Jun 16, 2013

Thailand - An unspoken side of the AEC amid an overflow of pro and cons

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We all have heard about the Asean Economic Community many times. Experts from government agencies and the private sector have helped point out the strengths, weaknesses, opportunities and threats in all 10 Asean markets for hundreds of products and industries in endless seminars and research papers.

But there is an observation that has been troubling me for quite some time now, but still no one has quite rightly or publicly pointed out this concern. So to write yet another piece on the AEC, I will try to say something that is truly novel on this concern.

After all the energy we have poured into analysing the AEC, the scope of conclusions is rather narrow. The typical recommendations are either you must seize the opportunity by starting to export to Asean countries or you must try to invest in neighbouring countries, whose resources are abundant and cheap.

Even scare tactics have been employed on many stages, telling businesses to fly outside and seek new and exciting opportunities or stay home to grow stale and slowly wither away amid foreign competition. Only some of these in my opinion are true. Most of them are highly debatable.

What I agree with is that the AEC provides a rare business opportunity for those needing extra room to grow, new markets to test products and cheaper resources to enhance their global competitiveness. It also gives local entrepreneurs, especially those in border provinces, a business edge over bigger competitors that are just beginning to understand the needs of customers in neighbouring economies.

But let's face the facts. Not all businesses are ready for such an exciting challenge. Some statistics may paint a picture worth a thousand words here. There are 2.24 million firms in Thailand, and only about 385,000 of them are juristic, that is, properly registered with the Commerce Ministry.

The number of firms engaging in some exporting and importing activities drops to roughly 45,000, or just under 12 per cent of juristic firms and a mere 2 per cent of all firms in Thailand. And the number of firms that actually invest abroad is even more thought provoking. The statistics on these investors are hard to come by, but they probably don't reach 1 per cent of juristic firms.

Of course, there are steps that these domestic firms could take to prepare for dipping their toes in outside markets, but the fact of the matter is that most Thai businesses will remain solely and wholly domestic.

We have three options here. First, let them be. Hopefully, they will not feel the full force of the AEC, nor will they reap any benefits. This option cannot be a true answer, because if only Thailand's big firms and corporations are ready to go abroad, so are other Asean countries' big and powerful corporations. Future competition could be between less efficient domestic SMEs and most efficient multinational Asean firms - an unfair fight in all regards.

The second option is to push them out. This requires the government to equip SMEs with whatever is deemed necessary and just push them out.

However, business decisions are not that easy. Even big and powerful corporations that are actively investing abroad nowadays took many years and many steps to get ready to make the big jump. Even if successful, this policy option will force SMEs to bet on only to pick a few winners. Costs will surely outweigh benefits in this negative-sum game.

The final option is to find a way for local businesses to reap the benefits of the AEC even if they operate locally. To me, this is the most attractive option, however a lot of work will need to be done until we get there, and many have not even started. To achieve this, we must also turn our old notion of the AEC on its head and start thinking anew - how to grasp the benefits of the AEC domestically.

This point has bothered me and some TMB executives for quite some time, so much so that we decided to organise a public seminar to answer it, inviting experts from the public and private sectors. I do have some ideas but unfortunately am far from having a complete answer to share yet. But after the event, things should become clearer and I will take the opportunity next time to share our findings on domestically reaping the benefits of the AEC.

Views expressed in this article are those of the authors and not of TMB Bank or its executives.

Benjarong Suwankiri

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