Founded in 1967, the Association of Southeast Asian Nations (ASEAN) has always sought to create a unified political and economic regional bloc modeled after the European Union. Though fraught with challenge, the ideal has achieved some measure of success. How much? That’s a subject of debate, and also the subject of this article. The question is important, as Southeast Asia represents a vast market for exports. Unification, or lack thereof, has significant ramifications for trade in the region.
“Southeast Asia is one of the most rapidly growing regional markets,” says Brett Heimburger, “as well as one of the best opportunities for US companies. In fact, the region is forecast to reach a whopping 130 million ‘consuming class’ households by 2025.” As director of Utah’s International Trade and Diplomacy Office, Heimburger heads numerous trade missions to Southeast Asia. This includes an upcoming trade show to Singapore, in which he’ll take a cadre of Utah’s medical device companies to a large health care summit.
ASEAN consists of Brunei, Indonesia, Singapore, Malaysia, the Philippines, Thailand, Cambodia, Laos, Myanmar and Vietnam. Collectively, these ten countries comprise the world’s seventh largest economy and the United States’ fourth largest export partner, according to www.whitehouse.gov. With a cumulative gross domestic product (GDP) of around $3 trillion and a trade-to-GDP ratio of more than 150%, ASEAN is no small potatoes. Perhaps that is why, in 2014 alone, the United States poured $226 billion in foreign direct investment into the region — more than did Japan, Korea and China combined.
The Asian EU?
In 2013, to accelerate trade between the United States and Southeast Asia, the parties ratified the US-ASEAN Connectivity through Trade and Investment (ACTI). ACTI provides for US support in the region through various initiatives. These include the training of women entrepreneurs, “harmonizing business standards in priority integration sectors” and developing a “climate risk assessment framework… to support climate-resilient energy decision-making.”
Most significantly, from a trade perspective, was ACTI’s initiative to create a so-called single window for ASEAN. This single window, appropriately dubbed the ASEAN Single Window (ASW), has the ambitious goal of fast-tracking the entire region into a unified economic zone.
For the uninformed, the single-window system was developed in the late 1990s and early 2000s as a solution to the increasing complexity of international trade. Specifically, the burgeoning of documentation related to customs, international supply chains, compliance and other paper exchanges. Single windows control and track the cross-border document flow by funneling it through one integrated data management interface. The national single window worked well; however, since each ASEAN country developed its own window independent of other nations, the national single windows did not communicate well. ASW seeks to integrate ten national single windows into a, well, single single window. In theory, a product would enter ASEAN through the window and travel freely between and among member countries. How is ASW working? “It’s a very good idea,” says Heimburger, “but effective regionwide implementation will likely take longer than planned.”
In general, according to Heimburger, ASEAN member nations underestimated the difficulty of merging countries with such vastly different economies, political systems and national goals. Singapore, for example, rivals many Western countries in its per-capita GDP and standard of living, while Myanmar lags at a per-capita average income of about $1200. Thailand boasts a sophisticated infrastructure, while Indonesia’s infrastructure development lags far behind its economic potential. The Philippines has a republican governmental system; Vietnam is still considered a communist state; and Brunei is a constitutional sultanate. And we haven’t even begun to mention cultural and religious diversity.
“Even though ASEAN was modeled after the EU and has helped to achieve general political stability,” Heimburger says, “it may take longer to achieve smooth economic integration. The original EU member states had far more in common, both in terms of economic development and also in terms of political, cultural and historical identity.” Heimburger adds that though the plan is to have an integrated free trade zone by 2020, there are still many things to iron out. This includes non-tariff barriers: standards, intellectual property rights protections, customs and the like.
Heimburger emphasizes that ASEAN was originally formed to encourage regional peace and political stability and to achieve economic integration, a goal that has succeeded to a large extent. Deep economic integration, however, has proven far more complex. The EU also began as a war-mitigation alliance and developed its economic integration as a secondary outgrowth of the original political ideal. The European Union was seen as absolutely essential to tame raging nationalism and incentivize cooperation; the alternative was unthinkable.
In a similar fashion, ASEAN was formed to provide the political stability that could draw in foreign investment. ASEAN nations needed capital that could fund infrastructure and move economies up the development curve. The big prize, however, is taking advantage of the large and growing markets in the region by using the bloc to command a larger piece of the trade pie.
From Heimburger’s perspective, the ASEAN project has its priorities correct, but deep integration is still some ways off. “Sure, it’s much more loosely organized than the EU, but the economic bloc makes a lot of sense. It may take longer than forecast, but it is moving in the right direction.” However, economic integration is not the only metric of success. According to a 2011 article by the Carnegie Endowment for International Peace, “ASEAN has…played a pivotal stabilizing role in both the region and the world.” The article points out that detractors have “periodically predicted its…demise since its founding in 1967.” The organization has mediated a number of regional disputes, with the result that “no war has erupted among its members.”
And even if ASEAN is no EU, it still wields some amount of cohesion and collective identity. Other nations recognize this. China, Japan and Korea have joined what amounts to an outer circle, dubbed ASEAN+3. Reaching out even further, the East Asian Summit brings ASEAN+3 together with Australia, New Zealand and India. The functions of such configurations may be fuzzy as of yet, but the configurations signal a movement toward increasing cooperation and regional stability — a good thing for international trade.
Trends and specificities
Despite vast differences between ASEAN nations (or even within them — think of the hundreds of distinct ethnolinguistic groups strewn across the Indonesian archipelago), they share some important commonalities. From a Western perspective, Southeast Asia is merely part of that larger exotic creature that is Asia generally. Indeed, it shares many characteristically Asian cultural features. At the same time, some general trends unique to the ASEAN region are worth noting.
Firstly, even more than in Asia-at-large, business is based on personal relationships. This contrasts with the Western mode, in which processes and key performance indicators dominate. Often, for Westerners, relationships are a necessary vehicle by which to realize business objectives, but they are still subordinate. In ASEAN countries, that hierarchy is flipped, or at least leveled. “Don’t even think about expanding into Southeast Asia,” Heimburger admonishes, “unless you have the bandwidth to spend a lot of time there building the right relationships. Remote contact just won’t cut it.”
Because relationships figure so prominently in business dealings, they supersede formal agreements. For Southeast Asians, a contract represents a snapshot of the state of the business relationship at the time of its signing. It is thus mutable. As the relationship changes, the contract warrants ongoing negotiation. This attitude baffles US visitors, for whom a contract is an assurance of future performance. Southeast Asians see everything as organically mutable, even a prior agreement. Especially a prior agreement.
Age, hierarchy and position carry much more weight in the ASEAN cultural world than in the Unites States. Following from the centrality of personal relationships, such designators accentuate and fix each person’s place in the relational network. And, unlike in the West, individual opinions, feelings or motivations are subservient to the collective process. “You can’t just ignore someone because you don’t like them,” says Heimburger. “You have to respect the importance of hierarchy and the relationship web that is fundamental to Asian business, and find a way to make it all work.”
Honor, respect and standing, accordingly, figure prominently in business dealings. While this is the case throughout most, if not all of Asia, it is perhaps more so in ASEAN countries. “You want to make every effort to avoid embarrassing someone,” Heimburger emphasizes. “Saving face matters far more than most Americans realize.”
Business tempos tend to be more leisurely (the highly developed and Westernized Singapore being the exception), taking on the pace of the relationship dynamic rather than that of external regulators. According to Heimburger, “the culture is a consensus-building one.” For US businesspeople, conditioned from years in a rapid-fire, top-down culture, the Asian way is maddeningly slow. Why, they wonder, can’t someone just make a decision so we can get on with it?
Indonesia is the largest ASEAN country and the fourth most populous on earth. It also contains the world’s largest Muslim population. Its underdeveloped infrastructure contrasts with incredible natural resources.
The Vietnamese “tend to be aggressive in their business dealings,” Heimburger claims, possibly due to Chinese influence. More than a millennium of Chinese rule (111 BC to 939 AD) left an influence that still survives. While culturally kin to the Chinese, Vietnam fears Chinese hegemony in the region. Accordingly, it values its relationship with the United States, both economically and politically.
If Vietnam is the most hard-charging of the ASEAN countries, the Philippines may be one of the mellowest. With its significant Latin influences, the Philippines has one of the most easygoing cultures in the region. Its constitutional republic provides a stable base for a thriving economy (though it remains to be seen what effect President Duterte’s alleged autocratic tendencies will have on the country). Like Vietnam, the country views an ascendant China as a danger to its own sovereignty, and looks to the US for political and economic support.
Laos lags furthest behind in development. While European and Asian companies scramble to capitalize on the country’s abundant mineral wealth, “American companies play almost no role in Laos” according to export.gov. Which makes one wonder: what are US companies waiting for?
Malaysia’s tech-heavy industrialized sector is complemented by a robust knowledge economy. It boasts the eighth most developed infrastructure in all of Asia.
According to export.gov, Cambodia’s GDP grew at an average annual rate of over 8% between 2000 and 2010 and over 7% since 2011. Still, the country “remains one of the poorest countries in Asia.” For a country so far behind, even vigorous growth requires decades before substantial change is felt.
A testament to the power of human capital, Singapore has forged a thriving modern economy from a small population and limited natural resources. Export Development Canada (www.edc.ca) claims that Singapore has “the most open economy in the world,” with “zero tolerance for corruption.” The result is an economic powerhouse.
After Indonesia, Thailand has ASEAN’s second largest economy. Though racked by political turmoil (a 2014 coup and subsequent military rule), its highly developed economy and its manufacturing infrastructure have helped to maintain overall stability.
Myanmar, according to PricewaterhouseCoopers, “is one of the remaining frontier markets” and “Asia’s next rising star.” With projected growth of 8% annually and a young demographic, Myanmar certainly has potential. To realize that potential, however, it will need significant investment into educating and training its workforce and modernizing its infrastructure. Several projects are in the works to this end.
Brunei occupies the north coast of the island of Borneo (the island is split between three countries: Brunei, Malaysia and Indonesia). Though comparatively small, Brunei has massive wealth: Forbes ranked the country fifth-richest out of 182. After Singapore, it has the highest ASEAN Human Development Index. The International Monetary Fund (IMF) rates it as the world’s fifth country in per-capita GDP. The IMF also estimated, in 2011, that Brunei was one of only two nations globally with no public debt, the other being Libya. Like Libya, Brunei has vast oil reserves. Unlike Libya, it has not descended into a stateless war zone.
ASEAN contains a diversity of opportunity for multinationals. Engineers and builders of infrastructure will find plenty of opportunity in Indonesia, Cambodia, Laos and Myanmar. Manufacturers of equipment and industrial solutions can look for the ASEAN market that needs their specific offering. Software and other high technology solutions can look to markets such as Malaysia and Singapore. ASEAN contains a market for almost anything, if one knows where to look.
Medical device manufacturers should tap the markets of Malaysia, Vietnam, Indonesia, Thailand, Singapore and Brunei. Due to rapid urbanization, a growing middle class, and a declining birthrate, these countries have a significant demographic that is aging and that has the income to afford quality health care solutions.
Due to the idiosyncrasies of each ASEAN market, it is best to work with a trusted local partner. Not only does each constituent country have its own informal customs, but each has its own bureaucratic tangle. “Bureaucracy is different there than here,” Heimburger says. “There’s a lot of it, but it’s far less defined than we’re used to. Such nebulousness is incomprehensible to the average American,” for example.
Time, of course, will tell to what extent ASEAN succeeds in its goal of a unified economic zone. However, we don’t need to wait. The organization has succeeded in creating a zone of — something. Something more cohesive than a group of individual players with no coordination whatsoever. And, in a region with this much economic potential, a little unification is better than none at all.