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Sourcing in South-East-Asia - Win-Win In The ASEAN Market

Author(s):

T. Rajagopal MBA C.P.M.
T. Rajagopal MBA C.P.M., Lecturer, School of Business Management, Nanyang Polytechnic, Singapore.

82nd Annual International Conference Proceedings - 1997 

The Issues: From dependency on primary commodities, ASEAN or the Association of South East Asian Nations, have increasingly turned to manufactured goods and value added services to achieve an enviable economic position in the World. Their rating as the fastest growing region in the world bears testimony to the resolve to continue this positive trend. How could US Purchasing Managers tap this reservoir of talents and opportunities is the subject of this presentation.

The Opportunity: Every country within the ASEAN region have their own unique culture and competencies. The ability to know what these strengths are would allow US Purchasing Managers to source successfully in the region.

Objectives: The objectives of this presentation is to give an overview of each country, the economic statistics and the strategies to adopt towards a win-win arrangement.

Sourcing in ASEAN is a strategic advantage, as the Japanese and Europeans have discovered. No longer is it a question of choice but whether one could afford to ignore a region that has the potential to grow even further and one that provides valuable linkages to other countries like China and India.

1.0 About ASEAN: ASEAN is an organisation established to promote political, economic and social co-operation among its seven member countries. The seven countries are Brunei, Indonesia, Malaysia, The Philippines, Singapore , Thailand and Vietnam. These seven countries have a population of over 300 million people. ASEAN is the gateway to the broader Asian market and is one of the fastest growing and most lucrative economic areas in the world.

ASEAN countries collectively are currently the fourth-largest trading group in the world after the US, EU and Japan. ASEAN as a whole is now the United States fourth largest trading partner. US-ASEAN trade reached US$60 Billion. US exports to ASEAN was US$24 Billion and US imports US$36 Billion.

While each of the countries within ASEAN have unique history and culture, they all share one common underlying characteristic - rapid economic growth.

2.0 ASEAN Dramatic Growth: The seven ASEAN countries have averaged a growth of 7% per annum in the last five years compared to an average of 1.6% for the world as a whole. The growth is based on rich natural resources and very productive human resource, agriculture and export oriented manufacturing. The business savvy, technical expertise and financial clout make them attractive partners for joint venture projects.

Total ASEAN trade with the rest of the world increased by 21% from US$448 Billion in 1993 to US$543 billion in 1994. Intra-ASEAN trade for the same period grew by 40% from US$79 Billion to US$111 billion.

3.0 Economic Overview - US-ASEAN Relationship

Total Trade in US Billion (Approx)

Country T.T. US US


*(ex) *(im)
Singapore 24.4 11.6 12.8
Malaysia 16.6 6.1 10.5
Thailand 12.3 3.8 8.5
Philippines 8.4 3.4 4.8
Indonesia 8.2 2.8 5.4
Brunei .5 .4 .1

Vietnam (not available)
*(ex) exports
* (im) imports

4.0 ASEAN Trade Initiatives: In order to effectively address the heightened global competition and to tap the economic potential of South East Asia, a variety of regional initiatives have been established.

On June 1, 1992 the six (Vietnam joined later) ASEAN member countries signed a framework agreement to further economic co-operation among the member countries. The AFTA agreement was implemented on January 1, 1994.

Under AFTA, tariffs reduction will apply to manufactured goods and processed agricultural products. In the first stage, duties on goods currently subject to tariffs of more than 20% will be reduced to a maximum of 20%. The rate of tariff reductions is to be decided by member countries with the first phase expected to take 5 to 8 years. The second stage involves further reduction in tariffs to between 0 to 5% over ten years.

By the year 2003 ASEAN Free Trade Area (AFTA, the main objective of economic co-operation such as the creation of an ASEAN Investment Area, liberalisation of services, revitalisation of industrial co-operation through the ASEAN Industrial Co-operation (AICO) scheme, development of small and medium enterprises and the economic integration of future members into ASEAN will put a premium on regionally competitive business enterprises by the year 2003.

As tariffs on inter-ASEAN trade are being reduced, attention is shifting towards the elimination of non-tariff barriers. By 2003, all these non-tariff barriers would have been dismantled. ASEAN already agreed on initial activities to eliminate non-tariff barriers beginning 1996. These include the removal of customs surcharges, and in the case of technical standards, the achievement of transparency.

By 2003, ASEAN will have also freer trade in services. Member countries have signed a Framework Agreement on Services which will enhance co-operation in the services sector and begin a process of preferential liberalisation of trade I services.

ASEAN industrial co-operation would have been further strengthened with the full implementation of the ASEAN Industrial Co-operation(AICO) Scheme. The AICO scheme will provide better opportunities to exploit economies of scale and produce internally competitive products.

By 2003, measures would have been taken to strengthen the position of small and medium enterprises (SMEs) in the region. A policy study to look into the ASEAN 'Best Practice' on SME development based on manufacturing activities is being conducted. The scope of the study covers among other things, SME financing, technology sharing, human resources development, export marketing and industrial linkages.

The initiatives, ASEAN as a group is pursuing, will require businesses in the region to become increasingly competitive.

US Purchasing Managers should take advantage of the various schemes by looking at the ASEAN region as one source of supply and develop appropriate strategies to restructure and rationalise the nature of the activities.

5.0 Strategy Towards Win-Win Sourcing In ASEAN: A win-win arrangement can result through the following approaches including combinations:

5.1 Stage of Development - High: A country stage of development would give us an indication of the supportive industries growth and hence facilitating effective sourcing.

For example, Singapore has reached a maturity level with its developed country status. High value added industries, regional sourcing office set-ups and others could best be done in Singapore.

The Government in Singapore through the Promising Local Enterprises Scheme is isolating local industries to go into joint ventures with overseas organisations to tap the sourcing and other opportunities in the region.

5.2 Stage of Development - Medium: Thailand, Indonesia and Malaysia have all industries that are constantly gearing to the needs of the countries they are exporting to.

Increasingly, items like printed circuit boards, electronic components, high value added textiles and garments and other consumer goods are having a major impact in growth terms and could be sourced competitively from these countries.

All three countries have reached a median level in terms of costs.

5.3 Stage of Development - Newly Emerging: The Philippines has just embarked on an ambitious scheme to encourage more opportunities. Its highly literate English speaking population gives it an edge in many industries where this is required e.g. semiconductors.

The Philippines economy, living up to its "tiger" image posted a strong 7.1% growth in the first nine months of 1996. Without income from abroad, the Philippines economy still managed 5.4%.

5.4 Stage of Development - Starting: Vietnam is just starting its industrialisation. For too long it has been an insular country. With the Government actively promoting trade, many industries have taken the cue and started operations to tap the many opportunities from foreign countries. Materials like low value added textiles, consumer products and agricultural products could be sourced competitively from Vietnam.

Competitive sources and even negotiating with them is best left either to a Purchasing Agent, familiar with the customs and business culture with clearly drawn target prices towards a win-win arrangement. Cultural insensitivity can be a problem. Everyone assumes that others have similar cultures, customs and manners.

Alternatively, if you are part of a global MNC you could ask your counterparts in the ASEAN region for help in your sourcing efforts.

6.0 Conclusion: The question of sourcing in ASEAN is not whether you are there or not, but whether you could afford to miss one of the world's great growth area with highly literate and productive workforce with a mix of countries economies to choose from - from advanced to new. The choice is yours.

By the year 2003 ASEAN will be a region of ten countries. It will be a region composed of more than half a billion people with Member Countries that are some of the fastest growing and most open in the world. The opportunities are limitless for US Purchasing Mangers.

Let me end by quoting a passage from Shakespeare's Julius Caesar which I quote:

"There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune:
Omitted, all the voyages of their life,
Is bound in shallows and in miseries."

References:

US Department of Commerce Trade Figures - from Web Sites

ASEAN Web - Web Site

The New Straits Times, Malaysia

The Sunday Times, Singapore

Directions - Business Focus - ASEAN in the 21st Century

Supervision July 1996 by Barbara Pachter

Shakespeare's Julius Caesar

The Straits Times, Singapore

Vietnam 1996-1998, Business Monitor International Ltd

Extracts from the Speech by ASEAN Secretary-General delivered on 13th November 1996, in Jakarta, Indonesia.


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