ASEAN Business Advisory Council 2012 This work is subject to copyright. The work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgement of the source. ASEAN BUSINESS ADVISORY COUNCIL The ASEAN Business Advisory Council (ASEAN-BAC) was established by the ASEAN Heads of State and Government (HOSGs) at the 7th ASEAN Summit in November 2001 in Bandar Seri Begawan, Brunei Darussalam. Inaugurated at the ASEAN Secretariat in Jakarta, Indonesia in April 2003, ASEAN-BAC’s primary mission is to promote public-private sector partnership in the creation of an ASEAN Economic Community (AEC). ASEAN-BAC provides private sector feedback on the implementation of ASEAN economic cooperation and identifies priority areas for the consideration of the ASEAN Leaders. More information on the ASEAN-BAC can be obtained from www.asean-bac.org LEE KUAN YEW SCHOOL OF PUBLIC POLICY The Lee Kuan Yew School of Public Policy (LKY School) was formally established in 2004 as an autonomous graduate school of the National University of Singapore (NUS). Its mission is to provide opportunities for the education and training of the next generation of Asian policymakers and leaders, with the objective of raising the standards of governance throughout the region, improving the lives of the people in the region and, in so doing, contribute to the transformation of Asia. More information on the LKY School can be obtained from www.spp.nus.edu.sg An appropriate citation for this report is: Wong, M-H. and Wirjo, A., 2012. Findings from 2011-12 ASEAN-BAC Survey on ASEAN Competitiveness, Jakarta: ASEAN Business Advisory Council. A copy of this report can be downloaded at: www.spp.nus.edu.sg/docs/2011-12_ASEAN_BAC_Survey_Report.pdf or www.asean-bac.org ACKNOWLEDGEMENTS The ASEAN-BAC Survey on ASEAN Competitiveness is conducted by the ASEAN Business Advisory Council (ASEANBAC) in collaboration with Dr Marn-Heong Wong, Assistant Professor at the Lee Kuan Yew School of Public Policy. Sincere gratitude goes to the following organizations for their kind assistance during the survey period: ASEAN-BAC Secretariat, ASEAN SME Working Group, US-ASEAN Business Council, Asia Inc Forum, Brunei National Chamber of Commerce and Industry, Cambodia Chamber of Commerce, Phnom Penh Chamber of Commerce, Dharma Bhakti Astra Foundation (Indonesia), Employers’ Association of Indonesia, Indonesian Chamber of Commerce and Industry, StartUp Lokal (Indonesia), Lao National Chamber of Commerce and Industry, Kuala Lumpur Malay Chamber of Commerce, SME Corporation Malaysia, Union of Myanmar Federation Chambers of Commerce and Industry, Philippine Chamber of Commerce and Industry, Singapore Business Federation, Board of Trade of Thailand, The Federation of Thai Industries, The Nation (Thailand), Vietnam Chamber of Commerce and Industry. The financial support provided by YCH Group for the conduct of the survey and publication of this report is gratefully acknowledged. Special thanks also go to Theresa Theodorus for designing the cover of this report.
KEY POINTS
The 2011-12 ASEAN-BAC Survey collated 405 usable responses across various firm-size categories, age and ownership profiles and industries from all ten ASEAN member economies.
The ASEAN region has good prospects for attracting investments. 36.5 percent of businesses indicated an ASEAN country as offering the best prospects worldwide for their organization’s offshore direct investments over a three-year horizon (2011/12 – 2013/14). 88 percent of businesses planned to invest or increase investments in at least one ASEAN country. ASEAN’s attractiveness was also rated higher than China’s both as a market for the sale of goods and services and as a production location.
ASEAN’s overall attractiveness influences business investment decisions. A significant 39 percent of businesses considered the investment attractiveness of ASEAN as a whole when planning their investments in ASEAN countries over the next three years. This might suggest that ASEAN’s move to create a single market and production base is gaining recognition; some two-thirds of the businesses that considered ASEAN’s overall attractiveness had at least general knowledge of ASEAN policy initiatives.
There is a clear gap between the relatively high importance attached by businesses to AEC Blueprint implementation and their average level of satisfaction with ASEAN’s implementation. The areas of AEC Blueprint implementation that businesses had identified as being among the least satisfactory related to increasing foreign equity participation in services sectors, consultation with businesses, development and implementation of mutual recognition of professional qualifications, development or enhancement of national competition policies and dissemination of information. The areas where the gap between importance and satisfaction was widest were investment protection, simplification of customs procedures and enhancing the transparency of non-tariff barriers.
Financing is a critical area for SME development and internationalization, but businesses want to see ASEAN member governments step up on a few other areas related to networking and information dissemination. Financing was rated by businesses to be by far the most important across 17 government initiatives, followed by the promotion of SME innovations and creativity. However, the areas that businesses across a number of ASEAN countries were least satisfied with included platforms to promote networking among SMEs in ASEAN, business missions to other ASEAN countries, information on opportunities from ASEAN and ASEAN-plus FTAs and FTA-related documents, and information on SME Service Centres, non-bank funding availability and available technology for SMEs in ASEAN.
Arising from these findings, ASEAN-BAC would like to make the following policy recommendations to ASEAN: (1) A measure of ASEAN’s success in forging closer economic integration will lie in a rise in the number of businesses that would plan their investments in ASEAN countries by adopting an ASEAN-wide perspective. To this end, ASEAN needs to not only ensure the continuous effective implementation of measures towards an AEC but also raise awareness among businesses of the measures being undertaken so that they can better exploit the opportunities that arise. (2) ASEAN in particular should strengthen its implementation in areas of the AEC Blueprint that businesses found to among the least satisfactory or where the gaps between importance and satisfaction level were the widest. (3) In the area of promoting SME development and internationalization, ASEAN, especially the ASEAN SME Working Group, could reference the views of businesses from this survey in their prioritization and implementation of work plans.
Background and aims The ASEAN region has continued to display resilience amid the uncertain world economic environment that has unfolded after the 2008 global crisis. The Gross Domestic Product (GDP) of ASEAN as a whole grew by a sound 5.3 percent in 2011, after a spurt to 7.4 percent in 2010. Trade and foreign direct investment (FDI) inflows, which contribute significantly to the region’s economic development, have rebounded from their contractions in 2009. The value of ASEAN’s export of goods, which accounts for some 85 percent of ASEAN’s total exports, grew by 29.3 percent and 17.8 percent in 2010 and 2011 respectively. More notably, ASEAN’s share of world export of goods has averaged 6.7 percent between 2009 and 2011, up from an average of 6.3 percent for much of the 2000s. ASEAN has also experienced an increase in the value as well as its world share of FDI inflows. ASEAN received a record US$79 billion in FDI in 2010, which was more than double the level in 2009 and surpassed the pre-crisis peak value of US$76 billion in 2007. A number of ASEAN countries have reported further increases in FDI in 2011, which reached record and near-record levels for Indonesia and Singapore respectively1. ASEAN’s share of world FDI inflows of 6.4 percent in 2010 was its highest annual share since the mid-1990s. These are encouraging developments and the challenge for ASEAN is to sustain the positive momentum2. ASEAN has identified deeper economic integration as the means to enhancing the region’s competitiveness and attractiveness to business. Since 2008, ASEAN has been implementing a broad range of measures to realize an ASEAN Economic Community (AEC) by 2015, which will establish ASEAN as a single market and production base. To find out how businesses view ASEAN’s prospects for attracting trade and investments and their perspectives on the AEC, the ASEAN Business Advisory Council (ASEAN-BAC) initiated a survey of businesses based in ASEAN in 2010 in collaboration with a faculty member of the Lee Kuan Yew School of Public Policy, National University of Singapore. Findings from the 2010 ASEAN-BAC Survey on ASEAN Competitiveness and related policy recommendations were reported to ASEAN Leaders in Hanoi in October 2010 and ASEAN Economic Ministers in Manado in August 20113. The 2011-12 ASEAN-BAC Survey on ASEAN Competitiveness continues to track business sentiments towards the attractiveness of ASEAN to trade and investments and the effectiveness of AEC Blueprint implementation. The 2011-12 Survey also includes a special section that collates responses on how businesses assess the relative importance of different policy areas in promoting SME development, in particular, SME participation in trade and investment activities in ASEAN. Preliminary results were reported to ASEAN Leaders at their dialogue session with ASEAN-BAC on 17 November 2011 in Bali. Survey methodology The 2011-12 ASEAN-BAC Survey was conducted across all ten ASEAN member economies between September 2011 and March 2012. It was disseminated to the private sector through various channels, including but not limited to the ASEAN-BAC Secretariat and Council Members, ASEAN Small and Medium Enterprise Agencies Working Group, national business organizations and local research assistants. The procedures for identifying companies and distributing the survey were left to the discretion of each dissemination point. Potential respondents were invited to participate in the survey through a mix of emails, postal mails, phone calls as well as through social media such as LinkedIn and StartUp Lokal, an online community of young Indonesian entrepreneurs. 1
Similar to the 2010 Survey, respondents were given a structured questionnaire and requested to provide responses from the perspectives of their organizations (in the country in which they were based) to approximate organizational-level business perceptions on ASEAN competitiveness and economic integration. The survey was available in paper and electronic formats and selfadministered by the respondents; participation was voluntary. Results from the 2011-12 Survey are compared with findings from other studies where available to highlight similarities or differences. They are also compared with results from the 2010 Survey where appropriate, to note if responses had changed over time4. Respondent profile 405 usable responses were collected at the end of the survey period across the ten ASEAN economies. Indonesia accounted for over a quarter of the total number of respondents, while Singapore, Vietnam, Thailand and the Philippines together contributed another 47 percent (Figure 1(a)). The higher share of respondents from these countries was partly by design, as these are the larger economies by population size and/or GDP. By firm-size categories, 40 percent of the respondents were from small firms, while 24 and 36 percent were from medium-sized and large enterprises respectively (Figure 1(b)). Of the large enterprises, 14 percent were identified by the respondents as Asian Multinational Corporations (MNCs) and 16 percent were identified as global MNCs. There is no standard definition of small and medium enterprises in ASEAN, and firms are classified by employment size thresholds in this report, where small, medium and large firms are defined as those having less than 50 employees, 50-200 and more than 200 employees respectively. In terms of industry profile, the main activity of 45 percent of the businesses was in the services sector, with 37 percent in the manufacturing sector and 18 percent in other sectors such as agriculture, mining and construction. Two-thirds of the businesses were wholly locally-owned while the remaining one-third had varying degrees of foreign ownership (Figure 1(c)). Small firms made up the largest share of locally-owned firms (47 percent) while close to half of the businesses with foreign equity were large firms. More than 90 percent of the businesses were majority-owned by the private sector. By firm age, the sample had relatively few young firms with less than two years in operation (3 percent). Close to two-thirds of the firms had been in operation for more than 10 years (Figure 1(d)). On average, companies had been in operation for approximately 8 years before embarking on export or overseas investment activities.
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Figure 1: Respondent profile (% of Respondents)
a. Respondent location
b. Firm size
c. Foreign equity ownership
d. Firm age
Source: Authors’ calculations based on survey data
Intra-ASEAN trade and investment links Nearly 80 percent of businesses in the sample had trade and/or investment linkages within ASEAN. The two most common types of links, as indicated separately by 28 percent of respondents, were the establishment of branches/subsidiaries in other ASEAN countries and export through foreign agents/distributors (Figure 2). A relatively lower proportion of firms (19 percent) were involved in joint ventures with local companies in other ASEAN countries. 25 percent of firms were engaged in indirect exporting either through production links with MNCs and/or through other domestic agents.
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By firm size, a higher share of large enterprises (85 percent) had intra-ASEAN trade and investment links relative to small firms (72 percent). The most common link for large firms was through the establishment of branches/subsidiaries while more of the small firms were involved in indirect exporting and/or exporting through foreign agents/distributors. This would concur with the view that small firms, constrained by their resources, face greater barriers when attempting to engage in outward FDI.
Figure 2: Types of intra-ASEAN trade and investment links (% of Respondents)
Note: Each respondent was allowed to select multiple responses. Percentages do not sum up to 100%. Source: Authors’ calculations based on survey data
Familiarity with ASEAN policy initiatives Close to 60 percent of respondents indicated that they had at least general knowledge of ASEAN policy initiatives related to trade and investments such as the ASEAN Free Trade Agreement (AFTA), ASEAN Industrial Cooperation Scheme (AICO) and AEC (Figure 3). This was higher than the 2010 Survey, where only slightly more than half of the respondents did so. 11 percent of respondents indicated that they had no knowledge of ASEAN policy initiatives at all. Respondents from large firms were more likely to have general to good knowledge of ASEAN policy initiatives compared with those from small and medium-sized firms.
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Figure 3: Knowledge of ASEAN policy initiatives (% of Respondents)
Source: Authors’ calculations based on survey data
ASEAN’s competitiveness for investments ASEAN’s investment attractiveness in the global economy 36.5 percent of respondents indicated an ASEAN country as offering the best prospects worldwide for their organization’s offshore direct investments over a three-year horizon (2011/12-2013/14), with Singapore, Vietnam and Malaysia among the more frequent choices (Figure 4). This proportion was lower than the 48 percent share in the 2010 Survey and reflected an increase in the share of respondents identifying a country in the ‘others’ category as their top-ranked investment location. ‘Others’ included a mix of developed and developing countries such as Australia, Brazil, France, Germany, Japan, Qatar, Russia, South Korea and the United Kingdom. The greater attractiveness of some of these countries compared with ASEAN destinations is supported by their rankings based on the 2012 A.T. Kearney FDI Confidence Index (A.T. Kearney 2011), which measures countries’ prospects for FDI flows using survey responses from global executives. For example, Australia, Brazil and Germany were placed above Singapore, the top ASEAN destination. The share of respondents stating China as the most attractive investment destination (28 percent) was similar to the share in the 2010 Survey. Although ASEAN’s share as the top investment destination had fallen across all firm-size categories compared with the 2010 Survey, a higher share of small firms (41 percent) still perceived one of the ASEAN countries to offer the best prospects for their offshore investments compared with the large firms (35 percent), as was observed in the 2010 Survey. A higher share of large firms (32 percent), relative to their small counterparts (22 percent), continued to favour China as their destination of choice. The preference of small firms to invest in an ASEAN country would reflect their more limited
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resources and capacity to develop and supply more distant and larger markets, compared with large firms.
Figure 4: Country that offers the best prospects for organization’s offshore direct investments over the next three years (2011/12 - 2013/14) (% of respondents) By firm size
Source: Authors’ calculations based on survey data
Relative attractiveness of ASEAN and China The relative attractiveness of ASEAN and China for investments was further assessed in a question that requested respondents to rate their attractiveness separately as a market for the sale of goods and services and as a production location over the next three years, on a scale of 0 (very low) to 10 (very high). ASEAN’s attractiveness was rated higher than China’s both as a market (7.18 versus 6.60) and a production base (6.67 versus 5.88) (Figure 5). This finding was consistent across all firm-size categories. It was further noted that compared with the 2010 Survey, China received lower ratings on its attractiveness as a market and a production base by around 0.6 points while ASEAN’s ratings were similar in the 2010 and 2011-12 Survey. The reduced attraction of China as a production location could reflect its tightening labour market and rising labour costs. Indeed, in the 2011/2012 ASEAN Business Outlook Survey conducted by the American Chamber of Commerce in various ASEAN countries (AmCham in Singapore 2011), rising costs in China was cited by some U.S. (United States) companies operating in ASEAN as one of the top-three reasons why they assessed ASEAN markets to become more important for their worldwide operations and revenues in the next two years. A third of respondents in Vietnam planned to diversify business from China to ASEAN although only 15 percent of respondents in the overall sample planned to do so. Various recent news articles5 have also reported that ASEAN countries such as Vietnam, Indonesia and Cambodia are increasingly being viewed as lower cost alternatives to China. 6
It should be noted, however, that despite some evidence of ASEAN’s rising appeal over China, business sentiments towards investment in China have remained largely positive. China stayed as the top-ranked country by the 2012 A.T. Kearney FDI Confidence Index, a position it has held since 2002. In a 2011 survey on the international operations of Japanese firms conducted by Japan External Trade Orgnization (JETRO) (2012), China was indicated by the highest share of companies as the destination for their expansion plans across all functions of overseas operations such as sales operations, production, research and development, and regional headquarters.
Figure 5: Attractiveness of ASEAN and China a. As a market for goods & services
b. As a production location (Ratings)
Note: The differences in ratings between ASEAN and China both as a market and a production location are statistically significant. Source: Authors’ calculations based on survey data
Investment attractiveness among ASEAN countries As a reflection of ASEAN’s considerable attractiveness to investors, 88 percent of respondents indicated that their organizations planned to invest or increase investments in at least one ASEAN country (including the country in which they were based) over the next three years (2011/122013/14). Half of the businesses intended to invest in Indonesia, while over 40 percent of businesses planned to do so in Vietnam, Singapore, Thailand and Malaysia (Figure 6). This result is broadly similar to the findings from the 2011/2012 ASEAN Business Outlook Survey, where 85 percent of the U.S. companies surveyed planned to expand in ASEAN over the next two years. Indonesia was the most popular country for expansion, followed by Vietnam, Thailand, Singapore and Malaysia. In the JETRO survey, the top ASEAN destinations for firms’ business expansion across sales and production functions over the next three years were Indonesia, Thailand and Vietnam. The attractiveness of each ASEAN member economy for investments was further rated by respondents on a scale of 0 (very low) to 10 (very high). Indonesia received the highest rating of 6.89. 7
This was followed by Vietnam (6.29), Singapore (6.07), Thailand (6.04) and Malaysia (5.69). Unsurprisingly, there is a close correspondence between the attractiveness rating of a country and the share of businesses planning to invest in that country over the next three years.
Figure 6: ASEAN countries that organizations plan to invest in over the next three years; Attractiveness ratings by ASEAN country (Ratings / % of Respondents)
Notes: (1) Value next to each bar reflects the percentage of respondents that plan to invest or increase investments while value within the bar shows respondents’ average rating on the investment attractiveness of each country. (2) Each respondent was allowed to select multiple responses. Percentages do not sum up to 100%. Source: Authors’ calculations based on survey data
Constraints of business environment in ASEAN countries Respondents were requested to rate the degree of constraint posed by a range of business environmental factors such as infrastructure, laws and regulations and anti-competitive practices to their organization’s operations in the country in which they were based on a scale of 1 (very low) to 5 (very high). As shown in Table 1, businesses based in Singapore assessed that they faced the lowest level of constraint on average in their overall operating environment, followed by businesses in Brunei. Businesses based in Vietnam indicated that they faced the highest level of constraint, followed by those in the Philippines and Indonesia. There were a few common factors among the top-three constraints faced by businesses in a number of ASEAN countries. These were corruption (Indonesia, Malaysia, Myanmar, Philippines and Thailand), laws and regulations (Indonesia, Laos, Malaysia, Philippines and Thailand) and tax rates 8
and administration (Cambodia, Malaysia, Myanmar and Vietnam). Infrastructure was a top constraint in Cambodia, Myanmar and the Philippines, while business licensing and operating permits posed the highest degree of constraint in Brunei and Laos. These findings accord with those in the Global Competitiveness Report 2011-2012 (World Economic Forum 2011), where similar areas were identified as the more problematic factors or less competitive areas in a number of ASEAN countries. Respondents in the 2011/2012 ASEAN Business Outlook Survey had also identified areas such as corruption and laws and regulations as being among the least satisfactory in some ASEAN countries. On the other hand, crime, theft and disorder were rated by respondents to pose the least constraint to their operations in a majority of ASEAN countries.
Table 1: Degrees of constraints posed by business environmental factors in each ASEAN country (Ratings)
Notes: (1) The rating on the constraint posed by the overall business environment is calculated for each country as the simple average of the ratings across the ten factors. (2) The top two constraints for each country are in red while the lowest two constraints are in green. Source: Authors’ calculations based on survey data
ASEAN as an integrated investment destination Despite ASEAN’s ongoing efforts at achieving closer economic integration, it appears to be the prevailing view that most businesses still regard ASEAN as a region of ‘ten different markets with ten different rules and regulations’ (Hutagalung 2010). Earlier surveys on the investment climate in Southeast Asia did not explore this issue as they considered the degree of regional integration not to be a significant factor in influencing investment decisions (Severino 2006).
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In a question that was new to the 2011-12 Survey, respondents were asked if their organization planned its investments over the next three years in ASEAN countries by considering the investment attractiveness of the ASEAN region as a whole. 39 percent of respondents answered in the affirmative (Figure 7). Although this was lower than the 45 percent of businesses that considered the attractiveness of individual ASEAN country in their investment decisions, it was a significant share. 16 percent considered the attractiveness of neighbouring groups of ASEAN countries. There was no appreciable difference across firm-size categories. The results were also similar across country subsamples, except for Thailand and Vietnam, where a higher proportion of respondents (55 and 49 percent respectively) indicated that their organizations viewed ASEAN as a whole in planning their investments. The finding that a significant share of businesses took into account ASEAN’s overall investment attractiveness might point to a rising consciousness among businesses of ASEAN’s initiatives to create an AEC and of the opportunities that a more integrated ASEAN might bring, as ASEAN member governments implemented more measures under the AEC Blueprint and stepped up their outreach efforts to different extents. Indeed, it was observed that some two-thirds of respondents whose organizations considered the investment attractiveness of ASEAN as a whole had at least general knowledge of ASEAN policy initiatives related to trade and investment, compared with around half of the respondents whose organizations made their investment decisions based on the attractiveness of individual ASEAN country.
Figure 7: Organization’s consideration of ASEAN’s investment attractiveness as a whole in planning investments in ASEAN countries (% of Respondents)
Source: Authors’ calculations based on survey data
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The importance and effectiveness of ASEAN policy initiatives Use of preferential provisions in ASEAN agreements ASEAN’s AEC initiative is built on earlier initiatives, the most significant of which was the agreement in 1992 to establish an ASEAN Free Trade Area, where almost all goods have been traded at no tariff among the ASEAN-6 countries (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) from 2010. The CLMV countries (Cambodia, Laos, Myanmar and Vietnam) have until 2015 to remove tariffs on products traded within ASEAN. Since 2002, ASEAN has also concluded five free trade or economic partnership agreements with its dialogue partners: Australia-New Zealand, China, India, Japan and South Korea (‘ASEAN-plus FTAs’). 29 percent of respondents indicated that their organizations used preferential provisions in ASEAN and/or ASEAN-plus economic agreements (Figure 8), which was higher than the 22 percent in the 2010 Survey. A higher share (36 percent) of large firms were users compared with small firms (21 percent), as with the 2010 Survey. Companies with some degree of foreign equity ownership (34 percent) were more likely to be users than wholly locally-owned companies (28 percent). 25 percent of respondents indicated that their organizations planned to use preferences, while 46 percent had no plans to do so. Across country subsamples, a larger proportion of businesses in Thailand and Vietnam were users of FTAs (47 and 45 percent respectively) compared with businesses in other ASEAN countries, where the share ranged from 20 percent (Brunei and Indonesia) to 30 percent (Cambodia).
Figure 8: Use of preferential provisions in ASEAN agreements (% of Respondents)
By firm size
Source: Authors’ calculations based on survey data
Importance of AEC Blueprint implementation and satisfaction level The AEC Blueprint sets clear timelines and targets for the implementation of measures across an array of policy areas towards an AEC from 2008 to 2015. According to the AEC Scorecard published 11
by the ASEAN Secretariat (2012), 67.5 percent of measures scheduled under phase one (2008-2009) and phase two (2010-2011) have been implemented as of end-December 2011. Respondents were asked to rate the importance of 14 of the policy areas in the AEC Blueprint to enhancing trade and investments in ASEAN as well as their level of satisfaction with ASEAN’s implementation of measures in these areas on a scale of 1 (very low) to 5 (very high). The policy areas are listed in Figure 9 and elaborated in the glossary in Appendix 1. All the policy areas were rated by respondents as being of above-average importance to enhancing trade and investments in ASEAN, with ratings ranging from 3.54 to 4.18. The three areas that received the highest ratings on importance were investment protection (4.18), simplification of customs procedures (4.09) and enhancing transparency of non-tariff barriers (4.06). In terms of satisfaction with AEC Blueprint implementation, the satisfaction levels expressed by respondents across the policy areas were between slightly below average to slightly above average, with the ratings ranging from 2.93 to 3.20. The three areas that respondents were least satisfied with related to increasing foreign equity participation in services sectors (2.93), consultation with businesses on AEC initiatives (2.96) and the development and implementation of mutual recognition of professional qualifications (3.00). Further analysis revealed that respondents from services industries in particular expressed low levels of satisfaction with ASEAN’s efforts to facilitate trade in services through higher foreign equity participation and the implementation of mutual recognition agreements for professional services. Across country subsamples, in addition to the above-mentioned three areas, which generally received the lowest or lower satisfaction ratings, businesses in Singapore, Thailand and the Philippines were also less satisfied with ASEAN’s efforts to develop or enhance national competition policies to create a fair competition environment and businesses in Indonesia, Laos and Singapore were less satisfied with the dissemination of information on AEC initiatives. Dissemination of information, consultation with businesses and restrictions on services trade for priority sectors were the areas that had obtained the lowest satisfaction ratings in the 2010 Survey. The absolute ratings of the policy areas by importance and satisfaction level showed a clear gap between the importance that respondents attached to AEC Blueprint implementation, which was relatively high, and their level of satisfaction with ASEAN’s implementation, which was around average. The gap between importance and satisfaction was widest in the areas of investment protection (by 1.16 points), simplification of customs procedures (1.08) and enhancing the transparency of non-tariff barriers (1.05).
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Figure 9: The importance of AEC Blueprint by policy areas for organizations and their satisfaction levels with its implementation (Ratings)
Source: Authors’ calculations based on survey data
SME development and internationalization ASEAN cooperation to enhance SMEs’ competitiveness and resilience is set out in the ASEAN Strategic Action Plan for SME Development (2010 – 2015), which comprises policy measures and programmes under the headings of access to financing, facilitation, technology development, promotion and human resource development. The Action Plan is implemented by the ASEAN SME Working Group with SME agencies in member economies and the private sector. SMEs form the backbone of ASEAN economies, accounting for more than 96 percent of all enterprises and contributing substantively to employment and GDP. Moreover, the 2010 ASEAN-BAC Survey had shown that a higher share of smaller firms found ASEAN to be most attractive as an investment destination compared with large firms. Arising from this finding, one policy recommendation made by ASEAN-BAC in the 2010 Survey Report was that ASEAN could substantially raise its efforts to promote SME internationalization, in particular through engagement of ASEAN local SMEs in intra-ASEAN trade and investment activities. In support of this recommendation, the 2011-12 Survey had sought the views of businesses on the relative importance (on a scale of 1 (very low) to 5 (very high)) of 17 policy measures listed in Figure 10 to promote SME development and internationalization so as to inform government priorities. Respondents were also requested to indicate their level of satisfaction with government initiatives in these areas in the country in which they were based, similarly on a scale of 1 (very low) to 5 (very high). In terms of importance, respondents viewed government initiatives across all 17 areas to be of above-average to high importance, with ratings ranging from 3.73 to 4.28. Financing was assessed by businesses to be by far the most important area, followed by the promotion of SME innovations and 13
creativity. The other areas regarded by businesses as being of higher importance were programmes for skills training such as in management, marketing and IT skills, the dissemination of information on opportunities in trade and investment in ASEAN countries and information specifically on opportunities arising from ASEAN and ASEAN-plus FTAs. Across country subsamples, financing was rated to be of the highest importance by businesses based in almost all the ASEAN countries, indicating a consensus that this was a critical area in facilitating SME development and internationalization. While some of the areas that received the second and third highest ratings on importance in the different country subsamples were similar to the areas identified in the overall sample, a few other areas were regarded by businesses in a number of countries also to be greater importance. These included information on and assistance for SMEs to participate in trade fairs and festivals in ASEAN, platforms to promote networking among SMEs in ASEAN and programmes for good practice in financial management.
Figure 10: The importance of government initiatives to promote SME development and internationalization (Ratings)
Source: Authors’ calculations based on survey data
Respondents based in different countries expressed different levels of satisfaction with government initiatives in the 17 policy areas in their respective countries. Areas that were rated as above average in one country could be rated as below average in another, which would reflect the different focus and effectiveness of national governments in implementing measures across the 17 areas. In terms 14
of overall satisfaction across all 17 policy areas within each country, the ratings for ASEAN countries ranged from below average (2.44) to above average (3.48). Cambodia and Vietnam received the highest ratings while Indonesia and the Philippines obtained the lowest ratings (Table 2). Among the areas rated by businesses across country subsamples as the three least satisfactory, several areas were common to a few country subsamples. These pertained mainly to policy measures to increase the opportunities for SMEs to trade and invest in the region, such as providing platforms to promote networking among SMEs in ASEAN, conducting business missions to other ASEAN countries and disseminating information on opportunities in trade and investment in ASEAN countries and specifically, from ASEAN and ASEAN-plus FTAs. Businesses in a number of countries were also less satisfied with three other areas of information dissemination, namely, on SME Service Centres, non-bank funding availability and available technology for SMEs in ASEAN. Interestingly, financing was not among the least satisfactory areas and in fact was among the top areas that businesses were more satisfied with.
Table 2: Satisfaction with government initiatives to promote SME development and internationalization by ASEAN country (Ratings)
Notes: (1) The rating on the overall satisfaction level for each country is calculated as the simple average of the ratings across the 17 areas. (2) The areas receiving the three highest ratings for each country are in green while the areas receiving the three lowest ratings are in red. Source: Authors’ calculations based on survey data
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Overall assessment and policy recommendations The 2011-12 ASEAN-BAC Survey on ASEAN Competitiveness collated responses from businesses across all ten ASEAN countries, comprising a mix of small, medium and large firms. More of the businesses were wholly locally-owned, among which was a higher share of small firms, while large firms tended to have different degrees of foreign equity ownership. A majority of the businesses had been in operation for more than ten years, had trade/investment linkages within ASEAN and had at least general knowledge of ASEAN policy initiatives. A key finding from the 2011-12 Survey is that the ASEAN region holds good prospects for attracting investments. Most of the businesses planned to invest or expand investments in an ASEAN country over the next three years and more than a third of the businesses had identified an ASEAN country as the most attractive location for their investments globally. ASEAN’s attractiveness was also rated higher than China’s both as a market for the sale of goods and services and as a production location. However, it should also be noted that while businesses view ASEAN countries’ attractiveness for investments favourably, the 2011-12 Survey has also shown that a lower proportion of businesses had selected an ASEAN country as their top-ranked investment destination compared with the 2010 Survey, in favour of a mix of developed and developing countries in the ‘Others’ category. Other surveys have also highlighted that investor sentiments towards China remain strong. This underscores the continual competition that ASEAN faces in attracting FDI and emphasises the need for ASEAN member countries to redouble their collective efforts to strengthen the region’s policy environment so that ASEAN remains competitive for investments. The finding that two-fifths of businesses took into account ASEAN’s investment attractiveness as a whole in planning investments in ASEAN countries is encouraging, in light of the commonly-held view that ASEAN remains a fragmented region. This might suggest that ASEAN’s move to create a single market and production base is gaining recognition. The 2011-12 Survey has found that some two-thirds of the businesses that considered ASEAN’s overall attractiveness had at least general knowledge of ASEAN policy initiatives compared with around half of the respondents that considered the investment attractiveness of individual ASEAN country. While knowledge of ASEAN policy initiatives related to trade and investment per se would not prompt businesses to pursue an ASEAN-wide investment strategy, it would be a necessary pre-requisite for businesses to look beyond the prospects offered by individual ASEAN countries to view the potential benefits proffered by ASEAN as a whole. There is a clear gap between the relatively high importance attached by businesses to AEC Blueprint implementation and their average level of satisfaction with ASEAN’s implementation. The areas of AEC Blueprint implementation that businesses had identified as being among the least satisfactory related to increasing foreign equity participation in services sectors, consultation with businesses, development and implementation of mutual recognition of professional qualifications, development or enhancement of national competition policies and dissemination of information. The areas where the gap between importance and satisfaction was widest were investment protection, simplification of customs procedures and enhancing the transparency of non-tariff barriers. Financing is a critical area for SME development and internationalization, but businesses want to see ASEAN member governments step up on a few other areas related to networking and information 16
dissemination. Financing was rated by businesses to be by far the most important across 17 government initiatives, followed by the promotion of SME innovations and creativity. However, the areas that businesses across a number of ASEAN countries were least satisfied with included platforms to promote networking among SMEs in ASEAN, business missions to other ASEAN countries, information on opportunities from ASEAN and ASEAN-plus FTAs and FTA-related documents, and information on SME Service Centres, non-bank funding availability and available technology for SMEs in ASEAN. Arising from these findings, ASEAN-BAC would like to make the following policy recommendations to ASEAN: (1) A measure of ASEAN’s success in forging closer economic integration will lie in a rise in the number of businesses that would plan their investments in ASEAN countries by adopting an ASEAN-wide perspective. To this end, ASEAN needs to not only ensure the continuous effective implementation of measures towards an AEC but also raise awareness among businesses of the measures being undertaken so that they can better exploit the opportunities that arise. (2) ASEAN in particular should strengthen its implementation in areas of the AEC Blueprint that businesses found to among the least satisfactory or where the gaps between importance and satisfaction level were the widest. (3) In the area of promoting SME development and internationalization, ASEAN, especially the ASEAN SME Working Group, could reference the views of businesses from this survey in their prioritization and implementation of work plans.
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Appendix 1 Glossary of Terms in the AEC Blueprint Eliminate tariffs: remove import duties eventually on all products with substantial ASEAN valueadded and traded among ASEAN countries, with some exceptions. Enhance transparency of non-tariff barriers: non-tariff barriers (NTBs) include e.g. import licensing requirements and technical regulations. Transparency is enhanced by ASEAN member countries abiding with the procedures to submit notifications of NTBs and to set up an effective surveillance mechanism. Reform and enhance Rules of Origin: “Rules of Origin� are the criteria used to define where a product was made. Simplification of the operational certification procedures include implementing self-certification by exporters that products satisfy the Rules of Origin. Simplify, harmonize & standardize customs procedures: Measures will include adopting international standards and best practices to secure a uniform system of tariff classification, a synchronized system of value assessment for customs purposes and a harmonized system of origin determination, and the application of information and communication technology (ICT) for digitalized processing and information exchange. Such measures will culminate in the creation of the ASEAN Single Window, which is a single point of entry for traders to submit data and information for customs clearance. Harmonize standards, technical regulations and conformity assessment procedures: align with international practices where applicable, with greater transparency, improved quality of conformity assessment and active participation of the private sector. Increase foreign equity participation in services sectors: allow foreign equity participation by ASEAN-owned or qualified ASEAN-based companies of not less than 70 percent eventually for all services sectors. Develop & implement mutual recognition of professional qualifications: identify, develop and implement mutual recognition arrangements for professional services (e.g. architectural services, accountancy services, medical and dental practitioners) to facilitate greater mobility of qualified services professionals in the region. Protect investors and their investments: to strengthen provisions on investor-state dispute settlement mechanism and treatment of compensation of losses resulting from strife, among others. Establish transparent, consistent and predictable investment rules: measures include to harmonize, where possible, investment policies to achieve industrial complementation and economic integration, streamline and simplify procedures for investment applications and approvals and promote dissemination of information on investment rules, policies and procedures.
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Promote joint investment missions that focus on regional clusters and production networks: organize two inbound and two outbound investment missions annually, and promote regional clusters and production network through ASEAN industrial cooperation initiatives. Liberalize ASEAN member countries’ investment regimes: to harmonize investment measures to facilitate the movement of investments and progressively reduce/eliminate investment restrictions and impediments to realize free and open investment regime with minimal investment restrictions. Develop or enhance national competition policies to create a fair competition environment: to introduce competition policy in all ASEAN member countries and establish a network of competition authorities to discuss and coordinate competition policies.
Endnotes 1
Indonesia sees surge in foreign investment (The Wall Street Journal, 20 January 2012), Foreign firms spent big in S'pore last year (Singapore Straits Times, 18 January 2012). 2
Statistics presented in this paragraph are from authors’ calculations based on data from The Conference Board, United Nations Conference on Trade and Development, ASEAN Secretariat Database and the World Trade Organization. GDP of ASEAN excludes Brunei and Laos. Statistics on export of goods for ASEAN in 2011 are calculated using quarterly data from the WTO and excludes Brunei, Cambodia, Laos and Myanmar. 3
The report on Findings from 2010 ASEAN-BAC Survey on ASEAN Competitiveness can be downloaded at: http://www.spp.nus.edu.sg/docs/publication/ASEAN_BAC_Survey_Report_MHW_F.pdf 4
A qualification applies that differences in responses between the 2011-12 and 2010 surveys could also be due to differences in the composition of respondents in the two surveys and might not indicate a change over time. 5
China no longer a low-cost paradise (The Jakarta Globe, 15 March 2012), Vietnam offers companies China alternative (Financial Times, 14 March 2012), Japanese companies make big move into Vietnam (Financial Times, 10 February 2012).
_________________________ References American Chamber of Commerce (AmCham) in Singapore, 2011. 2011/2012 ASEAN Business Outlook Survey, Singapore, August 2011. ASEAN Secretariat, 2012. ASEAN Economic Community Scorecard: Charting Progress Toward Regional Economic Integration, Phase I (2008-2009) and Phase II (2010-2011), Jakarta: ASEAN Secretariat. A.T. Kearney, 2011. Cautious Investors Feed a Tentative Recovery, December 2011.
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Hutagalung, M., 2010. ‘ASEAN: An Integrated Market?’, in Tiwari, S. (ed.): ASEAN: Life After the Charter, Singapore: Institute of Southeast Asian Studies. Japan External Trade Organization (JETRO), 2012. FY2011 Survey on the International Operations of Japanese Firms – JETRO Overseas Business Survey, March 1, 2012. Severino, R., 2006. Southeast Asia in Search of an ASEAN Community, Singapore: Institute of Southeast Asian Studies. World Economic Forum, 2011. The Global Competitiveness Report 2011-2012, Geneva: World Economic Forum.
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