply, population growth is expected to make world food demand rise 70% by 2050. The catch is that only 10% of the world’s land is used for agricultural production, and it cannot sustainably or reasonably be expanded much beyond that level. There are serious constraints on the use of the remaining land reserves, such as lack of water, land quality, sparse population, preservation of forests and other environmental concerns. Most of the soils best suited to farming are in forests, and while these areas are limited, they are also massive stores of CO2. Yara International, the market leader in mineral fertilisers, believes it has the answer. In order to preserve CO2 stores and protect biodiversity, they recommend keeping the existing allotment of arable land to grow crops for future demand. If the amount of land on which to grow crops is fixed, and the population is expected to increase by 2 billion over the next 36 years, then agricultural productivity has to improve. Mineral fertilisers are made from naturally occurring raw materials (nitrogen is extracted from the air and combined with hydrogen from natural gas to form ammonia, whilst phosphate and potash are extracted from mined rock) containing nutrients that are transformed by industrial

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processes into forms that are available to plants. Fertilisers supplement natural supplies of nutrients so the crop can reach its full growing potential and produce optimum yields. Yara estimates on average, the use of mineral fertilisers doubles the yield of crops in countries where fertilisers are properly used. Yara started producing fertilisers in 1905 when the global population was only 1.7 billion. Since then, crop nutrition from mineral fertilisers helped reduce starvation and improve food safety, along with plant breeding, plant protection products, cultivation techniques and irrigation. The world’s population doubled from 1960 to 2000, and so did food production, utilising only 10% more land. “Because mineral nitrogen fertilisers provided about half of the nutrients in harvested crops, roughly 40% of the world’s dietary protein supply in the mid-1990s originated in the Haber-Bosch synthesis of ammonia,” said Prof. Vaclav Smil from the University of Manitoba in a World Bank paper, referring to the core process used to make mineral fertilisers. But even if Yara is confident it has the answers, the World Economic Forum (WEF) estimates too many farmers in developing countries cannot access or use proven technologies or practices, in part because of inadequate access to financing. The WEF in its New Vision for Agriculture set a goal to increase agricultural production by 20% and decrease greenhouse gas emissions and rural poverty by 20% over a decade. Yara recognises that developing countries need to raise their investments in agriculture substantially. The World Bank estimates that return on investment for agricultural R&D is 43%, with the OECD noting that Brazil, China and India have some of the highest investment levels for agricultural as well as some of the highest economic growth rates, helping to reduce poverty. Yara knows the key to increased yields is not just constantly increasing the amount of fertiliser to cropland. It conducts field tests with farmers on their plots to find out the optimum level of fertiliser and when to add it. Yara focuses

In the next 40 years we will need 70% more food. But there is only 7% more agricultural land available.

on the crop’s requirements, based on what the plant needs and when it will uptake. The company also conducts rigorous laboratory research and is the first to offer a carbon footprint guarantee, ensuring its fertiliser produced with a N2O catalyst at Yara factories will cut emissions from the production of nitrogen fertiliser. Agriculture both drives global warming and is affected by it. Agriculture is responsible for about one-third of the world’s greenhouse gas emissions, with half of those coming from land use change, typically turning forests into farmland. Higher temperatures decrease yields and encourage pest and weed proliferation. But increasing yields and efficiency can decrease emissions as soil can act as an effective carbon sink through more accurate use of fertilisers, less soil disturbance, better irrigation, and crop strains bred for locally beneficial traits and higher yields. About 1% of the world’s arable land is degraded every year by drought and desertification. The remaining pockets of unused arable land mostly reside in South America and Sub-Saharan Africa, as 95% of the arable land in Asia is already utilised. Further underscoring the need for improving crop efficiency in Asia is the prediction that without water productivity gains, a doubling of fresh water withdrawals for crops will be required by 2050. Agriculture is already responsible for 70% of the global fresh water withdrawals. Yara believes applying soluble fertiliser along with drip irrigation is the most efficient way to deliver water to plants, reducing current water losses by 30-70%. Yara’s philosophy is developing crop nutrition solutions to increase productivity on existing farmland, thus

Dr. Joachim Lammel will talk on the world’s food crisis at the summit. Photo: Yara

avoiding land use changes, one of the main sources of CO2 emissions. As for sustainable energy supply, the projected demand increases look foreboding. The McKinsey Global Institute forecasts that developing countries will generate nearly 80% of the growth in world energy demand between now and 2020, with China representing 32% and the Middle East 10%. An MIT study forecasts that worldwide energy demand could triple by 2050. Asia will be responsible for the bulk of this demand. In the 1970s, North America consumed twice as much oil as Asia. In 2006, for the first time Asia’s oil consumption exceeded that of North America. China’s oil consumption doubled from 1996-2006, reaching almost 10 million barrels per day by 2011, or half that of the US. If China keeps growing at 8% a year, by 2031 the per capita income of 1.45 billion Chinese will be the same as the US’s in 2004. China has only one car for every 100 people now, but as it reaches American income levels, if it copies American consumption, it will have three cars for every four people, or 1.1 billion vehicles, which would dwarf the total world fleet today of 800 million vehicles.

Thai-Norwegian Business Review

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Continued from page 9

India’s oil consumption is one-third that of China’s, but India’s new focus on economic development will increase its demand for oil. Some observers predict half the total growth in oil consumption over the next 15 years will come from Asia. It is clear that a sustainable solution cannot be based on continued reliance on fossil fuels. Not only are fossil fuels a finite resource, the effect they have had on developing economies is suspect. Dependence on oil has caused several price shocks that depress economic growth and fuel higher inflation rates, trade deficits and unemployment. Conflicts have frequently erupted the past four decades over the control and price of oil. As China and India seek new energy supplies to fuel their development, oil and natural gas are destined to become more expensive. The price of a barrel of oil skyrocketed from less than US$10 in February 1999 to over $100 in March 2008 to $147.27 in July 2008. OPEC’s own studies show the perils of relying on oil. Between 1965 and 1998, the economies of OPEC members contracted by 1.3% a year. Oil-dependent nations also fail to provide for their poor: infant survival rates, malnutrition, life expectancy, literacy rates, and school attendance are all worse in oil-producing countries than non-oil producing countries. Oil creates very few jobs, and by improving a country’s exchange rate oil exports distort the economy. Few oil-rich countries had the fiscal discipline to invest prudently, though Norway and Canada are notable exceptions. The elephant in the room concerning fossil fuel-based energy supply is climate change. Though it will undoubtedly take governments years to unwind fossil fuel use from their economies, it is now widely accepted that climate change is caused in some large part by human activities, mainly through the use of fossil fuels. Professors Robert Socolow and Stephen Pacala, the former in engineering and the latter in ecology, both at Princeton University, together lead the Carbon Mitigation Initiative

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Thai-Norwegian Chamber of Commerce

at the school, a consortium that attempts to design scalable solutions for climate change issues. They first predictedin a paper published in Science in 2004 that human beings can emit only so much carbon into the atmosphere before the buildup of carbon dioxide reaches a level unknown in recent geologic history and the earth’s climate starts to producing extreme patterns (violently unstable weather, glaciers melting, and prolonged droughts). The scientific consensus is that the risk of things going haywire grows rapidly as CO2 levels approach a doubling of the concentration of CO2 that was in the atmosphere before the Industrial Revolution. If we do nothing, and global CO2 emissions continue to grow at the pace of the last 30 years for the next 50 years, we will pass the doubling level — an atmospheric concentration of carbon dioxide of 560 parts per million — around midcentury. Right now the level stands at 400 parts per million.

Fertilisers play an important role in harvesting energy and capturing CO2. They stimulate plant growth, and the solar energy stored in the plants may be five to 10 times higher than the energy needed to make the fertilisers. Growing plants capture CO2 in their biomass. If this biomass is used as an energy source to replace fossil fuel, fertiliser can help reduce global greenhouse gas emissions. Proper fertiliser input offers optimum yields and produces high amounts of crop residues, which contribute to organic matter in soil. Norway is ahead of the curve on much of these recommendations. Hydropower is prevalent there and carbon capture and storage work already underway. Norway is also a pioneer in innovative renewable concepts such asa salt power generator. The country is on pace to have two-thirds of its domestic energy usage derived from renewable energy in 2020, which would be the highest in the EU. Norway is in

a position to provide consultation and know-how to much of Asia on energy efficiency and renewable energy. Thailand has enthusiastically jumped into the carbon credit trading market. China has 17 nuclear power reactors with 32 more under construction, part of a desperate effort at smog control. India put a major effort into wind power capacity. Meeting world food and energy demand are daunting prospects. But the good news is experts are optimistic both can be accomplished by following sustainable practices in these fields. The Norway-Asia Business Summit will have separate sessions on meeting future food demand and Asia’s energy outlook on April 25.

The good news is the pair is optimistic that the world can stabilise atmospheric carbon levels with existing scientific, technical and industrial know-how. The question is if global leaders possess the political willpower to make these changes into law. Professors Socolow and Pacala call for a diversification of energy supplies that emphasise environmentally friendly sources abundant in most developing countries.They also urge energy efficiency, such as doubling the fuel efficiency of cars to 60 miles per gallon, and doubling the efficiency at coal-based power plants. More prescriptions include more emphasis on solar, wind, biomass and nuclear energy, switching from coal to natural gas at some power plants, using carbon capture and storage technology, and stopping deforestation and using conservation tillage on agricultural soils. Governments are recommended to pass incentives to encourage many of these behaviours and switching, as current market forces are not going to embolden many companies to invest in some of these technologies unless they know their efforts will not be undercut in a few years by falling fossil fuel prices.

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Sustainable Transportation for the Future

By Eric Baker

M

ost people think of the ocean as something you fly over, or take a pleasure cruise on, not as a means for transporting goods. Yet 90% of global shipping is through maritime, and this level is not likely to decrease anytime soon.

There are 100,000 working vessels on the sea, and maritime shipping has quadrupled in size since 1970. The leading shipper Maersk has revenue on par with Microsoft. This is why DNV GL is trying to make marine transport safer for both shippers and the environment. Some 25% of the world’s ships are classed with DNV GL, meaning the company is classified to service these ships in ports around the world. For example, Thailand does not have any service that can repair its ships outside of the country, so it contracts with DNV GL to survey its vessels annually, as well as every five years in dry dock. The reason maritime shipping is unlikely to decrease is because it is cheaper and more environmentally friendly than the alternatives of truck, rail or aviation. A 2009 study by the UN’s International Maritime Organization showed that CO2 emissions for maritime shipping are considerably lower than truck and rail transport, making up only 3.5% of the global total despite being used for 90% of shipping, and they are astronomically lower than aviation’s emissions. “Think of it this way,” said Andrew Westwood, senior vicepresident and business development manager for maritime in Asia Pacific and Middle East for DNV GL. “If you put a truck on a road and try to push it with your hands you couldn’t move it. But you could put five trucks on the water and push them because there is less friction.” DNV GL also tries to improve risk management by helping countries develop a smart logistics strategy. Both environmental and practical concerns play a role in the counsel it provides.

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Thai-Norwegian Chamber of Commerce

“When a country is developing, often little thought is put into transport systems,” said Mr. Westwood. “Choosing trucks for transport is easier. You build a road, import vehicles, it’s the easy thing to do, and before long, you have gridlock. Our goal is to give countries another option.” “Sea levels are rising; global warming is a fact. Two of the countries that have been most affected are Vietnam and Bangladesh because of they are low-lying countries near the coastline. If their solution is to build more coal-fired power stations and put more cars and trucks on the road, this will be a disaster. “The World Bank reported Vietnam has already lost a significant amount of arable land in the Mekong Delta because of sea level rises. Some 70% of transport in Vietnam is by road. If you look at the country of Vietnam, which is long and thin, hugging the sea, it would be easy to introduce more maritime shipping there.” As the economies of Southeast Asia keep growing, so do their transportation needs. Mr. Westwood sees 14-15% annual growth in transportation needs in Vietnam and Myanmar. The latter, which recently opened up its economy after decades of isolation, is poised for explosive growth. “Myanmar has many navigable rivers, as does Vietnam,” he said. “You also need to use rail in these countries. Of course you still need some roads—we are not trying to deny the importance of roads in getting products and people to specific places—but it has to be a balance. There are reports now in China of 100-kilometre-long traffic jams.” China is trying to build a rail network to Myanmar and a few of the ports it is constructing there. Mr. Westwood views this as wise, given the likely increases in transport and power demand. DNV GL estimates if a Southeast Asian country’s GDP grows at 6% annually, its transport and power demand will rise at a minimum of double that rate per year.

Most people think of the ocean as something you fly over, or take a pleasure cruise on, not as means for transporting goods. Yet 90% of global shipping moves by sea and this level is not likely to decrease anytime soon.

Because of the promise it sees in the region, DNV GL set up a clean technology centre in Singapore with the goal of providing green energy and transport options to ASEAN nations. Singapore’s ambition is to become a hub for renewable, clean energy, and as such it is working with DNV GL to develop sustainable alternatives for local governments. Thailand has room to improve, as logistics costs make up over 20% of GDP here, well above the global average, said Mr. Westwood. But the country needs to commit to using more rail for transport, and it has not upgraded its rail infrastructure in decades. Part of the problem with roads is that much of the allocated money for them gets siphoned off into powerful interests’ pockets, he said. But maritime shipping is still cheaper, more efficient and less harmful to the environment, added Mr. Westwood. Sustainable shipping is now a topic, as most ships use bunker oil, which has been described by many as coming from the dregs of the oil refining process. Even though maritime shipping emits one-tenth the CO2 of trucking and one-thousandth that of aviation, there is a push for more liquefied natural gas usage, said Mr. Westwood. The journalist Rose George noted the 15 largest ships on the

Andrew Westwood, DNV-GL will talk on modal transport at the Summit extension in Yangon on 28 April

sea emit as much CO2 as all the cars on the planet, so this is one trend for the maritime shipping industry, added Mr. Westwood. Besides lower fuel consumption, another emphasis is on reducing accidents and spills, for obvious reasons. Mr. Westwood sees maritime continuing to make up 90% of the global share of shipping, with more focus on Ro-Ro ships in Southeast Asia. These roll-on/roll-off ships are designed to carry trucks, trailers and railroad cars that can be rolled on and off of vessels without the use of a crane. In fact, increased use of Ro-Ro ships was part of the 2010 ASEAN Connectivity agreement. He is encouraged about the potential of maritime transport in Southeast Asia, pointing to the success of the Asian Development Bank-sponsored Highways of the Sea project in the Philippines. Mr. Westwood said the programme provided a clue as to what can be accomplished in terms of bringing down the price of transport.

Thai-Norwegian Business Review

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Painted by

Aibel Delivers Again

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The M11 topside module for Troll A on the Norwegian continental shelf delivered by Aibel to Statoil on 1 April 2014. Photo: Aibel

Aibel in Thailand have delivered another large topside module. This topside will go to Haugesund in Norway for 5 days to pick up a pedestal crane boom and then directly to offshore for installation on the Troll A topside. “Statoil is the major oil and gas operating company on the Norwegian Continental Shelf and Troll A is the single largest source of income for Statoil as a Company and Norway as an oil and gas exporting nation. Troll A is delivering approximately 40% of the total Norwegian gas export to Europe with a design capacity of 120 mill m3 pr day. With this new module this export is secured for future generations. So, the importance of this Project and the new compressor module M11 is evident” states Mr Knut Bratus Vice President Project Management at Statoil.

DecorAtive PAintS

Protective coAtingS

MArine coAtingS

PowDer coAtingS

The M11 compressor module is a large and complex module built by Aibel in record time in Thailand. The contract between Statoil and Aibel for the TPC34 project was signed 20 October 2011 in Oslo. Fabrication of the M11 compressor module was later agreed to be moved to Thailand due to challenges with fabrication in Poland. The fabrication commenced 14 January 2013 and 14½ months later was delivered mechanically complete. The module weight is approximately 3,800 tons. “To achieve this in such a record time with no injuries and to the correct quality is a major achievement” stated Mr Stig Jessen EVP Field Development at Aibel. “This type of topside is a the top end of the business and is the future for Aibel In Thailand” states Mr Jim Ryan, Managing Director for Aibel in Thailand

Thai-Norwegian Business Review

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Is it Worth the Risk?

By Eric Baker

A

s economies open up around the globe, investors are often eager to rush in to reap the rewards before competitors take advantage. But to be successful in a new market, Norwegian Risk Consulting International (NRCI) believes a company need to be aware of the obstacles before investing in a new market.

“This does not mean we want to scare companies away from investing,” said Arne Elias Corneliussen, the founder and chief executive of NRCI. “On the contrary, we believe if you complete comprehensive risk assessments, your chances of business success will be greater, meaning more locals will have jobs and more money will get pumped into the local economy.” Mr Corneliussen is on a fact-finding mission to the region in advance of NRCI’s annual conference in Oslo on Oct 23-24 this year. The focus in 2014 is Southeast Asia. He is bullish on the region in particular because it has a great strategic location between Africa and East Asia, making it ideal for transport and shipping industries. In addition, more of the typical sectors such as fisheries, tourism and even shipbuilding hold potential in the region. More specifically, NRCI is seeing heightened interest from clients in Myanmar, easy to understand as the potential of a country with a population of 61 million just now opening up is mouth-watering, he said. “We are seeing education reform in Myanmar and the foreign banks are starting to arrive, which we consider positives,” said Mr. Corneliussen. “But people need to realise Aung San Suu Kyi might not be allowed to become president according to Article 59F of the Constitution. And there are still major unresolved issues there with ethnic conflicts between the government and hill tribes as well as Muslims. And the Rohingya are still being denied citizenship. But President U Thein Sein appears bent on reform, so we are upbeat.”

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Thai-Norwegian Chamber of Commerce

Vietnam is also tantalising to investors, as it has a population of 90 million and fairly cheap labour. More ports are being built and shipbuilding and maritime activities are starting to take off, he said.

“It’s important that we stay up to date on new legislation, taxes that may affect businesses, rules on foreign investment. You need to be constantly curious, but you also need to stay humble. And humble is a trait we recommend our clients look for in local partners.”

“Laos is more like an early stage society in terms of business,” said Mr. Corneliussen. “Change happens very slowly there and the country still has a long way to go. But Cambodia looks like it is backtracking a little bit.”

He also credited himself with having a good filter to parse when people were telling him something useful. For example, while Mr. Corneliussen accepts that the struggle in Thailand is serious and bitter, he said analysts should be wary of calling it a crisis. Societies are very resilient, he said, even ones enduring much more intractable problems than Thailand, so he doesn’t think much of folks predicting a sea change here.

For Thailand, he believes the country will eventually make its way through the current stalemate, but it will take time as the People’s Democratic Reform Committee really wants political change.

Further afield, he believes China will continue to grow but at a slower pace than its breakneck speed the past two decades because it needs to reform its system. Mr Corneliussen has already seen first-hand all the investment and infrastructure spending China is pouring into Africa to keep its economy chugging. This relationship is one reason why he is convinced Southeast Asia’s location is so strategically vital.

Companies need to be aware of obstacles before investing in new markets Arne Elias Corneliussen of NRCI on the move. Photo: NRCI

“There are two great risks to this process,” he said. “One is if the red shirts decide to attack the protesters. Another is if the police intervene and try to kick out the protesters. The police seem content to remain on the sidelines for now. But having Thaksin pulling the strings from abroad is not healthy for the country. The key is for Thailand to get back on track in time for the ASEAN Economic Community so it doesn’t get left behind.” Every country is always going to advertise itself as a perfect investment destination. NRCI provides value to clients by testing government claims and trying to find real information, which can be difficult in a region known for saving face and putting a positive spin on events.

The company accomplishes this by setting up networks with reliable local contacts and talking with as many locals as possible to assess the risks on the ground level. While on fact-finding missions, NCRI will meet with a range of businesses, clients, government officials and locals in the area to ascertain credible risks. “A lot of companies are interested in the security situation in the countries where they are considering investing,” Mr. Corneliussen said. “But in addition to physical security, they want to know how secure the institutions are should they expend the effort to develop high-level contacts. For this reason and a few others, one of our primary suggestions is to have a local partner with a long track record in the industry. This guarantees your position is sustained even if there is a new election, cabinet, etc.”

Another is the Strait of Malacca, which he dubbed the most important narrow stretch of water in the world because of its significance to shipping lines. “While piracy has decreased in East Africa, levels have not been tamed in the strait,” he said. “This ties into terrorism, which is our primary risk for Southeast Asia, as piracy sometimes is connected to religious extremism that fuels much of the terrorism in the region. In Indonesia, the Philippines, Bali, even southern Thailand, we are seeing a continuation of terrorist acts. For India, he maintained ethnic conflicts had delayed much needed economic reforms. Because India’s economy was a few steps behind its peers, Indian business owners want to keep their position amid competition and some have taken protectionist stances. These companies will have to adapt, he concluded.

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Can Corruption be Stopped?

By Eric Baker

I

n some regards, it may seem an in apropos time to discuss the endemic corruption in Thailand. The political structure is deadlocked as both sides threaten each other, and the economy is stagnant as the caretaker government cannot use state funds to drive investment projects.

On the other hand, one of the reasons the protesters say they are not backing down is schemes such as rice pledging, which pays farmers or millers perhaps 50% above the market price for paddy, and the One Tablet per Child scheme, both of which are alleged to be riddled with corruption and lack the transparency expected from government programmes. Thailand is not alone in Asia in this regard. Only one-third of the countries in Asia-Pacific included in Transparency International’s Corruption Perceptions Index for 2013 received a passing grade of 50 out of 100. Singapore, Hong Kong and Japan remain leaders in the region, but while Cambodia, Myanmar and Laos remain the laggards in the region, the latter two showed great improvements recently. Unfortunately, Thailand dropped 14 spots to 102nd out of 177 countries in the index, the biggest dip in Asia-Pacific. A poll of Thais by Abac in July 2013 revealed that 65% of Thais were willing to accept corruption if they also benefited from the activity. The cost of corruption is unquestionable. The World Economic Forum estimates corruption costs equal at 5% of global GDP, while the World Bank projects bribes paid per year top US$1 trillion. In Thailand there has been no shortage of anti-corruption initiatives and organisations created. The problem is they don’t seem to have any effect. Thailand has the National Anti-Corruption Commission, the Anti-Corruption Network, the Assets Examination Committee, the Anti-Money Laundering Office, the Election Commission, the Office of the Ombudsman and the Office

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There are other uses for social media. Social innovation camps convene experts in social solutions with software designers and developers to mobilise innovations that can lead to social change. These camps have seen some success in Europe.

of the Auditor General. All are well-funded and are complemented by public awareness campaigns. There are also regularly scheduled seminars on corruption in Thailand and how to deal with the problem. Prof. Robert Klitgaard, an internationally recognised consultant on corruption and institutional reform, reckons this disconnect between effort and result is because “having state-of-the-art laws does not guarantee their implementation”. He cautions that both institutional and personal approaches are needed for the fight against corruption in Thailand.

The website “I Propose” in Mexico City encourages the public to solve social problems by listing difficulties and asking for practical solutions via Twitter, Facebook or its blog. Thailand could develop its own version of this site, says Prof. Klitgaard.

When analysing corrupt systems, Prof. Klitgaard writes in his paper Ideas for Improving Governance in Thailand, The key is to focus on systems and not individuals. First, conduct one-on-one interviews with leaders of companies active in these parallel systems. Ask them not to name names but to analyse how the parallel systems work. Do the same thing with some key government officials. It is a remarkable truth that people speaking confidentially and one-on-one can through careful questioning reveal how the parallel systems work—and suggest ways to make the preventive measures work better. But individuals also need to be engaged if real change is to occur, adds Prof. Klitgaard. Simply building capacity and creating new laws is not enough. Citizens need to be surveyed, and he points to Ciudadanos al Día in Peru as an example where a private agency rather than the government customised a survey to measure satisfaction with government agencies at national and local levels. Press coverage of the agencies the public is least satisfied with can pressure governments to work for change. In the same vein, the concept of face is quite important in Thailand and around Asia. Social media can play a major role in the reporting of corruption and shaming of individuals and institutions involved. Being publicly named for a corrupt activity could carry more of an impact in Thailand, though this effect is blunted somewhat by the

What does it cost society and can it be stopped?

country’s punitive defamation laws, as well as the Computer Crimes Act. Defamation is a criminal act in Thailand rather than a civil case as in the West, and the truth is not a defence against defamation, as the charge merely measures damage to reputation. The Computer Crimes Act of 2007 severely censors freedom of expression on the internet, and Thailand was rated “not free” in a Freedom House 2011 report on internet freedoms. Still, Bangkok was ranked as the city with the most Facebook users in the world a few years back, so social media continues to hold great promise for Thailand in any fight against corruption. The site www.ipaidabribe. com, started in India and now operational in 12 countries, crowdsources reports of small-scale bribery and corruption. Internet databases in Romania, Russia and Kenya document bribes, non-transparent procurement procedures, or state budget spending, all eventually working with governments to monitor or counter corrupt public officials, says Prof. Klitgaard.

While Prof. Klitgaard is exceedingly optimistic about improving corruption in Thailand, Mr. Teera Phutrakul, chairman of the Thai Financial Planners Association, is frank about what the country faces. Mr. Teera, in an opinion piece in Bangkok Post on March 3, notes there are two types of corruption, and both are rife in the kingdom—public sector and bureaucratic corruption. In most cases, public sector corruption is a symptom of failed governance at the highest level. Corruption thrives where the laws apply to some, but not to others. Unfortunately, Thailand is a classic example of this, where the pillar of the rule of law – the judiciary – is deeply compromised. Moreover, old habits die hard in Thailand; things have not really changed much since the Ayutthaya period where fiefdoms and cronyism tend to feed off each other. As a result, when the line between what is “public” and what is “private” is blurred, the abuse of public office for private gain is a routine occurrence.

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But Mr. Teera does not throw his hands up and sigh. Rather, he pushes for citizen empowerment, urging trials by jury, freedom of information laws, and e-government initiatives that would enable citizens to pay for taxes, procurement and customs online, as well as track court cases, “instead of wasting money on ineffective public awareness campaigns.” He also suggests a smaller government by privatising state enterprises, which would restrict public sector monopoly powers and limit situations for officials to exercise unaccountable discretionary powers. In addition to more transparency, fewer employees would enable higher civil service salaries so that public sector workers can make a living without taking bribes. Mr. Teera proposes legalising drugs, gambling and prostitution to fight corruption. “Thailand needs to stop living in denial. It is an open secret that all of the gambling dens, brothels and underground lotteries are run by people in power anyway. So rather than pretending there is no vice in society, we might as well make it transparent and manage the problems properly with rules and common human decency by legalising them and increasing tax revenues at the same time.” Dr. Deunden Nikomborirak, a research director on economic governance at Thailand Development Research Institute and a scheduled speaker at the Norway-Asia Business Summit, works on the frontline against corruption and is less sanguine about the issue in the kingdom, noting there is neither the political will to tackle corruption at the moment nor are shareholders in listed firms attempting to protect their interests from fraud. Dr. Deunden recently completed a study on private sector fraud, reporting the crime is continuing at similar levels. In particular, she told MCOT online news, “siphoning off money from a listed parent company into a company an executive has limited ownership of, and accounting fraud with the aim of making operating results look good for the purpose of stock manipulation, both remain unabated.” Such fraud, not to mention insider trading, causes significant damage to small investors in the stock market. Dr. Deunden recommends harsher punishment, as the

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65% if Thais we willing to accept corruption if they also benefitted. (ABAC poll, July 2013)

current law only fines guilty parties 500,000 to 1 million baht, while the damage incurred from such fraud amounts to up 3 billion baht. Similar fraud overseas is subject to a fine equivalent to the damage. She suggests the government give the Securities and Exchange Commission authority to file lawsuits with prosecutors directly, instead of going through the police. In the past, some economic crime cases were dismissed because the police did not understand the business information used to arrange the lawsuits, said Dr. Deunden. Attempts to curtail corruption and fraud are hindered in Thailand by the low broadband internet penetration rate, hovering near 10% in 2013, which makes it hard for most of the population to easily access information about public figures, such as politicians, she told The Nation. South Korea has been much more successful in curbing corruption because it has a 95% broadband penetration rate, she added. Another reason the Thai media does not publicise more cases of corruption involving political figures is they depend on advertising revenue from politicians. Dr. Deunden also urged the government to provide a mechanism to check its transparency, noting the administration would engender much goodwill if it simply revealed the statistics of transactions in the rice pledging scheme. She proposes the government amend the constitution on the provision of official data, saying that information about state sales or procurement should always be available to the public.

Dr. Deunden, whose job requires her to conduct research and regularly inform the public and media about her results, was sued for defamation in 2013 by the National Broadcasting and Telecommunications Commission (NBTC) for her comments regarding the one-year extension of True Corporation’s expiring concession on Prof. Robert Klitgaard, internationally recognised expert on corruption has been in Thailand the 1800-MHz spectrum. frequently to advise and lecture on corruption. Photo: The Bangkok Post. ©2014 Post Publishing Plc. The NBTC’s telecomUsed with permission. All rights reserved. munications committee said it needed the time There is no rational explanation for why these elite to migrate existing customers to a new frequency, but Dr. groups continued to change their societies once they Deunden questioned why the committee needed the extra gained power rather than being co-opted by corrupt intime given that it had over a year to organise the migration, stitutions, continued Dr. Mungiu-Pippidi, but the one and pointed out that the potential loss from the delayed thing they held in common is they were all educated or spectrum auction could cost anywhere from 112.5 billion to trained in a developed country where there was a model 157.5 billion baht per year, based on a study by Hazle, Munoz of good governance they could emulate. “In the absence and Avanzier (2012). of educated and autonomous professional groups fighting for good governance, sustainable development does not The outcome of this case may go some way in determining exist. Training civil servants or magistrates deprived of Thailand’s appetite for reform. fundamental autonomy (financial or otherwise) is a poor palliative. They will evolve when the demand for them Prof. Klitgaard notes that anti-corruption heroes are not arises.” the essential driving forces leading change. Rather, it is elite groups such as professionals who are crucial. He cites Recent popular uprisings from the Arab Spring to the revolt a report by Dr. Alina Mungiu-Pippidi to the Norwegian in Ukraine have highlighted the power of public intolerance Agency for Development Cooperation in his conclusion: for corruption. It has been documented that lower corruption increases revenues, improves public services, Who are the plausible agents of change and how long would and leads to more investment and jobs, higher citizen satisthey remain so if they were to gain power? Historical lessons faction, and rising rankings in global competitiveness. What from the past and more recent times point to professional remains is whether Thailand can develop a model that can groups as more sustainable allies of good governance than tackle the problem. individual leaders, who frequently turn from champions to chief profiteers. Merchants motivated by profit and The Norway-Asia Business Summit will hold a session on lawyers and journalists motivated by the need to have equal corruption in Thailand on April 25. access with the privileged classes were in the vanguard of historical good governance.

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Education - Can we keep up with the Demand?

By Eric Baker

A

s foreign companies continue to invest in Asia, one of the major variables they consider is the quality of the labour force’s education. Schooling quality varies widely depending on the country, but there are some common factors that bind the region.

The Business Review asked Dr. Torger Reve, a Norwegian economist and a professor at the BI Norwegian Business School, about the challenges and opportunities educational systems in Asia offer. “Asia is investing heavily in upgrading its educational system, more so than the rest of the world, and we can already see the positive results,” said Dr. Reve. “Some Asian countries like South Korea, Japan, Singapore and Taiwan score very high on international educational tests, and Shanghai tops the global Pisa rankings of basic math and science educational scores. Still the educational systems of Asia vary widely, some building on British educational practices (like India and Pakistan), and others following American educational practices (like South Korea and Japan).” “The introduction of private schools in some Asian countries resembles elite education in the West, but the emphasis on formal knowledge in math and science is perhaps stronger in Asia, while other subjects are not taught with the same drive and quality. This may be good for turning out engineers for the emerging industries and for programmers to the IT industry, but the creative element often disappears. Singapore as an example is aware of these shortcomings, and they have initiated a campaign to improve innovation. We see some of the same in China and South Korea, but it is rather hard to combine the strict knowledge school gives individual regarding formal skills and the broader innovation skills of teamwork, creativity and entrepreneurship.” Dr. Reve said educational partnerships have also started to sprout up as businesses look to mould the plentiful talent in Asia.

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“What appeals to Western (and Norwegian) companies setting up operations in Asia are the large supplies of well-qualified young candidates with university degrees in engineering and computer science combined with the hard work these candidates possess on the job,” he said. “Sometimes further training is required to teach cross-cultural skills and train the candidates in Westernstyle management. This is especially an issue in Nordic companies with their flat structures and the participative style of management that most Asians are unfamiliar with. Joint MBA programs between Asian and foreign universities are targeting this group of fast-track Asian managers. A good example is the MBA program offered by BI Norwegian Business School with Fudan University in Shanghai, now one of the leading MBA programs in China.” That’s not to deny there are some growing pains in building the educational systems in Asia, said Dr. Reve. “What impresses observers from the West is the knowledge appetite of young Asians, and the way good education brings people of poverty into leading positions in business (and in some countries, government too). Equal access to quality education remains a large issue in many Asian countries, in particular countries such as India, so more scholarships need to be offered at all levels. Asian students seek answers, but often they need to be better able to ask the right questions.” What governments and businesses value in educational structures has also changed, he said. “Japan and South Korea used to be educational role models in Asia, but recently we see the limitations of these educational systems,” said Dr. Reve. “Too much emphasis is placed on getting into elite schools and universities, and too little emphasis is given to vocational training targeting manufacturing and the service sector. Vocational and technical schools need to target the skills and technologies required by modern industry, rather than training traditional vocational skills that are about to disappear. There is a need for vocational schools targeting agriculture,

Sometimes further training is required to teach cross-cultural skills and train the candidates in Western-style management. This is especially an issue in Nordic companies with their flat structures and the participative style of management that most Asians are unfamiliar with. logistics and retailing, and tourism and travel among many other sectors. The emphasis on languages, in particular English, should be strengthened even further. Countries like Thailand, Malaysia, Vietnam, Indonesia, Japan and China need to become more fluent in English, otherwise the Indian subcontinent will have an advantage in many of the new industries.” Thailand does have a massive shortage of vocational students and has tested poorly on several international tests, especially concerning English proficiency. But the country is also proof that throwing money at the problem is not the solution. The Economist Intelligence Unit conducted a study in 2012 that looked at international test results and data such as literacy rates and graduation rates from 2006 to 2010. Finland ranked first, followed by South Korea, Hong Kong, Japan and Singapore. But Thailand, with the 24th largest economy in the world, measured 37th out of the 40 countries and territories tallied in the 2012 study. A World Economic Forum report from 2013 ranked Thailand’s educational system 78th out of 144 countries, behind even neighbour Cambodia at 58th, which is considerably poorer than Thailand.

Dr. Torger Reve, Professor at BI Norwegian Business School. Photo: BI

Of course such rankings are not new, as Thailand has been placing poorly in worldwide education rankings for a while, including ranking 51st out of 57 countries in a competitive education proficiency assessment in 2011 by the International Institute for Management Development. And for English proficiency, Thailand famously finished last in Asean in a 2013 survey administered by EF Education First, as well as 55th out of 58 countries for English proficiency in the IMD World Competitiveness Yearbook 2012. The findings make many Thais cringe, as Asean member countries are undoubtedly competitors Thailand measures itself against. Thailand now spends roughly 4% of its GDP on education, exceeding Singapore’s spending of 3.2% of its GDP on the same subject, yet Singapore always finishes among the top in rankings and Thailand keeps dropping. Continued on page 54

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China - Is the Steam running out of the Global Growth Locomotive? Despite some signs of slowing growth and falling exports, the Middle Kingdom is an increasingly integral driver of the world economy, says BI Norwegian Business School’s Prof. Torger Reve

By Ezra Kyrill Erker

T

he business headlines haven’t been so kind to China in 2014. The Shanghai Composite index has fallen 6 per cent, exports 18 per cent, news of bad debts continues to leak out as the banking sector wobbles, growth forecasts have been revised down to 7 per cent and there have been questions about the reliability of economic data from the provinces.

Yet the world’s No 2 economy continues to consolidate its strenths and to play an increasing role in driving the world economy. In 2013 and 2014 growth stood at 7.7 per cent, its lowest in two decades, but China’s economy still ended last year worth around US$9.3 trillion, or more than that of Germany, France and Italy combined, or twice that of Japan, or almost four times that of the UK. And it has done so with dizzying speed; China doubled its GDP in the past five years and continues to gain ground on the US. Prof. Torger Reve thinks China may overtake the US within five years. A former president of BI Norwegian Business School, Europe’s second largest business school, who now holds a Prof.essorship in strategy and industrial competitiveness, specialising in the maritime and offshore industries, Prof. Reve is well placed to comment on the evolution of China’s business elite. BI launched the first international MBA Programme in China in 1995, jointly with Fudan University in Shanghai, and the Programme now is ranked as one of the top MBA Programmes in China according to Financial Times. Some 3,000 have already graduated from the MBA Programmeme there, and their improvement has been marked. “The students are more internationally oriented now, have better English, understand the Western mindset. Before

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they would look for work for Chinese companies, but now they all plan to work for multinationals,” he says. China’s future business leaders need to be more multifaceted and innovative, and with an increasing number of Chinese companies going international, a Europeanstyle education is proving to be very helpful in China for navigating the current business climate. Despite some recent slowing down of growth, Prof. Reve believes China is well placed to continue its rise. As manufacturing jobs move to other Asian countries with cheaper labour, such as Vietnam, Indonesia and in the future presumably Myanmar, Prof. Reve contends that the competition is good for China, forcing the country to adapt. “Now they are trying to compensate for the decline in exports [to $114.1 billion] by boosting internal investments,” he says. “The economy is very centrally controlled, meaning China is able to manage its growth and avert crises.” There is considerably evidence that China’s economy is evolving, taking into account the quality of growth as well as the quantity. The government is pushing to reduce the reliance for growth on trade and investment by promoting domestic consumption and giving market forces more of a role in the economy. The service sector has now overtaken manufacturing. And top leaders announced in December that local officials’ performances would be evaluated on criteria such as controlling debt and maintaining a better local environment, rather than just achieving high GDP growth. With cities descending deeper into smog, green initiatives are beginning to take root. “There are many problems – traffic, continued reliance on coal as an energy source,” Prof. Reve says. “There needs to be a move to renewable energy.” The economy will continue to take precendece over the environment, though, he adds. “They won’t slow growth for environmental reasons; it’s the pact the government has with the people – keep improving the economy in exchange for being in power.”

While some bad debts that have come to light in the banking sector are a worry – “the banking sector is key because it affects all the other sectors” – moves can be made to offset any crisis, he says. China looks at the collapse of Japan’s bubble economy in 1989 as a warning, and the country’s vast currency reserves should enable it to weather dips in the economy. It can be hard to always calibrate a soft landing, though. China’s credit boom has become a global issue, accounting for half of the $30 trillion increase in world debt over the past five years. A further problem will be the ageing population, Prof. Reve says. With a declining labour force and more pensioners drawing on publice funds, “the lack of population growth will depress the economy and be a serious long-term problem”. While the one-child policy is being relaxed, it will take time to result in any upswing in population figures. “Demographics take a long time.” With many environmental problems and signs of rural discontent, there have been suggestions in the media that further slowing of the economy may incite broader civil unrest and demands for a different political structure. Prof. Reve is more equivocal. “Democracy was never rooted here, it’s not an expectation. Japan and Korea had strong outside pressure to democratise, but China is going its own way.” While some modernisation of politburo decrees and authoritarian targets is inevitable, China following Singapore’s model is more likely than that of the Western democracies. “Singapore’s model is very similar. By focusing on education, going into industries with more knowledge, such as in pharmaceuticals and IT, China can follow. China wants to be in the knowledge industries, but still has a long way to go.” The business landscape is also changing for foreign companies trying to turn a Prof.it in China. “Companies are

The Chinese economy is more than Germany, France and Italy combined. China may overtake the US within five years in China for manufacturing and for sales. For manufacturing they’ve begun to move to other Asian countries.” And for sales, Chinese consumers have become more discerning, particularly with regard to the environment, energy and safety. Chinese firms are learning how to improve quality and make use of new technologies and establish viable export businesses, as well as increasingly pursuing alliances and acquisitions. Agreeing to a local partnership has become a more promising option for Western companies. Norway continues to have a good business relationship with China, Prof. Reve says. Norway has benefitted from China’s development in three main aspects, connected through its maritime industries: being able to acquire cheaper Chinese

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goods, benefitting from the transport of such goods, and China’s increasing demand for Norwegian products such as seafood. As the maritime sector slows, offshore construction has grown, with Norwegian knowledge helpful in the manufacturing and management of rigs. China can also benefit from Norway’s environmental technology, such as for solar. One hindrance in relations, Prof. Reve points out, has been the Nobel Peace Prize, with Oslo awarding the prize to notable Beijing critics, such as Liu Xiaobo in 2010 and the Dalai Lama in 1989. “It has become a bit of an issue, and makes business more difficult for the smaller companies.” While China’s sensitivity to foreign criticism can cause problems, “The

sensitity is good in a way,” Prof. Reve adds. “They want to show the world that China is a modern society.” The trajectory that China has taken resembles that taken by postwar Japan and then Korea: from manufacturing base to industrialised economy to being versed in the knowledge industries and adept at branding. “They’re folllowing Japan and Korea in building brands such as Huawei, Lenovo – but they don’t have a Samsung or Sony yet and are still far behind in this respect.” The next generation of China’s business leaders, however, is well equipped and well placed to keep taking China forward.

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Reimagining India: Asia’s next Superpower?

By Ezra Kyrill Erker

I

ndia has a quickly growing economy – already the world’s 11th largest in terms of GDP – and a burgeoning middle class in a population of 1.2 billion, making it one of the world’s most lucrative emerging markets. Unlocking that business potential, however, is another matter, as practices that work in other countries may not necessarily work in India, and what works in India may not work abroad. In this democracy of over 23 government-recognised languages and several dozen others, of a multitude of beliefs, cultures and religions, a mindset both varied and unique presides, and foreign companies hoping to gain a financial foothold in India need to understand and adapt to local practices, in individual states and regions and the country as a whole.

Some investors have gotten around some of the hurdles by trusting in a local business partner to do recruitment, marketing, sales and other aspects of the business, as they know the standard and expectations of local human resources as well as local consumers’ preferences. As education, workplace standards and the availability of skilled workers improve, trusting in a local partner becomes less of a risk and the potential advantages multiply. And as the market changes and new technologies emerge, a partnership maybe better equipped to adapt to the new India. In the recently launched Reimagining India: Unlocking the Potential of Asia’s Next Superpower, McKinsey collates the thoughts of leading businesspeople, journalists, cultural figures and analysts as they debate the challenges and opportunities facing the world’s largest democracy, and some of the pitfalls and possibilities for doing business there.

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To facilitate the partnership, Starbucks had to disclose some of its closely guarded trade secrets, allowing Tata to farm, source and roast the coffee beans sold in India, something the company had never done before. The key element to having the right partner, Schultz explains, “is a foundation of trust”.

Think communally, benefit nationally Even the world’s biggest brands can struggle to succeed in India. Coca-Cola chairman and CEO Muhtar Kent urges international companies to see the Indian market not through idealised eyes but as it is. “If you come to India with some grand, predetermined strategy or master plan, prepare to be distracted, deterred and even demoralised,” Mr. Kent says in a commentary. Coca-Cola launched operations in India in 1950, then left again in 1977 after a new law diluted ownership of assets and operations. Returning in 1993 as economic reforms enabled new growth, it was a struggle to keep talented employees. And Indian consumers, while willing to try global brands, resented any global corporate dominance. It took time to realise the importance of small family-run community shops in expanding the brand, Mr. Kent says, as consumers were more likely to buy drinks from them than from supermarkets. Today India ranks in its top 10 markets in sales, with recent growth particularly dynamic. This began by beginning to focus on training and recruitment of young professionals, he says, helping to stem the tide of attrition. They also sourced more products from within India and deepened ties to the local market, such as by investing in mango and citrus farms. And they made a point of understanding how India’s people lived and shopped, and sellers’ logistical and operational concerns. Providing Coke signs to shops, for example, was no use when shops were off of the electrical grid and unable even to keep drinks cold, or had no access to credit. Helping shops with these problems in turn helped the brand nationally. Helping villages access running water saved the women considerable time and trouble; bringing electric power to village shops also brought it to the whole village, enabling students study after dark and boosting literacy rates; providing solar-powered mobile coolers helped shops stay open later and recharge mobile phones. These changes

Can India reinvent itself ?

would make it easier for people to boost their income and, in turn, their propensity to drink beverages such as Coke. “What we now understand intimately—and what other companies who want to sell in India must recognise,” says Mr. Kent, “is that our future is tied to the communities where we operate. A thriving and sustainable India creates thriving and sustainable business opportunities.”

The power of partnership Howard Schultz, chairman and CEO of Starbucks, sees India as becoming one of the company’s top three markets in the world, after the US and China. Establishing the company in India, however, was a six-year journey full of obstacles and learning experiences. In 2012 the company announced a joint venture with Tata, and subsequently the government loosened restrictions on foreign investment. Their partner helped find store locations, helped in designing the shops and catering the food menus to local tastes, as well as overcoming logistical and infrastructure problems and recruiting shop staff.

Miles White, chairman and CEO of Abbott Laboratories, says he immersed himself in India and its health system in 2009, touring hospitals, clinics, chemist shops and private homes to get a sense of the socioeconomic spectrum and what it meant to be an Indian providing or receiving health care. In the process of treating a malady of his own, Mr. White trusted himself, as an Indian would, to the makeshift chemist shops where clerks double as informal doctors. The “branded generic” medicines he received were exactly what he needed and cost a fraction of what they would in the US or Europe. Because of its scientific and managerial talents and low productions costs, he says, India is a powerhouse for such drugs, offering quality of manufacture for pharmaceuticals with expired patent protections to India and to other emerging markets. Abbott subsequently acquiring the pharmaceutical business of Belgium-based Solvay, which had a large Indian operation, and formed a partnership with an Indian pharmaceutical maker to market drugs in emerging economies outside India. Then came the US$3.7 billion acquisition of Piramal Healthcare Solutions, part of Piramal Group, one of India’s largest companies. These moves made Abbott one of the largest players in India’s health-care system; in four years it rose to top, with 7 per cent of the market. While India represents over 4 per cent of total sales for the

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company and 5 per cent of profits, the expectation is that these numbers will only grow in coming years.

India taking on the world The chairman of Aditya Birla Group, Kumar Mangalam Birla, says that just as foreign companies must adapt to India, Indian companies must be prepared to change long-held traditions if they want to thrive globally. The Aditya Birla Group is one of India’s biggest conglomerates, with operations in 36 countries employing 136,000 people. Over 60 per cent of revenue comes from overseas. Since 1996 they’ve made 12 overseas acquisitions worth over $8 billion, in sectors as varied as mining, pulp, aluminium and insurance, branching out into Australia, the US, Canada and Europe. While top management remains Indian, Mr. Birla says, within a decade this is likely to change completely. The Marwari-run company long held traditional beliefs and practices, including no meat or alcohol in their cafeterias or at functions or celebrations. In 2003 Birla bought a small copper mine in Australia, whose workers wanted reassurances they could keep their lifestyle and food options. While these assurances were readily given, Indian managers subsequently wanted the same freedoms, setting in motion a chain of changes. “To globalise for the sake of globalising, as a matter of ego, is perilous,” Mr. Birla says. The company expands internationally in order to spread its bets, or because opening a plant abroad is faster or cheaper than it would be in India, but the decisions are based on whether the deal will increase shareholder value. Sometimes the desire by a company to be a “global player” clouds financial judgement, he says, and care must be taken to adapt to local practices and mindsets. “The process of building trust does not end once the deal goes through,” he emphasizes. In a Canadian pulp mill, employees will watch to see if your subsequent decisions

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match your promises. And Indian employees don’t want to be treated differently from foreign workers, which involves a balancing act stabilised through transparency and caution. When making the company’s biggest purchase, the $6 billion buyout of aluminium giant Novelis in 2007, they needed to make sure they weren’t inheriting a hostile, disgruntled workforce. Cultural concerns were as important as statistics about plant machinery, profitability and productivity. While some Indian companies prefer to leave foreign acquisitions to operate on their own, if you want employees to share similar values and to feel a sense of kinship, Mr.

“If you come to India with some grand plan, prepared to be distracted, deterred and even demoralised” (Coca-Cola Chairman and CEO, Muhtar Kent) Birla says, you have to work to create that bond and be willing to treat workers and managers in different countries equally. As respect is earned, subsequent acquisitions and recruitment of talent become easier. And as the company goes more global, more global executives are also willing to “go Indian”.

From poverty to prosperity India has halved its official poverty rate, from 45 per cent of the population in 1994 to 22 per cent in 2012. MGI senior fellow Anu Madgavkar and McKinsey director Rajat Gupta argue that while this is positive in its own right, the country should implement some policies to ensure that India continues to raise living standards and end poverty.

They point out that in 2012, 56 per cent of the population, or 680 million Indians, still lack the means to meet essential needs. The additional consumption required to bring hundreds of millions to the level of the “Empowerment Line” is seven times higher than the cost of eliminating poverty as defined by the government. The Empowerment Line is a measure of individual consumption; households also need access to basic services, such as health clinics and schools, as well as electricity, drinking water and improved sanitation. The average Indian household, they find, lacks access to 46 per cent of basic services, with wide geographic disparities in social infrastructure. They cite four key priorities for raising 580 million people above the Empowerment Line by 2022: 1) creating 115 million new non-farm jobs to accommodate the population and lower agriculture’s share in employment; 2) increasing investment in agricultural infrastructure to provide market access, adopt new technologies and increase yields; 3) increasing public spending on basic services such as health care, water and sanitation to accelerate GDP growth; and 4) making basic services more effective by partnering the private and social sectors, facilitating community participation and by modernising industries. Such changes would set off a virtuous cycle generating more revenue, Madgavkar and Gupta argue, enabling India to meet its fiscal-deficit targets as it puts more money into social infrastructure.

Leapfrogging the competition India has a unique opportunity to avoid repeating other countries’ mistakes; Khosla Ventures founding partner Vinod Khosla argues that the “leapfrogging” mindset requires policies that foster innovation rather than imitation. “One of the great things about being a relatively poor, trailing, but rising power like India,” he says, “is that you

have the opportunity to see what you want to imitate—and, more important, what you want to skip.” Providing telephone landlines across the country, for example, would take resources away from pursuing mobile and internet technologies that would serve the country better in the long run. Such a leapfrog mentality, he says, can be applied to education, health care, energy and infrastructure. Rushing to achieve pre-set goals and conditions is a mistake, Mr. Khosla says, as technology advances in ways that are unpredictable. Since strategic planning is almost invariably mislead, India should be trying to fit into the future as it happens, so that as the price of oil changes or a new technology comes along, the country can adapt in tandem. The lessons learned from telecommunications can apply to cars. Instead of boosting car production to meet expected demand, for example, it may be easier to plan for self-driving cars. Future lifestyles surrounding car use are also likely to change drastically, and it is best to be proactive and flexible with planning. The precise outcome is unknown, so “it is more important to create a regulatory and investment climate to support the right broad policy goals rather than lock everyone into specific technologies”. Governments can use incentives, taxes and standards to push in broad directions without trying to force specific solutions. To encourage self-driving cars or better appliances, Mr. Khosla would offer tax advantages and prescribe efficiency standards. “The right way to do that is to make those standards self-modifying and dynamic, so that they change in step with technology.” Better than setting efficiency standards for 2025, then, would be imposing higher tax on the quarter of vehicles with lower energy efficiency and using that to subsidise the quarter with the highest efficiency. This provides incentives for companies at both ends to adapt to changing technology.

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ARE YOU MAKING THE MOST

OF FREE, RENEWABLE ENERGY TO REDUCE OPEX? The same principles apply to health care. India’s doctor-topopulation ratio is 10 times lower than in the US. Rather than building more medical schools to catch up, a better answer might be to adopt new computer diagnostic systems, delivered via mobile phones and tablets, replacing doctor visits and resulting in better and more consistent quality of care. Despite India’s problems, its large young English-speaking population is a huge advantage, Mr. Khosla says. Its democracy adds stability and can give it an advantage over planned economies like China’s. “The critical missing link is to marry that leapfrogging mindset to a better policy framework that sparks innovation and experimentation— one that reimagines the future by encouraging instead of prescribing.”

Competing with China India can’t afford to emulate China; Mahindra Group chairman Anand Mahindra says the country’s states must compete with each other and urbanise if India is to develop its own path to prosperity. India’s economy continues to grow at five to seven per cent, respectable enough but disappointing to those who want India to overtake China. India’s population is younger, its democratic government enjoys more international legitimacy, its businesspeople are internationally adept, but economically the country is too diversified to burst onto the global market as a single entity. By metrics such as FDI and GDP growth, India still trails far behind China. But the goal shouldn’t be for India’s coalition governments to become as efficient and decisive as China’s technocrat-led Politburo, Mr. Mahindra says. In tightly controlled China, the costs of headlong economic expansion are obvious. “Unbreathable air and undrinkable milk, slick-palmed officials and oppressive factory bosses provoke tens of thousands of protests each year. In a society as diverse as India’s—riven by religious, community and

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caste divides—those kinds of tensions can easily erupt in violence and disorder,” he says. For India’s economy to expand more sustainably than China’s, changes need to be made to exploit India’s virtues rather than its vulnerabilities. And the best way to propel the national economy may be to encourage different parts of the country to go their own way. In language, food, culture and economy, India’s 28 states and seven territories are as different from one another as the countries of Europe. When companies make decisions about where to locate factories or research and development hubs, they look at the tax policies, infrastructure or labour costs in that particular state. Such an approach should be encouraged rather one that treats India as a politically and economically homogenised entity. And the competition among states, Mr. Mahindra argues, should be continued down to individual cities. Millions have already migrated to the cities in the last 20 years, and tens of millions more will follow. Urbanisation should be the long-term target, he says, as it leads to a number of positives such as higher literacy rates and lower infant mortality, but currently the cities are unable to meet that demand. The answer may be to develop hundreds of new urban hubs that can attract talent and money, to create not a unified Singapore but a hundred Singapores distributed nationally. “Once every home can become a manufacturing hub,” he says, “the kind of small enterprises that have been the backbone of the traditional Indian economy could find ways to thrive in the modern world.” As the country develops it can avoid mistakes that more developed countries are making now, and for foreign investors and international companies, the risks of doing business are largely outweighed by India’s enormous potential. Reimagining India is published by Simon & Schuster, 2013, executive editors Clay Chandler and Adil Zainulbhai.

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The Bicentenary of The Norwegian Constitution

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he Norwegian Constitution was adopted on 17 May 1814, and will this year celebrate its 200th anniversary. Even though it has been amended more than 400 times since 1814, the Norwegian Constitution is considered the same working document. This makes it Europe’s oldest and the world’s second oldest written constitution still in effect.

1814 – The incredible year The year 1814 occupies a special place in Norwegian history. In Europe, the French Revolution had generated wars, which had raged almost uninterruptedly for over twenty years. In 1814, the Napoleonic Wars were ending. The Kingdom of Denmark–Norway found itself on the “wrong side”, having backed the loser, Napoleon. Sweden, however, was a member of the victorious alliance. The treaty of Kiel was signed on 14 January 1814 in which the dominion over Norway was transferred from the King of Denmark to the King of Sweden. This marked the end of a 434-year-long union between Denmark and Norway. As a strategic move to liberate the country from the forced-in union, 112 men gathered at Eidsvoll on 10 April 1814 to form a constituent assembly and draw up a constitution. After six weeks of work, the constitution was completed and signed by the members of the assembly on 17 May. The Danish Prince Christian Frederik (1786-1848) was elected King of Norway. The country had, in fact, declared its independence. Yet in the spring and summer of 1814, events were in fact decided by the European Great Powers. Christian Frederik’s envoys received no encouragement for their revolt. The Great Powers had given guarantees to the Swedes and Carl Johan, and these guarantees were firm – even in the case of Great Britain, which felt considerable sympathy for the Norwegian insurrection. Norway was to enter into a union with Sweden.

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Consequently, Sweden declared war against Christian Frederik and Norway on 26 July 1814. The Swedish army made rapid advances and the Norwegians were forced to retreat. A ceasefire was agreed and, after heated negotiations, the Moss Convention was signed on 14 August. Sweden accepted the Norwegian Constitution with the amendments necessary for a union with Sweden. Once the amendments to the Constitution were complete on 4 November, the Storting (the Norwegian Parliament) declared that it accepted Christian Frederik’s abdication while Carl XIII of Sweden was elected King of Norway. Norway got into a personal union with Sweden with its own constitution and parliament, which lasted until 1905. Christian Frederik’s enthusiasm for the Norwegian revolt faded fast. He became ill and depressed, and on 10 October 1814, he formally renounced the Norwegian throne. In due course, Christian Frederik inherited the Danish throne and reigned from 1839 to 1848 as King Christian VIII. The Constitution The most important ideas expressed in the Constitution were radical beliefs that had triumphed in the American War of Independence and the French Revolution. Some main principles were: The sovereignty of the people. Ultimately, power should rest with the people. The Eidsvoll Assembly saw themselves as an embodiment of this principle: as the representatives of the people, they were to provide Norway with a new political system. The separation of powers. Power in the political community should be shared. In the Kingdom of Denmark-Norway, the King had wielded absolute power, but now King Christian Frederik had to share power with a popularly elected assembly. The King’s power was to be executive, while the elected assembly would primarily legislate, impose taxes and grant funds. The King in person would appoint his ministers.

Who would have thought that events that played out 200 years ago would have such consequences?

Freedom of the individual. All Norwegian citizens were guaranteed certain rights, the most important being freedom of expression. They were also assured the rule of law. The Norwegian Constitution was highly democratic, compared with most constitutions of the day. The right to vote in elections was conditional on property ownership, but the qualifying limit was set low, and almost half of the adult male population was enfranchised. No one wanted to enfranchise women in 1814. Norway’s democratic development Norway in 1814 was a country of farmers, most of whom owned a little land. There were of course some substantial landowners, but a greater degree of equality existed among farmers in Norway than in any other country in Europe. In contrast to most other European countries, Norway had hardly any aristocracy in 1814. The towns were modest in size. Of a total Norwegian population of about 900 000, only 10 per cent lived in towns. The modern Norwegian state was founded in 1814. Since then, the political system was reformed several times, to make it more democratic. Two reforms in particular were significant.

Eidsvollsbygingen. Photo: Petter Foss/MFA Norway

government, consisting of deliberative assemblies at county and municipal level. In 1884, parliamentarianism was introduced in Norway, and the king could no longer appoint governments as he wished. After 1884, governments have been responsible to the Storting. Furthermore, the franchise has been extended gradually since 1884. In 1898, all adult men were enfranchised, and in 1913, all women. The Norwegian Constitution of 17 May 1814 laid the very foundations of democratic development in Norway. It has proved itself more durable than other constitutions drawn up at the same time in Europe. As Europe’s oldest and the world’s second oldest prevailing constitution, it is now a unifying symbol of freedom, independence and democracy.

In 1837, local self-government was introduced in the municipalities. Nowadays there is a complex system of local self-

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AEC - Getting ready for the 500 million people marketplace

By Ezra Kyrill Erker

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s with incremental European integration into the EU, which would have taken an extreme idealist or visionary to predict following the hostilities and destructiveness of World War II, next year’s launch of the ASEAN Economic Community (AEC) will be a great test for the region, bringing closer together countries that for centuries were involved in imperialist incursions and large-scale wars. And overcoming mistrust among the populations is a small matter compared to bridging the economic disparities of member states and the vastly different education and health care systems, labour practices and production capacity, not to mention language and cultural gaps and the different types of government and levels of corruption.

According to the AEC blueprint, 2015 marks the start of a fourfold goal: creating a single market and production base, a highly competitive economic region, equitable economic development and integration into the world economy. In theory, this will transform ASEAN into a region with free movement of goods, services, investment, skilled labour and freer flow of capital. The reality, as Institute of Southeast Asian Studies director Tan Chin Tiong comments in The ASEAN Economic Community: A Work in Progress (ISEAS, 2013), is that ”while the ASEAN vision of creating an economic community marked by the free flow of goods, services, foreign direct investment and skilled labour and the ‘freer flow of capital’, is far-sighted, courageous and ambitious, too much political opposition and inadequate institutional infrastructure lie in the way of their effective implementation”. Areas of cooperation to be emphasised include human resources development and capacity building, recognition of professional qualifications, closer consultation on macroeconomic and financial policies, trade financing measures, enhanced infrastructure and communications connectiv-

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ity, development of electronic transactions, integrating industries to promote regional sourcing, and enhancing private sector involvement. The priority integration sectors for the single market and production base include food, agriculture and forestry. It is an ambitious project, and the AEC is only one of three pillars of the ASEAN Community that were proposed in 2003, the others being the ASEAN Political-Security Community and the ASEAN Socio-Cultural Community, both set to take effect in 2020. The blueprint for the AEC was adopted in 2007, setting out accelerated timelines and targets, with all elements to take effect by December 2015. Without penalties for non-compliance, it is unlikely that all targets will be met; however, considerable progress has already been made.

ASEAN Secretary General Le Luong Minh getting ready for 2015. Photo: ASEAN Secretariat.

Thailand’s readiness Thailand took its preparation seriously at first, with all government agencies receiving a special budget for AEC training, seminars or events, with 8 million baht (US$250,000) spent to raise awareness. In recent months, however, recurring political problems and budget constraints mean the campaign has been largely forgotten. The public still has an incomplete understanding of what the AEC entails. Many workers focus on perceived fears, of losing jobs, of a cut-throat marketplace and a greater influx of migrant workers. Most of the country’s ability to communicate in English is inadequate to compete with other ASEAN members, despite the Ministry of Education’s allocation of 500 million baht to improve English among government officials and vocational school students, with the latter especially important considering the weight placed on SMEs for boosting ASEAN’s economy in the future. If measuring the readiness of entrepreneurs in terms of English and business savvy, Singapore, Malaysia and perhaps the Philippines have an edge over Thailand, even

While the AEC vision is farsighted, too much political opposition and inadequate institutional infrastructure lie in the way of effective implementation (ISEAS Director Tan Chin Tiong, 2013)

though Thailand in its latest report gave a score of 86 per cent of fulfilling its AEC commitments.

The progress Since June 2010, 99.65 per cent of goods traded within the ASEAN-6 (the original members of Indonesia, Thailand, Singapore, the Philippines, Brunei and Malaysia) already

have zero tariffs, but the four more recent members (Vietnam, Laos, Myanmar, Cambodia) still lag far behind in terms of readiness. Sharing production processes and looking at the AEC as an integrated production line has begun, with the emphasis on greater efficiency and productivity, not just about building factories to produce one electronic product or vehicle, but of building industries around parts for products produced across the region. As was apparent during the Bangkok floods, though, where the supply chain of electronics and car parts was disrupted ASEAN-wide and thus worldwide, this can still easily break down. A concern is the free flow of skilled labour and services, which still has a way to go. Within this set-up, though, mutual recognition arrangements (MRAs) have been implemented to facilitate the flow of professional service providers within the region. The question is how these

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Attorneys at Law

service sectors will gear up for a wider market base and bigger market players. The free flow of investment is being encouraged by the ASEAN Comprehensive Investment Area (ACIA), which is already in place for the ASEAN-6. The main principles of the ACIA are: all industries must be opened up for investment, with exclusions to be phased out; national treatment is granted immediately to regional investors; elimination of investment impediments; streamlining of investment process and procedures; enhancing transparency; and undertaking investment facilitation measures. Progress has been made towards a single aviation market, supported by transport ministers, liberalising air travel among member states and facilitating air shipments. Free trade agreements with other countries have become much easier when viewing ASEAN as a single market. Free trade agreements have been concluded with China (expecting bilateral trade of US$500 billion by 2015), Korea, Japan, Australia, New Zealand and India. ASEAN-India bilateral trade crossed the $70 billion target in 2012. ASEAN is also currently negotiating free trade agreements with the EU and with EFTA. In 2009 realised Foreign Direct Investment (FDI) was $37.9 billion and doubled by 2010 to $75.8 billion. The EU provided 22 per cent of FDI, followed by ASEAN countries and then by Japan and the US. With the advent of visa-free travel among ASEAN member states, intra-ASEAN travel has boomed. In 2010, 47 per cent, or 34 million out of 73 million tourists in member states, were from other ASEAN countries, and it is now well over half. The ASEAN Capital Market Forum (ACMF) has linked the Bursa Malaysia, Singapore Exchange and Stock Exchange of Thailand, together covering 70 per cent of transaction values of seven ASEAN stock exchanges, with the objective of integrating them to compete with internation-

al exchanges. Some progress has been made in harmonising regulations and disclosure standards.

The problems Will the AEC meet all of its 2015 commitments? Almost certainly not. As Iwan J. Azis of the Asia Development Bank points out in A Work in Progress, “Monitoring at this stage is often guided by little more than goodwill, and this too poses obvious challenges. Therefore, it is critical that member countries are convinced that the reforms that they agree to will be in their self-interest.”

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Non-tariff barriers remain as major impediments. There is a lag in commitments made on the liberalisation of trade in services, despite the importance of the service sector to the ASEAN economies. Regional institutions remain weak, as member states guard their sovereignty. When national goals differ from regional ones, political leaders have found it more popular to favour national goals. Flexibilities designed to accommodate the different levels of development among member states have been used to justify non-compliance with their commitments, but there are no penalties for noncompliance, since maintaining harmony among member states remains as important to regional leaders as meeting criteria. The economic growths of ASEAN’s member states from 1989–2009 was Singapore with 6.73 per cent, Malaysia with 6.15 per cent, Indonesia with 5.16 per cent, Thailand with 5.02 per cent and the Philippines with 3.79 per cent. This economic growth was greater than the average APEC economic growth, which was 2.83 per cent. Indonesia, Thailand, Malaysia, Singapore, the Philippines and Vietnam remain by far the biggest economies in GDP terms, and one of the greatest tests will be whether the region can put its collective interests ahead of national ones.

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All Praise Global Warming: Opportunities and Challenges as the Northeast Passage Thaws By Eric Baker

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lobal warming will lead to several negative climate problems, many of which have been extensively covered in the media. But warming could also become an economic asset for Norway, melting the Arctic ice pack and opening up a faster maritime shipping route for countries in Asia-Pacific to trade with Europe. Kirkenes, a Norwegian town located 500 kilometres north of the Arctic Circle near the border with Russia, has a population of 3,500. Felix Tschudi, a Norwegian shipping magnate, hopes to use this outpost as a base for ships plying the Northeast Passage north of Russia. The plan is to have ice-class cargo ships from South Korea and China transit through the fjord at Kirkenes on their route west. The town now sees some of the highest ever temperatures ever recorded there in the summer—close to 30ºC during the day. Coastal ice in the Arctic Ocean first vanished in 2005, and it has disappeared every summer since 2007. Last year an area the size of Nepal melted every day in the summer. Most of the year now the latitude of 80º North is ice-free. From China to northern Europe, the Northeast Passage is 30% shorter than the traditional route through the Suez Canal. Shippers project they can operate in a westerly direction along the passage all year no matter the winter ice conditions, while easterly voyages have a five-month window. These developments were not lost on shipping magnate Felix Tschudi, the fourth-generation president of Tschudi Shipping Company. His plan was to ship via this passage to Asia-Pacific and Russia, and he bought the Sydvaranger iron ore mine just outside Kirkenes in 2006 to gain access to its port facilities. The mine served as a buffer to the Soviet Union in the Cold War as it employed hundreds of Norwegian workers who extracted the ore and sent it by rail to the port, where it is refined and shipped out by boat.

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The mine lost money, and with the collapse of the Soviet Union, the Norwegian government saw no need to continue its operation. Mr Tschudi bought the mine, ore processing plant, adjoining lands and port assets for 102 million NOK (US$18 million), and set up the Northern Iron Limited on the Australian stock exchange in 2009. The goal was creating a transport and logistics hub, and shipping to China began in 2010. Yet Russia maintains it owns the entire Northeast Passage, including the parts that pass through international waters. In order to make that initial 2010 shipment, Mr Tschudi had to sit down with stakeholders in the area such as Rosatom, the Murmansk company that manages Russian nuclearpowered icebreakers and looks after business interests for that area. Luckily, Russian and Norwegian interests are aligned in this regard, as Russia wants to develop several ports along this route. Opening up the passage involves entering uncharted waters, both literally and figuratively. A 2009 German shipment from South Korea to Rotterdam was the first non-Russian vessel to transit the Passage nonstop to China. And by 2013, the number of vessels plying the route that year had already risen to 71. Compared to the 18,000 ships per year handled by the Suez Canal, 71 is still just a drop in the bucket, but the rapid growth highlights the need for regulation. The lack of any rules for the region, which can involve navigating through thousands of sea miles of ice fields and shallow straits, seemed a recipe for disaster. A lack of precise charts of the area and modern meteorological equipment in port towns indicates the length of the learning curve. Even a small leak of oil or residue from a diesel engine could have a vast effect in the Arctic because “toxic substances have a far greater impact here than at other latitudes because they are degraded very slowly,” said physicist Marcel Nicolaus of the Alfred Wegener Institute for Polar and Marine Research in Bremerhaven to Der Spiegel.

A ship makes its way through the cold northern waters saving fuel and time but negative environmental effects have not been properly assessed.

Even if the Northeast Passage is 30% shorter than the traditional route through the Suez Canal, it’s a cold place with a hostile climate enshrouded in darkness half of the year and it’s sparsely populated and far from basic infrastructure Moscow initially opened the Northern Sea Route Administration to streamline bureaucracy and develop infrastructure along the route. But this agency issues permits for the passage even for ships that are not ice-class, meaning they lack a hull specially reinforced against ice, and some of these ships carry crude oil.

Shippers recognised the need for what is now being called the Polar Code. Members of the International Maritime Organisation are close to finishing a draft of the code this year, which attempts to improve safety, lower insurance premiums and increase traffic on the route. “There are no international conventions which regulate Arctic shipping operations, so in principle the same rules apply for sunny sailing in the Mediterranean as for the Arctic,” Sturla Henriksen director-general of the Norwegian Shipowners’ Association, told Reuters. “It’s a cold place, it has a hostile climate, it’s enshrouded in darkness half of the year, weather is violent and extreme, distances are vast, the area is remote from large population centres, it’s sparsely populated and it’s far from basic infrastructure.” Safety training, certification, rules on pollution and a requirement that all ships travelling these waters are

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verified as ice-class should reduce insurance premiums, as previously any vessel plying the High Arctic had to agree to a separate unique policy tailored to each journey. The code lacks any language dealing with the problem of ballast water discharge, which often introduces non-native species to a region, and the code continues to allow vessels to use heavy fuel oil, a more hazardous type of fuel in the event of an oil spill. This last point particularly irks the Norwegian chapter of the World Wildlife Fund. “Heavy fuel oil has huge implications for the environment. We must find other ways of fuelling ships in the future,” Nina Jensen, the Norway chief executive for the WWF, told the Barents Observer. “There is a reason why we already implemented such rules in Antarctica and eastern Svalbard.” Mr Tschudi counters that all bulk carriers currently use heavy fuel oil, and passing a ban on its use would just drive the shippers to other routes. His strategy is to have Russian icebreakers act as escorts to provide assistance as needed. For its part, Russia is planning on creating 10 new search-andrescue centres along the Northeast Passage to help minimise the distance between facilities. Freight volume is at about 5 million tonnes this year for the passage and is expected to triple by 2017. Even a French luxury cruiser was approved to traverse the route, underscoring how the massive defrost is not merely about cargo and logistics. Industry analysts estimate there are vast gas and oil reserves in some of these areas, including in international waters. Russia is already looking to access natural gas previously hidden under Siberian permafrost. A liquefied natural gas (LNG) terminal has already been built in Siberia, and a large bulk of the passage traffic is expected to be dredgers and excavators. The route is expected to be the main transport option for LNG processed from the Yamal Peninsula in Russia destined for Europe.

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Conditions still remain treacherous in parts of the Northeast Passage, and a Russian icebreaker escort costs $400,000 to charter by some estimates. Advocates of the passage say the route is so much shorter the fuel savings alone offset the cost of the charter. And there is no risk of piracy along the northern route. Some transport, such as container shipping, demand on-time delivery, so stewards of the Northeast Passage will have to prove the route allows for guaranteed delivery deadlines. Mr Tschudi’s plan is not without its critics. Ore residue from the mine filled with chemical products is sent via an underground tunnel to the Kirkenes fjord, and some locals claim the sea basin’s marine life is dead because of the chemicals in the waste. The company claims changing its waste disposal methods would be too costly. Reindeer breeders are concerned that infrastructure development in the area is blocking the animals’ access to the coast, where they consume salts and minerals essential to their diet. But for now, as long as the passage offers shippers a relatively ice-free route that can save them millions of dollars, the port will continue to welcome all vessels.

For advertising in the Thai-Norwegian Business Review please contact: Mr Anders Magnusson Director of Sales & Marketing E-mail: dirsales@norcham.com Mobile: +66 84 694 0046


Accelerating the hunt for mobile talent

By Eric Baker

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elenor Group, the main shareholder in Thailand’s Total Access Communication Plc (dtac), has a blueprint for its planned US$1 billion rollout of its commercial second- and third-generation mobile service in Myanmar for 2014.

In addition, dtac started a venture capital fund based in Thailand to promote the country’s growing mobile internet infrastructure. The firm has total support of 100 million baht and plans to invest in start-ups worth 500,000 to 1.5 million baht. Asia is Telenor’s largest revenue source, and the Norwegian firm intends to strengthen its presence here. Sigve Brekke, the head of Telenor Asia, told Bangkok Post his company is spending the $1 billion on mobile licences and network expansion in Myanmar, with a timeline of four years for the outlay. He said the company expects to break even within four years. Telenor projects the commercial introduction of 2G and 3G service in Myanmar in the second half of this year, with a roll-out of cellular network coverage to 90% of the population within five years. Myanmar has a population of 61 million, but only 4 or 5 million people are mobile users. Telenor and Qatari firm Ooredoo were the winners of 15-year mobile licences in a highly competitive tender. The venture capital fund, dubbed dtac Accelerate, is already up and running, accepting applications for a three-month incubation boot camp mentored by seasoned veterans in the start-up field. The first group of 15 contenders will be announced at www.dtac.co.th/accelerate on April 21. After a pitch session the following day, five finalists will be chosen that will receive support money of 500,000 to 1.5 million baht, mentoring from Silicon Valley and Asian venture capital professionals, the opportunity to attend a two-week

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Blackbox Connect programme in Silicon Valley and the chance to pitch at venture capital road shows, and commercialisation support from Telenor as well as legal, accounting and financial support from PwC. “We chose Thailand for this start-up because it is in a good position,” said Andrew Kvalseth, the head of corporate strategy and business innovation for dtac. “About one-third of Thailand has mobile internet now and the penetration is skyrocketing. A few parts of the innovation ecosystem are in place here, but we need more foreign specialists here.”

“Thailand’s internet penetration is skyrocketing, but we need more foreign specialists to improve the innovation ecosystem” Myanmar has a population of 61 million but only 4% are mobile users. Telenor and Qatari Ooredoo are on a path to change that. Photo: Asian Development Bank

“We continue to see talent leave Google, Microsoft and Rocket for start-ups, and we believe our funding will help fill the talent gap here, as there is plentiful demand for mobile talent. A lot of the work in this region is teaching people how to commercialise a product. As venture capital funding increases here, more foreign firms will arrive, the amount of mentors will rise, and companies will become more savvy about the products they offer.” The fund is open to any nationality, with the focus start-ups that are somehow related to the internet. The group does not want to be too specific about categories in the early stages to deter innovators. The incubation track includes the boot camp for start-ups with a great idea but not a product, while the acceleration track is for start-ups that already have a product and some traction with customers.

The programme aims to promote start-ups to go global, helping to create new jobs locally and promote mobile internet and applications. Though it is making a massive outlay in Myanmar, Mr Brekke said Telenor remains committed to long-term investment in Thailand, its most important market because dtac contributes the highest revenue of its Asian subsidiaries. “We are not holding back on investment in Thailand even though the political situation remains uncertain,” he said. dtac outperformed the market in recent years, capturing a 30% market share last year, up from 29% in 2012. The mobile market was worth 250 billion baht last year.

The company reported a 13% increase in revenue to 89.5 billion baht last year thanks to the take-up of mobile data services, which led to a 49.2% increase in revenue from value-added services to 15.2 billion baht. But net profit declined by 4.5% to 11.3 billion baht due mainly to an increase in dtac’s percentage of revenue-sharing payments from 25% to 30% under a build-transfer-operate concession agreement, plus weaker margins in dtac’s handset business. Telenor provides mobile services in 13 countries including six in Asia, serving 150 million subscribers worldwide, while dtac had 27.9 million subscribers last year.

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If only theisbegostod enough... Developed homes in Pratumnak Pattaya sinec 2004

VIP Reiser: Assisting Norwegians with Travel Needs By Eric Baker

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om Stenshavn was like several future entrepreneurs when he first visited Thailand in 2001. He was here on holiday and had no thoughts about starting a business. He came to motorbike and was so fond of the activity he came back for five years, eventually becoming a guide.

But he noticed he was getting questions all the time about suggestions or recommendations. He decided to open VIP Reiser Thailand in 2009 to lead tours and provide travel services. Headquartered in Pattaya, the company can arrange airline tickets, hotel bookings, package tours, taxi and other transport services, as well as customise tours with Norwegian-speaking guides. Motorbike tours are still prominently featured with the company, including up north in Chiang Mai and Chiang Rai, which is Mr Stenshavn’s favourite destination. VIP Reiser can even arrange big wedding parties for up to 200 guests at beaches such as Koh Chang or Jomtien. Health care tours have also proven to be popular. Norwegians make up 90% of VIP Reiser’s clients, but the company has focused on social media marketing and wordof-mouth advertising, saying traditional media ads are too expensive, especially in Norway. In fact, Mr Stenshavn just returned from a travel fair in Norway in January.

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089 936 6741 Eng/Nor 038 303 310 Fax : 038 252 548 www.vnresidences.com sales@vnresidences.com

Though the company only has six employees, three can speak Norwegian, Thai and English. One was a taxi driver in Pattaya who lived in Norway for 15 years they just happened upon one day, and the other is a woman who lived in Norway for 20 years. Three other employees speak Thai and English, while Mr Stenshavn speaks Norwegian and English. Just as Mr Stenshavn noticed an absence of tour operators catering to Norwegians in Thailand, he observed VIP Reiser was receiving a lot of questions about anything related to the Land of Smiles, often by folks who weren’t customers. So the company started a separate member help centre where customers can sign up for packages of one

VIP-Reiser offers many attractions among them a tour to Khao Keow Zoo on the Eastern Seaboard. The «Flight of the Gibbon» have been voted best attraction of Thailand several times and is a must to experience. Photo: VIP-Reiser/Tom

to six months and the company will find out information on nearly any question about Thailand. In addition to questions about travel, the help centre can answer questions about visa, marriage to a foreigner, translation, verifying documents, and sometimes even intervening on their client’s behalf. As Mr Stenshavn says, “If we don’t already know the answer, we won’t stop until we find out.” Indeed, it was VIP Reiser’s multiplicity of services that led it to recently sign an agreement with Euro-Center to assist tourists having problems with their insurance companies. The company provides transportation, hospital guidance, hotel booking, airline ticket changes, new airline ticket booking, visa extensions, translations and a host of other services. And now VIP Reiser is looking to start a help centre for Norwegian insurance companies to improve their customer services in Thailand, Laos, Cambodia and Vietnam. As he has done with all of his companies in Thailand, Mr Stenshavn said he simply identifies a service that no one else is providing and offers it. The recent anti-government protests may have made some first-time visitors to Thailand hesitant, but Mr Stenshavn said regular travelers here know there is not much to worry about if you use common sense. VIP Reiser Thailand can be reached on the web at www.vipreiser.no and on the phone at +66 38-251832.

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Thailand’s economy Thailand’s Economy at a Glance at a glance Basic Figures Thailand (2013)

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0

Haavard Farstad, Private Banker

Making it possible Nordea Bank S.A, Singapore Branch is part of Nordea Group, the leading financial services group in the Nordic and Baltic Sea regions. Some products and services may, due to local regulations, not be available to individuals resident in certain countries and their availability may depend, among other things, on the investment risk profile of persons in receipt of this publication or on any legislation to which they are subject. Nothing in this publication should be construed as an offer, or the solicitation of an offer, to purchase, subscribe to or sell any investment or product, or to engage in any other transaction or provide any kind of financial or banking service in any jurisdiction where Nordea Bank S.A., Singapore Branch or any of its affiliates do not have the necessary licence. Published by Nordea Bank S.A., R.C.S. Luxembourg No. B 14.157 on behalf of Nordea Bank S.A., Singapore Branch, 3 Anson Rd #20-01, Springleaf Tower, Singapore 079909. www.nordeaprivatebanking.com subject to the supervision of the Monetary Authority of Singapore (www.mas.gov.sg).

-2

0

2

4

Thai Consumer Price Index

Thai GDP Growth (%) 10.0

6

8.0

5

6.0

4 3

4.0

2

2.0

1

-2

Stock Exchange Index (SET)

Sep13 Oct13 Nov13 Dec13 Jan14 Feb14

0 -1

2008 2009 2010 2011 2012 2013 2014p

Q4/13

Q3/13

Q2/13

Q1/13

-4.0

2014p

2013

0.0

Exchange Rates 7.00

1,800 1,600 1,400 1,200 1,000 800 600 400

6.50

THB/NOK

6.00 5.50 5.00 4.50

Bilateral trade 2013

Manufacturing Index 2000=100 200

600

180

400

160

Import 1,550 (1,743) MNOK Export 2,494 (3,378) MNOK

800

200

140

Others

Semi-manuf

Machinery

Computers

Cars

Food

Electronics

Sources: 100 Basic Figures: BOI. Comparisons: Wikipedia. GDP/Capita and Thai Population: Wikipedia/IMF. Thai GDP and CPI: Bank of Thailand. Quarterly GDP: NESDB. SET: Stock Exchange of Thailand. Exchange Rate THB/NOK: OANDA. Manufacturing Production Index: Thailand’s Ministry of Commerce. Bilateral Trade: Statistics Norway. Petrol and BigMac prices as of 3 April 2014

Pulp

0

120

Other

7.58 15.34 12.93 40.00

-4

Mill

Fish

Other bits and pieces Petrol/litre (95 E10) NOK: TH Petrol/litre (95 Octane) NOK: NO McDonald BigMac price NOK: TH McDonald BigMac price NOK: NO

Female

Engineering

69.9 mill 5.0 mill 10,300,000 875,000 71/76 79/83

Male

0801 0807 0901 0907 1001 1007 1101 1107 1201 1207 1301 1307 1401

2

80+ 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4

Chemicals

2

MY CN TH ID PH VN LA IN KH MM

6

2007 2008 2009 2010 2011 2012 2013

Contact Nordea in Singapore on +65 6597 1083, or e-mail haavard.farstad@nordea.sg

60

Jul13 Aug13 Sep13 Oct13 Nov13 Dec13 Jan14

Wealth management today involves much more than selecting the best stocks and bonds. At Nordea Private Banking, we offer you an experienced personal advisor and a comprehensive overview of your wealth based on thorough research and rigorous analysis. One private banker, many specialists – making it possible.

Geography Geographic Area: TH 514,000 sq. km Geographic Area NO: 385,199 sq. km Highest peak TH: Doi Inthanon 2,565 m Highest peak NO: Galdhøpiggen 2,469 m Inland water areas TH: 2,230 km Inland water areas NO: 16,360 km Coastline TH: 3,219 km Coastline NO: 25,148 km Demographics Population TH: Population NO: Population Bangkok: Population Oslo: Life expectancy M/F TH: Life expectancy M/F NO:

8

-2.0

Some comparisons

Find one Private Banking advisor, then make sure he knows many specialists

80

2012

Top 10 Exports 2013 %/value USD bill Motor Cars and automotive 10.7%/24.4 EDP equipment 7.8%/17.8 Refined fuels 5.6%/12.7 Precious stones/jewellery 4.4%/10.1 Chemical products 4.0%/9.1 Polymers etc. 3.9%/9.0 Rubber products 3.7%/8.5 Rubber 3.6%/8.2 Electronic integrated circuits 3.2%/7.2 Machinery and parts thereof 3.0%/6.8

10

2011

www.skanem.com

10-20% 10-15% 7% 0-35%

12

100

2010

Corporate income Tax Withholding Tax Value Added Tax Personal income Tax

Thai Population 2012

120

NO US SG KE TW

Tel.: +66 (0) 38 465 315-19 Fax.: +66 (0) 38 465 320-21

GDP/Capita 2013 (TUSD)

2008

Export Growth 2012 3.1% Export Growth 2013 projected 7.6% Trade Balance USD 6.0 bill Current Account Balance USD 1.5 bill International Reserves USD 181.6 bill Minimum wage (Bangkok) Baht 300/day

0501 0507 0601 0607 0701 0707 0801 0807 0901 0907 1001 1007 1101 1107 1201 1207 1301 1307 1401

Skanem Bangkok Co. Ltd. Amata Nakorn Industrial Estate 700/247 Moo 1 Bankao, Panthong Chonburi 20160 Thailand

2009

Skanem is a leading producer of self adhesive labels with 13 labelling plants in 9 countries in Europe, Asia and Africa. Skanem Bangkok opened June 2007 and is Skanem’s first establishment in South-East Asia.

Melvær&Lien The Idea Entrepreneur Photo: Tom Haga

SMARTER LABELLING SOLUTIONS

Thai-Norwegian Chamber of Commerce Thai-Norwegian Business Review

51


Getting to know the members

Dr. Kristian Bø Honoured

Aina Eidsvik Aibel (Thailand) Ltd. Member since 2011

What most people don’t know about you? I love big cities and I rarely go skiing so my friends call me a fake Norwegian. The wildest/weirdest thing you have done? I commuted between Bangkok and Laem Chabang for 2 years and spent 4-5 hours in the car every day on top of long working hours.

What is your biggest achievement so far? Too confidential to talk about. In general I’ve had some challenges in my life – both professionally and privately and it tends to bring out the best in me. When was the first time you came to Thailand? 2006 What do you like most and least about living in Thailand? I like the Buddhist mindfulness and I admire how the Thais handle long working hours or hardship with little complaint. I also like the temples, the food and the climate. I do not like the driving culture and the lack of consideration for pedestrians. Where is your favourite weekend getaway in Thailand? Bangkok of course! If you become Bangkok Mayor for one day, what will be the first thing you do? Improve the education for the poor and fight corruption.

Your favourite place(s) or restaurant(s) in Bangkok? Try the Food Academy in Klong Toey, eat delicious food and support a good cause as well. http://foodacademybangkok. com Langsuan road with all it’s restaurants and cafèes is another favourite. The last book you’ve read? Buddhaland Brooklyn by Richard C. Morais.

Caption: Dr. Kristian Bø flanked by H.E. Ambassador Katja Christina Nordgaard (left) and Chamber President Vibeke Leirvåg (right).

Dr. Kristian Bø was recently appointed Honorary Member of the Thai-Norwegian Chamber of Commerce. Kristian has been active in Norwegian business circles since his arrival in Thailand in 1983 and was one of the founding members of the Thai-Norwegian Chamber of Commerce in 1996. At the Seafood under the Stars dinner in December 2013 he was presented with a plaque honouring his work and dedication for the Chamber.

Where do you live in 10 years? Bangkok with frequent trips to London..

52

Thai-Norwegian Chamber of Commerce

Thai-Norwegian Business Review

53


Continued from page 23

Dr. Somkiat Tangkitvanich, president of the Thailand Development Research Institute (TDRI), believes the problem stems from a lack of accountability. Neither teachers, school administrations, nor the government are accountable to the students or their parents for poor performances. This is because their fates are not tied to students’ learning outcomes, he said. Curriculum focuses on testing a student’s ability to memorise an answer rather than understanding a subject. Students are rarely ever failed in Thai schools, as the schools kowtow to parents providing the money to keep operating. Teachers can continue to receive promotions and higher salaries even if their students fail their tests. The TDRI wants teachers and administrators’ remuneration linked to improvements in students’ learning outcomes. It suggests proposals to overhaul the country’s education policy. First, Thai students have to be taught to think for themselves, learning critical thinking and teambuilding skills. They also need to know IT skills to be able to live and work in the 21st century, said Dr. Somkiat. Second, the country should replace its standardised performance assessments with literacy-based tests. Schools and teachers should also be assessed so they are accountable for students’ learning progress. Thai teachers know the current testing and learning systems are not working, as the 2012 Ordinary National Educational Test showed that Mathayom 6 (Grade 12) students on average scored less than half of the total in all main subjects, namely Thai, social studies, English, mathematics and science. In fact, their average scores were lower than 30 out of 100 in math and English. Teacher training must be prioritised and decentralised so schools can choose the training programmes that best suit them. The country should lose its overly detailed assessment criteria, focusing only on basic fundamentals,

54

Thai-Norwegian Chamber of Commerce

said TDRI. Thailand also does not produce enough quality graduates for its domestic vocational labour market. Dr. Reve sees some merit in Asia following a model that emphasises improving teacher quality. “The amount of money spent on education in Asia will continue to grow. The key to quality education is quality teachers, so more emphasis should be put into training and re-educating teachers,” he said. “An inspiring and caring teacher is the real hero of the educational system. Asia is on the fast track when it comes to education and educational quality, but the variations are still too large, and not every child gets access to quality education. Avoiding school drop-outs should be another high priority, as it increasingly is in the West.” “Employers report difficulties hiring people with problem-solving skills and good work habits, as well as finding applicants with even basic reading skills,” Dr. Yongyuth Chalamwong, a labour academic with TDRI, told Bangkok Post in 2012. As skill requirements for entry-level positions increase over the years, many have responded to shortages by hiring less qualified candidates or leaving positions unfilled, said Dr. Yongyuth. As a result, productivity has declined. The government recently established the Board of Basic Education Curriculum Reform, chaired by Prof Pavich Thongroj, an advisor to the education minister, with the goal of improving the current workforce’s education by allowing some to return to school to upgrade their skills, improve their functional literacy, and ultimately raise their productivity. Helping undereducated adults and improving vocational curriculum in schools is worthwhile, but it is merely a drop in the bucket compared to the tidal wave of reform that needs to occur for Thailand to keep pace with its Asian counterparts after the economic integration of the ASEAN Economic Community in late 2015.


TNBR 2014-01  

Thai-Norwegian Business Review Special Issue Norway-Asia Business Summit 2014

TNBR 2014-01  

Thai-Norwegian Business Review Special Issue Norway-Asia Business Summit 2014