2016 Viewpoint AEC

How small businesses can benefit from the AEC

Jan 04, 2016

Curtis S. Chin and Peter N. Wainman

Publisher: Nikkei Asian Review

After years of rhetoric and preparation, the ASEAN Economic Community became a reality on Dec. 31. That is good news, not just for multinationals but also for smaller enterprises eager to expand in Asia.

The arrival of the AEC comes as China's role as a driver of regional growth is being called into question amid the country's economic slowdown, and as India struggles to overcome a legacy of bureaucracy and anti-foreign business sentiment. The timing of a new regional economic arrangement should benefit all 10 members of the Association of Southeast Asian Nations -- and their investors. The AEC envisions a single market and production base that allows a freer, if not yet fully free, flow of goods, services, investments, skilled labor and capital across Southeast Asia.

It sounds good in theory. But what really lies ahead for AEC's inaugural year? It will no doubt draw more investment as big international companies enter or expand operations in Southeast Asia. At the same time, the region's biggest step yet toward economic integration offers new opportunities to smaller companies.

Great expectations

ASEAN, home to an estimated 600 million people, has a larger population than either North America or the European Union. In 2013, foreign direct investment in ASEAN exceeded that into China, according to the United Nations Conference on Trade and Development, which focuses on development issues, particularly international trade.

Many of the region's largest companies are already active throughout ASEAN in anticipation of greater integration, such as the Philippines' Jollibee fast-food chain and Thai agribusiness conglomerate CP Group. The same can be said for well-known foreign multinationals, such as Ford Motor or Japan's Toshiba electronics group.

 But smaller companies, too, can identify and create a market niche that will benefit from growing ASEAN demand, as illustrated by our experience at Equator Pure Nature, a Thailand-based manufacturer of hypoallergenic, biodegradable and environmentally friendly household cleaning products.

In EPN's case, the issue is rising allergy and asthma rates across Southeast Asia, particularly among young people. As air pollution levels from rapid urban development and industrialization exacerbate the problem, many in the region's growing middle class are seeking healthier products and lifestyles.

Dr. Jarungchit Ngamphaiboon, a professor of pediatric allergy at Chulalongkorn Hospital, affiliated with Chulalongkorn University in Bangkok, has reported that allergy and asthma rates among Thai children have increased substantially over the last two decades. The latest study, conducted in 2007, showed that 49% of children in the greater Bangkok region were estimated to have some form of allergy, up from 37% in 1998.

These findings mirror trends in other regional markets. An estimated 15% to 20% of Malaysians suffer similar allergies, and that figure could rise to 50% by 2025, according to the Malaysian Society of Allergy and Immunology. A 2014 National University of Singapore study found that close to 15% of the city-state's adult population is affected by asthma and nearly 40% by allergic rhinitis.

Rising living standards and greater consumer knowledge are creating a demand for safer and better products to deal with pollution and chemical exposure. EPN, for example, has seen a sharp increase in demand for its natural cleaning products, with sales in the last quarter of 2015 rising to six times the rate in the first quarter of the same year, while sales channels increased by 33% in the last four months of 2015. The company launched its Pipper Standard brand of cleaning products, a key ingredient of which is pineapple, in Laos in late 2015, after launching in Myanmar and Thailand. Continuing its regional push, EPN plans further launches with the aim of having its products in all 10 AEC markets by 2018.

The message -- and the marketing strategy -- behind the products is that consumers can reduce their exposure to pollutants and other sources of allergy and asthma in their own homes by paying more attention to the products they purchase.

Early lessons from the AEC

Through trial and experience, we have learned some vital lessons on investing in the AEC era. Whether a company is focused on fast-moving consumer goods or the Internet, communications and technology, here are some insights for those eager to leverage the AEC opportunity.

First, human capital is likely to remain the most important business resource in Southeast Asia and should have the same priority as raising funds. At EPN, a fifth of the chief executive's time is focused on recruitment and promoting a localized team culture.

Foreign businesses must also recognize the diversity of Southeast Asian cultures. It would be a mistake to assume that employees from one nation will behave as those from another nation. But this does not mean that shared approaches to discipline, skill sets and thinking processes cannot be developed. Indeed, they are well worth the investment.

On a related front, successful companies recognize that relationships and business processes cannot be built overnight. At EPN, this has meant working for four years with Thai farmers, researchers and other team members on product development, test production runs and patent filings.

Building a firm foundation in one ASEAN market provides the credibility and solid base from which to expand across Southeast Asia. The birth of the AEC offers a powerful message for businesses, big and small. It tells us that a healthy business in one regional market can now lead to more opportunities for stronger growth across all 10 ASEAN markets -- and from there, to the rest of Asia and beyond.

Curtis S. Chin, a former U.S. ambassador to the Asian Development Bank, is a Milken Institute Asia Fellow and member of the advisory board of Equator Pure Nature. Peter N. Wainman is chairman and CEO of Equator Pure Nature.

This article first appeared in Nikkei Asian Review on January 4, 2016