Benefits of ASEAN Economic Integration

by Ng Kong Leng

Introduction

I am a seasonal entrepreneur who have been travelling among the ASEAN countries for market development, trade missions organised by MATRADE and business meetings since 2011.

The countries that I have been are Singapore, Philippines, Indonesia, Vietnam and Thailand.

When I heard that ASEAN members will integrate their economies as ASEAN ECONOMIC COMMINUTY (AEC), this is to me, a good news.

The primary objective of this essay is to share my personal experience in doing business in ASEAN, the problems that I have encountered and the benefits I hope to derive from the integration of ASEAN economy.

The secondary objective is to explore the benefits of AEC for SME in a tangible manner.

  1. Why ASEAN

    Malaysia’s economy do not see any significant growth for the past 3 years when compare with Indonesia, Thailand and Philippines.

    My business relies heavily in Malaysia market. However, Malaysia market is considered small in terms of population when compare with Indonesia, Thailand and Philippines.

    Generally, the larger the population, the larger the market size is. Because each member of population is considered a consumer that could buy a product or service.

    Also, I knew that if I rely too heavily on Malaysia market then it would be influenced by the domestic business cycle.

    Therefore, I need to expand my market into ASEAN.

    Moreover, ASEAN countries is easily reachable within 3 hours by flight. Therefore, flight time is not long.

    With AirAisa and other budget airlines, cost of expanding business into ASEAN is coming down.

  2. Introduction – What is AEC?

    AEC blueprint contains 5 characteristics:-

    1. Highly Integrated and Cohesive Economy;

    2. A Competitive, Innovative, and Dynamic ASEAN;

    3. Enhanced Connectivity and Sectoral Cooperation;

    4. A Resilient, Inclusive, People-Oriented, and People-Centred ASEAN; and

    5. A Global ASEAN

    I shall explore the relevant characteristics that could solve my problems and help SME.

  3. (A.1) Trade in Goods – to reduce or eliminate border and behind-the-border regulatory barriers that impede trade, so as to achieve competitive, efficient, and seamless movement of goods within the region

    PROBLEMS

    My current business involves importing hardware from Shenzhen, China. Then it is bundled with my software and export to Philippines.

    Import duty on the hardware are imposed twice, first by Malaysia Custom, second by Philippines Custom. This will make the cost of product more expensive for my Philippines customer.

    Secondly, the problem I am facing is the shipping time. When I ship my product from Malaysia to Philippines using FedEX, it will leave KLIA for Guangzhou, China. Finally reaching Manila, Philippines. This indirect route takes longer time.

    BENEFITS HOPE TO SEE IN AEC

    Under the AEC characteristic of “(A.1) Trade in Goods – to reduce or eliminate border and behind-the-border regulatory barriers that impede trade, so as to achieve competitive, efficient, and seamless movement of goods within the region”, this will solve my first problem of paying for import duty twice.

    Secondly, I can also decide where to locate by business whether in Malaysia or in Philippines as the goods can be shipped quickly and without tax between both countries.

    I hope to see that Malaysia could become a logistic hub for ASEAN countries, where next day delivery is available from Malaysia to all ASEAN countries.

    BENEFITS TO SME

    For example, SME who trade in bolts and nuts that are imported from China may keep some stock in Malaysia warehouse and others in Thailand warehouse. If Thailand warehouse runs out of stock, the item can be replenished from Malaysia warehouse. Under AEC:-

    • no more tax is paid when transferring stock from Malaysia to Thailand;

    • freight cost is cheaper and delivery is faster than re-ordering from China supplier; and

    • Malaysia SME now can increase market share in addition to Malaysia market

  4. (A.2) Trade in Servies – to further broaden and deepen services integration within ASEAN, ASEAN’s integration into the global supply chains in both goods and services, and enhance AMS competitiveness in services

    PROBLEMS

    The challenge for AEC in service integration is the language. English is not the major language among the ASEAN language.

    Philippines has been strong in business process outsourcing. I could have outsource customer service to Philippines, but if I do, then my Filipino customer service officer could not speak Thai language with my Thai customer.

    BENEFITS TO SME

    In to reap the benefit of service integration, Malaysian Professionals such as advertising agencies, freight forwarders, tax advisors, accountants, lawyers should be the pioneer in ASEAN countries in order to familiarise with the local regulations and business environments. Later, they could provide their services to Malaysia SME who wish to venture into ASEAN countries.

    For example, a Malaysia SME who wish to run an advertising campaign in Thailand can engage a Malaysia media company who had gone into Thailand earlier. Both are able to communicate well and the Malaysia media company has knowledge with local Thai culture.

    Without AEC, Malaysia SME may need to engage an international advertising agency which is very expensive or with a local Thai advertising agency which may have communication problem as Malaysia SME cannot speak Thai.

  5. (A.4) Financial integration, Financial inclusion, and Financial Stability – Promote financial integration, financial inclusion and financial stability to support ASEAN macroeconomic stability and growth

    PROBLEMS

    There are many Malaysian banks operating in ASEAN countries, but they are not linked with Malaysia bank account.

    It puzzled me when I opened a savings account with Maybank Philippines and found out that it could not be linked with Mabybank2U.com.my I need to use 2 separate on-line banking:–

    Secondly, I am not able to transfer funds from my Philippines account to my Malaysia account. The only way to transfer funds from my Philippines Maybank account is to fly over to Philippines, goto Maybank Philippines, Manila branch, apply for telegraphic transfer, convert PESO into MYR and transfer MYR to Malaysia Maybank account.

    Thirdly, I have a business partner in the Philippines, I need to pay commission to my partner. At this moment, I am using telegraphic transfer which is very expensive.

    Fourthly, AEC has no plan to adopt a single currency, therefore, USD is still the preferred currency of trade among ASEAN countries. My product is exported to Singapore and to Philippines in USD. The problems with USD are:-

    1. some companies in Philippines have difficulty in making payment in USD;

    2. US government is controlling USD tightly under the Foreign Account Tax Compliance Act, a number of banks are placing barriers in transferring money in USD;

    3. local reserve bank restrict the transfer of USD to prevent money laundering activities.

    At the present moment, the popular methods to transfer funds among ASEAN countries are:-

    1. telegraphic transfer or SWIFT, which is very expensive

    2. Western Union, which is only for individual and not for companies

    BENEFITS HOPE TO SEE IN AEC

    Under the AEC characteristic of “(A.4) Financial integration, Financial inclusion, and Financial Stability”, even though it will not implement single currency, I hope to see the following benefits:-

    • I do not need to travel to Maybank Philippines to perform a funds transfer. I can do it on-line using Maybank2U.com.my;

    • Banks in ASEAN should set-up an integrated payment gateway that is cheaper and faster than telegraphic transfer or SWIFT;

    • I can perform funds transfer via internet banking within my accounts in ASEAN countries or to my agent’s bank account; and

    • there should be three preferred currencies of trade to replace USD – MYR, SGD and either IDR or PHP

    BENEFITS TO SME

    SME can use internet banking to make and receive payment within ASEAN countries and in any currencies.

    For example, Malaysia SME who hire a salesman in these countries – Singapore, Thailand and Indonesia to sell their product. Malaysia SME can receive payment in MYR from customers in Singapore, Thailand and Indonesia. And then the SME pays commission to each salesman in MYR. This will reduce the exchange rate risk for the SME and the complexity in dealing with multiple currencies.

    Imagine, without AEC, the SME receives payment in multiple currencies – SGD, THB and IDR, and need to convert them into MYR that incurs exchange risk. Then the SME needs to pay commission to each salesman in different curencies – SGD, THB and IDR.

  6. (A.5) Facilitating Movement of Skilled Labour and Business Visitors – To facilitate the temporary cross-border movement of natural persons and business visitors engaged in the conduct of trade in goods, trade in services, and investment

     

    PROBLEMS

    When I travel to Indonesia for business purpose, I am required to apply for Business VISA. I need to make 2 trips to Embassy of Indonesia for VISA application – 1st for application and 2nd for collection. The 2 trips are unproductive.

    Secondly, I have difficulty in hiring software developers in Malaysia. To hire a foreign software developer from Philippines, it is required to apply for a working permit. And it will increase the operating cost.

    BENEFITS HOPE TO SEE IN AEC

    I can solve the first problem, business VISA, by having an APEC Business Travel Card. However, not all members of ASEAN are members of APEC and APEC Business Travel Card is not governed by AEC.

    Under the AEC characteristic of “(A.5) Facilitating Movement of Skilled Labour and Business Visitors”, I hope to see a AEC Business Travel Card having similar feature with APEC Business Travel Card that allows entrepreneurs to do business in ASEAN countries without the need to apply for business VISA. This will encourage trade among members of ASEAN.

    As Malaysia is facing shortage of skill labour, under this characteristic there could be solutions:-

    1. by moving my business operation to Philippines or other ASEAN countries; or

    2. by waiving work permit, thereby allowing importing of skill workers from ASEAN countries; I can hire software developer from the Philippines to develop software in my company in Malaysia.

    BENEFITS TO SME

    SME can locate the operation in or near the international transportation hub like Sentral, Tun Razak Exchange, Bukit Bintang City Centre and KL118 TOWER (formerly known as WARISAN MERDEKA).

    SME can hire these skill workers – nurse, software developer, elderly care taker, telephone receptionist, tuition teachers, audit clerks, general clerks, etc. who are able to travel to work from their countries.

    For example, a Malaysia ICT company located in Sentral can hire a programmer from Jakarta. The Jakarta programmer can take a flight from Soekarno-Hatta International Airport to KLIA, take a KLIA Express to Sentral office for work. At end of day, he could return home by the way he comes.

    Furthermore, the influx of skill workers could increase revenue to these industries in Malaysia:-

    • airline

    • transportation

    • food and beverage

  7. (B.3) Strengthening intellectual property rights cooperation – To help AMS move higher up in the technology ladder, encourage transfer of technology and stimulate innovation and creativity

    PROBLEMS

    I have registered a trademark “MOBITEK” with MyIPO. But I have difficulty in registering trademark in all ASEAN countries. If I want to do so, the registration of trademark will have to be done in each ASEAN country and the cost of doing so is very high.

    Secondly, I have the registered the following country code top-level domain (ccTLD):-

    • mobitek.com.my

    • mobitek.com.ph

    • mobitek.my

    • mobitek.ph

    However, I am not able to register the following country code top-level domain (ccTLD):-

    • mobitek.id

    • mobitek.sg

    due to this condition imposed – a registered office in that country or a locally incorporated company in that country.

    The cost will be very high to set-up an office in each ASEAN country in order to comply with the condition.

    Both of the above problems become obstacles for me to register and protect my trade mark in ASEAN countries.

    BENEFITS HOPE TO SEE IN AEC

    Under the AEC characteristic “(B.3) Strengthening intellectual property rights cooperation”, I hope the derive these benefits:-

    1. Registration of trademark can be done on one-stop manner.

    2. Registration of country code top-level domain (ccTLD) can be done on one-stop manner without any condition imposed.

    BENEFITS TO SME

    With China as the world’s manufacturing centre, many SME can import directly from China and sell locally, there is no trading among ASEAN coutries.

    By registering a trade mark as a brand and by value add the imported item from China, Malaysia SME can sell to ASEAN countries and compete with the same product that is imported from China.

    For example, a computer mouse is a common computer accessory. Every country in ASEAN can import directly from China. There is no incentive to trade mouse within ASEAN countries.

    However, if a Malysia SME trade marked, branded and uniquely packaged the mouse with each ASEAN language, then the Malaysia SME can sell the mouse to ASEAN countries.

  8. (C) An Enhanced Connectivity and Sectoral Cooperation: (C.2) Information and Communication Technology (ICT) – To help AMS move higher up in the technology ladder, encourage transfer of technology and stimulate innovation and creativity

    PROBLEMS

    Whenever I travel to Philippines, I would get a local SIM card on pre-paid basis to avoid paying high roaming fees. The local SIM card would expire if I do not top-up.

    I need to access to internet and also remotely access my server in Malaysia while I am in Philippines. In order for me to do so, I need to hunt for Wi-Fi hotspot in Manila

    Secondly, it is a hassle to carry 2 phones while travelling, one with Malaysia SIM card, the other with Philippines SIM card.

    Thirdly, high call rate charged by Malaysia TELCO when roaming in ASEAN countries. Therefore, when people call me on my Malaysia phone, I shall only answer if I know the caller and I know in for sure that the conversation is an important subject matter.

    Finally, ASEAN countries are implementing 2 factor authentication using SMS. If I am in Malaysia, I am not able to top-up my Philippines SIM card’s pre-paid balance. Therefore, I am not able to conduct any internet banking transactions with my Philippines Maybank account while I am in Malaysia.

    BENEFITS HOPE TO SEE IN AEC

    With AEC’s characteristic “(C) An Enhanced Connectivity and Sectoral Cooperation”, I hope to see that I am able to roam in all ASEAN countries in one single roaming rate for voice and data, and I do not need to swap SIM cards.

    When I am travelling in ASEAN countries, I can access internet and remote access my server using 3G or 4G via my Malaysia SIM card.

    This will help reduce the cost of communication.

    With AEC, banks in ASEAN countries should accept mobile numbers from other ASEAN countries when performing 2 factor authentication via SMS.

    BENEFITS TO SME

    Entrepreneurs can use their smart phone to conduct business in ASEAN countries cheaply and easily as they do no need to switch number when travelling in different ASEAN countries.

    For example, a Malaysia salesman who has customers in Singapore, Indonesia, Thailand and Philippines, can make a single trip without the need to swap SIM cards. His boss will know the cost of his bill. He can call his office in Malaysia and receive calls from his customers in those countries, access to office server to download files for presentation by using his smart phone as mobile hotspot.

     

  9. Conclusion

    There is no doubt that AEC could bring many economic benefits as it will at least solve all my problems that I am currently facing.

    Malaysia SME needs to be aggressively expanding their trade and business into ASEAN countries by riding on the AEC wave.

    I also hope that AEC should not benefit primary the big corporates such as the listed companies and multi-national companies, because they could afford to expand into any markets as compare to SME.