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Huge opportunities for businesses, but new environment comes with risks

By NOPHAKHUN LIMSAMARNPHUN,

THE NATION

Why is Asean so important to Thailand? On January 1, Thailand and five other inaugural member countries of the regional grouping, founded in 1967, cut more than 90 per cent of their import duties to zero. That ushered in a new era of free trade in a region that promises to play a leading role in driving global economic growth in the decades to come.

The Chinese are also very upbeat on the coming-of-age of Asean, which groups the six founding members - Thailand, Malaysia, Singapore, Indonesia, Brunei and the Philippines - as well as the four new members, namely, Cambodia, Laos, Vietnam and Burma.

Also on January 1, China, the world's most populous market with 1.3 billion people, reduced most of its import tariffs to zero as part of the China-Asean Free Trade Area (CAFTA).

Altogether, we're talking about the world's largest free-trade zone with a combined population of nearly 1.9 billion.

If China's economic growth continues at its feverish pace, the Asian giant will soon overtake Japan as the world's second-largest economy with a gross domestic product of about US$5 trillion (Bt166 trillion), compared to the US's $15 trillion.

This means China's appetite for raw materials and energy will continue to be ravenous for the foreseeable future. In the eyes of China, Asean is a major source of food and related products as well as a huge market of 580 million people for its manufactured goods.

In the new environment of liberalised regional trade, there will be both winners and losers. For example, Thailand's agricultural sector is more vulnerable to increased Asean competition than the industrial sector.

If the government and farmers do not adapt quickly enough, the dominant market position of Thai rice, tapioca or rubber will be jeopardised because their import duties are now zero.

For example, there will soon be cheaper rice from Vietnam or Burma or Cambodia or Laos entering the Thai market. To defend the home turf, it's time to focus seriously on the higher quality of Thai rice as a major selling point, and to take action to boost Thai farm yields so that we can sell more to our Asean neighbours.

For both industrial and farm goods, cost-cutting is another key strategy to embrace in order to survive the increased competition.

The Asean Free Trade Agreement (AFTA) means Thai firms can now source raw materials and semi-finished products as inputs for their production in Thailand throughout the 10-country grouping. Or they may consider relocating their factories to another Asean country to tap the advantageous factors of that host country, which cannot be found in Thailand. This will lower their production cost and increase competitiveness not only in Asean but also in the global market.

For example, Cambodia, Laos, Myanmar (Burma) and Vietnam (CLMV) could be new production bases for Thai firms since, as least-developed countries, they enjoy European Union tariff privileges.

Thai enterprises will also be able to benefit from the economies of scale of a much larger combined market of 580 million consumers, not just 66 million consumers in the domestic market.

On January 1, the six original Asean members already cut most import duties to zero, while CLMV will follow suit in 2015, opening up new market opportunities as well as a new source of abundant labour for factories relocated from Thailand.

More importantly, it isn't just AFTA-plus-one such as CAFTA with China, but Asean is also pursuing the Asean+3 framework (Asean plus China, Japan and South Korea), which will have a combined population of 2.06 billion, accounting for 31 per cent of the world's population and 18 per cent of global GDP.

Secondly, there is also the Asean-plus-six framework in the making. This adds India, Australia and New Zealand, widening the combined population to 3.2 billion, accounting for 22 per cent of world GDP.

In other words, new market openings for Thai exporters will abound in years to come if they are really competitive.

Yet, free trade is a double-edged sword. Many Thai enterprises could be driven out of business in their own domestic market if they are complacent or not well-prepared for increased competition after the import tariff wall was broken down this year.

In this context, some words of wisdom come to mind. First, you have to learn from your new Asean competitors and pay more attention to the more diverse consumer behaviour within the region.

Second, don't forget that cost is the most obvious competitive advantage in the initial stage, so keep your costs as low as possible. Third, highlight your strong points and be aware of your Asean rivals' strengths and weaknesses so that you can adapt properly.

Fourth, strengthen the relationship with your clients, especially if you're subcontractors in supporting industries, because new subcontractors could be sourced more easily within Asean.

Fifth, beware that your skilled workers could be lured away by Asean competitors.

Sixth, your strength, weakness, opportunity and threat (Swot) analysis will have to cover competitors from all nine other Asean countries, not just domestic ones.

Currently, Asean is Thailand's largest export market, bigger than the US or Japan, with Thai shipments to other Asean countries totalling $40 billion while imports from Asean neighbours reached $30 billion last year.

As the second largest Asean economy after Indonesia, Thailand obviously has a high stake in the economic integration of this regional grouping, which went into an advanced stage on January 1.

-- The Nation 2010-02-07

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