SCB Insight

EIC | Economic Intelligence Center
January - June 2012
Insight
Business opportunities for services sector under the AEC
Contributors
Dr. Sutapa Amornvivat Vithan Charoenphon Dr. Chinnawut Techanuvat Tubkwan Homchampa Teerin Ratanapinyowong Pranida Syamananda Dr. Sivalai Vararuth Witchuda Chummee
Business opportunities for services sector under the AEC

Progress towards the ASEAN Economic Community (AEC) thus far has been rather slow with few tangible results, which may have helped explain a correspondingly slow adjustment by the business sector. Even the reduction in import duties to 0% in accordance with the ASEAN Free Trade Area (AFTA) took 17 years to materialize, while the liberalization in trade and services which started in 1996 is still behind schedule. In particular, the endeavor to allow up to 70% equity participation by ASEAN investors in 4 priority services sectors by 2010 has not met with much success as there remain member countries who ask for extension. Such type of delay can pose a risk for the businesses to adjust to major leap of changes should all the commitments have to be met within 2015 as targeted. As a result, the business sector should make a head start in making necessary adjustments. because waiting until the full integration of AEC would result in business opportunity loss. The European Union (EU), despite its countries sharing borders and a supranational governing entity, still took 25 years to fully implement a free trade agreement that allows for trade to occur within the EU without customs. However, waiting for the full implementation of the AEC will be too long a wait, and the current progress has already allowed enough opportunities for businesses to utilize in order to expand into the ASEAN market, such as the 0% import tariffs and the free movement of labor in 7 professions which have previously been agreed upon, or the raise of the maximum equity participation allowed in services sectors which, whilst yet to reach the intended 70%, have created attractive investment opportunities. Business opportunities from now until 2015 will include agricultural business opportunities arising from both growing demand for agricultural outputs and potential growth from new forms of agricultural businesses such as contract farming. Moreover, AEC also offers greater prospects for further liberalization of the CLMV economies, which will put greater importance on trade and investment, as well as opportunities from the ongoing liberalization of the services sector in these countries. Besides the relevant short-term risks, the liberalization of the services sector also brings along stronger competition, as more countries are considering the services sector as one of the key economic drivers. This can be seen in the higher percentage of the services sector as part of economic contribution and foreign investment. Especially in Singapore, the services sector accounts for 72% of its GDP and has the highest amount of foreign investment among ASEAN countries. By 2015, the services sector as percentage of GDP in the Philippines, Malaysia, Indonesia and Thailand is expected to increase to 56%, 50%, 45% and 44%, respectively. The services sector, therefore, can implement various strategies depending on different factors that arise. Some should expand business into countries with a high market potential, while some can grow from expanding domestic markets as a result of the AEC. Others will have to anticipate and handle opportunities and threats from the inevitable increase in competition. Retail business that focus on product differentiation and penetration into middle-to-high income customers will have better opportunities in Malaysia, Indonesia, and Vietnam. The urbanization, coupled with a higher share of middle-to-high income consumers has led to a change in spending behavior. For example, in the past 10 years, consumers have spent less on fresh food and more on packaged food. They also have a higher demand for more variety of goods and services, in particular non-grocery items, and other amenities for their daily life. Such changes in the spending behavior will undoubtedly have an impact on the investment decision. Despite the AEC's liberalization of foreign investment in the retail business, there are still domestic rules and regulations that may pose challenges.
EIC l Economic Intelligence Center
Medical tourism is one of the services businesses where Thailand has an advantage and can expand its market into ASEAN, especially Indonesia as a result of increasing ease of traveling within the region. Thailand already possesses reputed specialties, for instance, in plastic surgery and dental care. Its worldwide status as one of the top tourist destinations will also create an excellent opportunity to expand its medical tourism business within ASEAN, in addition to being the leading medical destination for traditional customers from Japan and the Middle East. Moreover, the AEC will allow for greater mobility of nurses, which would help alleviate the current shortage in Thailand. Logistics business can use opportunities offered by the AEC to increase domestic and foreign investment, and forge a network of partnership for integrated services. Business operators can benefit from basic infrastructure and transport development, as well as government support to attract investment in provinces with logistics potential. For instance, distribution centers and warehouses should be set up along the transport routes to the neighboring countries in order to facilitate the higher volume of goods transfers caused by the AEC trade liberalization. A logistics network should be developed domestically and internationally to create more flexibility and foster linkages and connectivity in transport management. An advanced logistics and technological system can also provide the competitive advantage over other competitors. Thai services sector should, therefore, start building up its own arsenal and look for the right timing to adjust and upgrade business competencies to reap the growing benefits from ASEAN market. Expertise in a particular field will be a much-needed strength in the competition for foreign investment into ASEAN in the services sector, which is fast outgrowing the investment in manufacturing sector. Furthermore, research on market potential as well as international and local regulations is also important, since different businesses will have different ripe moments to tap into the ASEAN market. For some businesses, the time is now. Other businesses should adopt a wait-and-see stance. Most importantly, however, businesses should learn the implications of the AEC immediately because the AEC has begun long before 2015.
Thai businesses have good prospects following the gradual reduction in restrictions in goods, services, and trade facilitation, although the pace of liberalization is slower than targeted. Despite the policy objective of meeting the AEC requirements by 2015, businesses can start reaping the benefits now without having to wait until 2015 since the liberalization process has been ongoing for quite some time. In particular, trading of goods among the ASEAN-6 has enjoyed the gradual reduction in import tariff to an average of 0% since 2010. Although the usage rate of AFTA benefits for Thai businesses continued to increase from an average of 20% of the export value to ASEAN during 2003-06 to 50% in 2011, the rate is still far below the 100% target. This is partly due to the misconception that the application process is too complicated, and business operators are unable to adjust to the new format and procedures. Moreover, the rules of origin require that at least 40% of raw materials must originate from within ASEAN. Although the tariff rate of Cambodia, Laos, Myanmar, and Vietnam is higher than the 0% of ASEAN-6, it has been quite low, not exceeding 5% since 2010. Nevertheless, the liberalization process of trade in goods seems to have made the most notable progress while other tracks such as services have yet to meet their targets. At the same time, challenges for Thai businesses have notably increased. Thailand is one of many countries whose share of the middle-income class is rather high and has therefore become one of the targets in marketing. The AEC would also benefit Thailands competitors due to the tariff reduction, while Thailands wage policy might reduce its attractiveness as a production base. From now until 2015, Thailands preparation process must intensify in many areas. The AEC is much more than free trade area, and further progress is needed on many fronts. Greater liberalization of trade in goods by CLMV, reduction in non-tariff barriers, liberalization of trade in services, and liberalization of investment-these are areas ASEAN is working on. In line with this, trade facilitation, which the private sector is looking forward to, is also key for fostering trade expansion. For example, the ASEAN Single Window (ASW) would improve customs procedures and harmonization of product standard would benefit ASEAN consumers.
ASEAN Economic Community:
from now to 2015
to the 1 Much remains thebe done for frombusiness sector to 0% to prepare for AEC, apart the tariff reduction
1 Thailands sensitive list is: coffee, potato, dried coconut, and cut flowers. Brunei: tea and coffee. Cambodia: chicken, live fish, some fruits, vegetables, and plants. Laos: live animals, beef, buffalo meat, pork, chicken, some fruits and vegetables, rice, and tobacco. Malaysia: some live animals, pork, chicken, egg, some plants and vegetables, and tobacco. Myanmar: peanut, coffee, sugar, silk, and cotton. Philippines: some live animals, pork, chicken, cassava, and corn. Vietnam: some Source: SCB EIC analysis live animals, chicken, egg, some plants, prepared meat, and sugar. Singapore and Indonesia have none.
CLMV will need to liberalize more on trade in goods to catch up with the ASEAN-6 after they have reached the target since 2010. The tariffs of ASEAN-6 are 0% for all goods under the inclusion list, not to exceed 5% for the sensitive list1, and as agreed under the negotiation for the highly sensitive list. From now until 2015, and 2017 for some items, CLMV will have to reduce their tariffs as agreed, especially for items under the inclusion list, whose rate must reach 0%
Thailands sensitive list is: coffee, potato, dried coconut, and cut flowers. Brunei: tea and coffee. Cambodia: chicken, live fish, some fruits, vegetables, and plants. Laos: live animals, beef, buffalo meat, pork, chicken, some fruits and vegetables, rice, and tobacco. Malaysia: some live animals, pork, chicken, egg, some plants and vegetables, and tobacco. Myanmar: peanut, coffee, sugar, silk, and cotton. Philippines: some live animals, pork, chicken, cassava, and corn. Vietnam: some live animals, chicken, egg, some plants, prepared meat, and sugar. Singapore and Indonesia have none.
For trade in goods, CLMV will provide more opportunities for the export market in the next period due to the reduction in tariffs
*IL = inclusion list (list of goods to be liberalized) whose tariffs will be reduced to 0%, SL = sensitive list whose tariffs will be reduced to 0-5%, HSL = highly sensitive list, whose tariffs will be reduced to the agreed rate prior to the negotiation. They are rice for Indonesia, Malaysia, and the Philippines, and sugar for Indonesia. **Non-tariff barriers means measures on trade in goods which are not tariff. Source: SCB EIC analysis based on data from ASEAN Secretariat
There will be more opportunities for trade in goods with Myanmar and Cambodia because over 90 percent of their inclusion list has to be brought down to 0%. For Laos and Vietnam, over half of their inclusion list is already 0%, while only 7% of Myanmar and Cambodias inclusion list is 0%. Nevertheless, overall trade with CLMV may not increase significantly as a result of the tariff reduction because the rates have previously been brought down to a very low level, although have yet to reach 0%. CLMV have been given some flexibility in meeting the AEC deadline, thus their process will take longer than for ASEAN-6. However, Thai export has already benefited from the gradual tariff reduction of CLMV in non-alcohol drinks and soft drinks, motorcycles, tires, soap, liquid soap, and cleaning products.2 Currently, the average tariff rate of CLMV is only 2.6%.
For further reading, please see SCB Insight: Where are the opportunities for Thai business in neighboring countries (May 2010).
CLMV have reduced their tariffs significantly, a portion still 3 Althoughdown to 0% within 2015, especially for MyanmarlargeCambodia has to be brought and
Average tariff rate in ASEAN member countries
Source: SCB EIC analysis based on data from ASEAN Secretariat
Thai exports which are likely to benefit from further reduction in tariffs of CLMV are petroleum oils, sugar, automobiles, meat, and beverages. Given the fact that there are many items on CLMVs inclusion list and sensitive list which have to be brought down to the target within 2015, there will be more opportunities for Thailand. Some of the items are already being exported to these countries, while others have yet to be. Thailand should therefore look into these windows of opportunities since it is geographically suited for trade with CLMV.
benefit from further tariff reduction by 4 Exports which are tosugar, automobiles, meat, and beverage CLMV are petroleum oils,
The export items which already enjoy relatively high demand and are expected to perform better after further reduction in tariffs are, for example, petroleum oils, sugar, automobiles, motorcycles and sided-cars transport trucks, non-alcohol and soft drinks, electrical power, cement, and meat. The export items that are performing only moderately but will benefit from greater reduction in tariffs by CLMV are beer, liquor, Ethyl alcohol, wine, sausages, processed meat, and public transport vehicles. These will provide ample of opportunities for trade between Thailand and CLMV. Apart from trade in goods, there are many sectors under the AEC which can unlock opportunities for Thai businesses. For instance, the capital market liberalization involves services related to the capital market, i.e., securities, asset management, including the ASEAN Exchange Linkage which will facilitate cross border trade for ASEAN exchanges. Thai businesses will therefore have more investment channel and easier access for funding due to the high liquidity in the region after financial integration and liberalization. Other kinds of cooperation such as customs arrangement, to be more harmonized and integrated, would also help facilitate ASEAN trade due to faster and more efficient services.
However, most efforts, with the exception of trade in goods, to reach the AEC target are still behind schedule. Thus the target date of 2015 can be pushed out, or it may become just a starting point for a gradual liberalization as committed under the negotiation. This is because the ASEAN negotiation process relies on cooperation, with no supranational body in charge like the EU. Implementation of the action plan has to therefore allow some flexibility to the parties. One notable delay is the negotiation on trade in services, which is gaining in importance, second to trade in goods. Each country still retains the right to regulate its services. According to the latest round of negotiation, many countries still maintain the ceiling on foreign shareholding to below the agreed target. Previously, it was agreed that ASEAN investors could hold up to 70% shares in priority integration sectors, but they ended up negotiating to liberalize additional sectors instead. For example, for healthcare service, only Laos and Vietnam allow ASEAN investors to hold shares up to 100%, which is beyond the commitment under the AEC.This may reflect the fact that Laos and Vietnam rely on foreign investment in healthcare service, while other countries including Thailand still cap the foreign equity participation at 49%. As a result, although Thai businesses may have more time to prepare for further liberalization, this may be counterproductive should they fail to adjust and are faced with a sudden and major leap to full liberalization as targeted.
for preparations because the AEC implementation is 5 Thai businesses hane timefronts behind schedule on many
foreign ownership limits in some Priority Integration Sectors according to the latest 7th package of commitments under AFAS
Source: SCB EIC analysis based on data from Department of Trade Negotiation, Ministry of Commerce
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Furthermore, despite the tariff reduction to 0% for trade in goods, some ASEAN countries have added measures on non-tariff barriers, thus delaying the AEC process. While the reduction and elimination of non-tariff barriers is part of the AFTA agreement, in practice many countries have resorted to more non-tariff barriers than before, i.e., Technical Barrier to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures, citing the necessity to protect human life and health, which is allowed under the AEC. Some measures have direct impact on production procedures and business operators because they have to upgrade to a higher standard, to be in line with the technological advancement of the country imposing the measures. In particular, the food industry, which is Thailands main export product to ASEAN, is expected to be adversely affected by these measures. For example, the application for a halal certificate from the Department of Islamic Development Malaysia may take more than 30 days because the approval has to come from a panel which meets at long intervals. Therefore, despite the tariff reduction to 0%, businesses are faced with more and more of this type of measures, which has somewhat derailed intra ASEAN trade.
goods is non-tariff barriers, 6 The major obstacle for trade inafter the reduction in tariffs introduced by many countries
Example of non-tariff barriers introduced after tariff reduction in 2010: food industry
Source: SCB EIC analysis based on data from Technical Service Network Center (TSNC)
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In this light, business operators will need to be prepared for two scenarios: (1) a decline in non-tariff barriers, which means more intense competition in the future, and (2) greater use of non-tariff barriers which are not inconsistent with the agreement under the AEC. While the AEC will continue to adhere to the free trade principle and to abolish or reduce non-tariff barriers, many countries have resorted to introducing new type of measures that do not breach the agreement so as to protect their consumers and industries. In addition to efforts by ASEAN governments, support and cooperation from the private sector will also be crucial in ensuring a successful AEC implementation that will be beneficial to all parties. One of the reasons for the delay in implementation is the concern for domestic operators, especially small and medium enterprises, who may not be ready for the liberalization and increased competition. Therefore, if businesses have awareness for the upcoming change and make gradual preparations accordingly, the AEC target would not be out of reach. In the end, the business environment will change for the better, from enhanced competition and greater trade and investment facilitation, and the benefits will be for all parties. Consumers will have more choices of quality goods and services at an appropriate price; businesses will enjoy a larger market and different channels for cost reduction. After a successful integration, ASEAN will become a more important force in the world economy.
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BOX: Investment outlook in Myanmar after easing of economic sanctions

The lifting of economic sanctions will be the most important factor in fostering foreign direct investment into Myanmar. After the successful by-elections in April 2012, major economic powers were quick to offer rewards to Myanmar, with the US, EU and Canada announcing temporary suspension of economic sanctions, and Australia and Japan also sending similar positive signals. Given the richness in natural resources, potential for consumer market of over 60 million people, and the cheap labor market, as well as an extended period of economic and infrastructure underdevelopment, Myanmar promises overwhelming business opportunities and attracts huge investment funds into the country. The behavior of FDI flows into Myanmar should be similar to what happened in Vietnam after the relaxation of US economic sanctions that began in 1991-92. Vietnams FDI continued to increase steadily in the next 4-5 years after the relaxation, which was reflected by the increase in the number of approved foreign-owned projects by 400% compared to the period prior to the easing. The value of FDI registered in Vietnam also peaked at about 1400 percent against the year before the easing, as well. 1994 was the year the US abolished its economic sanctions, and it was the year the number of approved projects had the sharpest increase. For the next 2 years, i.e., during 1995-96, the value of registered FDI rose significantly, with the investment funds having been diversified into heavy and light industries, as well as services sectors such as construction, hotel, tourism, and transportation.
7 It is possible that Myanmars FDI will increase dramatically, similar to Vietnams case since the start of US sanction easing in 1991-92
Vietnams FDI environment, 1988 - 1997 Unit: Projects (LHS), USD Million (RHS)
Source: SCB EIC analysis based on data from Central Statistical Office of Vietnam
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Given such scenario, Thai businesses should not be complacent; They should find their own strengths and weaknesses so as to adjust their strategies for the more intense competition. Thailand has overall advantage over the giant economic powers in its long standing relationship and close cultural and religious ties with Myanmar. Moreover, it shares border of over 2,000 kilometers across 10 provinces. On the other hand, Thai businesses are not all endowed with sufficient investment funds necessary to improve Myanmars basic infrastructure to facilitate businesses, and their technological know-how is far less superior to that of the large corporations of advanced economies. Thus, if Thai investors are unable to turn these weaknesses into strengths in the near future, they will need to concentrate on their strengths and build a new business model suitable to the sizes and types of their businesses. For example, small and medium enterprises (SMEs) should consider Myanmar as a large and fresh market. They should aim to penetrate this market using the good relations with Myanmar as their advantage to find a strategic partner. To help Thai SMEs, the Board of Investment and the Federation of Thai Industries regularly organize roadshows to meet with business executives in Myanmar in order to find the right partners through business matching. These executives can be sales agents for imported goods or purchasers of Thai franchises, which will be beneficial especially if the Thai companies are not yet familiar with the risks of foreign direct investment. Thai companies with strong potential and adequate funds can also enter into a joint venture with a company in Myanmar to set up a small to medium factory, with a condition to put up at least 35% of the registered funds. The Myanmar counterpart can, in turn, facilitate in the marketing, distribution, and after-sales service. As for large Thai corporates with sufficient investment funds, information and technology, they can also consider setting up a production base in Myanmar. Tapping on Myanmars cheap labor market and rich natural resources, Thai companies will be able to enhance production efficiency and sell the products back to Thailand or export them worldwide. In this regard, Thai businesses must differentiate themselves from other multi-national corporations, perhaps by also fostering the quality of life for the citizens. For Example, it may be essential to emphasize a sense of mutual benefit and long-term commitment to the countrys development through local staff employment, knowledge and technology transfer, and distribution of quality goods to the domestic market at a reasonable price.
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8 With rich natural resources and a long period of closed door policy, Myanmar is poised for substantial foreign investment
Source: SCB EIC analysis
Although the overall investment climate in Myanmar is improving, many challenges remain. The floatation of the kyat in the beginning of April, as well as planned amendment of investment laws and a new law on special economic zone to facilitate foreign investment, have reduced some investment risks. However, there remain a number of hurdles for Myanmar that are considered business risks, such as frequent power outages, underdeveloped logistics system3, shortage of skilled labor, and the unsophisticated financial system which may not necessarily be able to absorb the influx of foreign funds. Furthermore, foreign investors will have to cope with the impact of the reform process, i.e., the hidden costs from rising employment benefits in order to be more generous to workers, and from higher land lease price which is already experiencing manifold increases over the past few years especially in key cities such as Yangon and Mandalay. As a result, Thai investors will have to be aware of these shortcomings and formulate their strategies accordingly to minimize the impact.
See additional information on comparison of the logistics system in ASEAN countries in figure 35.
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From Europe to
ASEAN
Many may expect that the final target of the AEC will be similar to that of the EU, given the liberalization in various sectors to create a single market and harmonization of rules and regulations, such as of product standard. The changes and adjustment taken place in Europe therefore may be telling, to a certain extent, for the ASEAN integration process. After the Single Market Program became effective in 1992, business competition strengthened, pushing prices down, leading to an adjustment in resource allocation. The major impact from the single market policy is higher competition among product brands distributed within the EU, which eventually led to a reduction in price and profit and a chain of changes for European businesses. One example is the growth of e-commerce business, to help cut cost and ease the effort to search for different products from different countries, as well as business mergers among the EU to benefit from economy of scale.
prices 9 Lowermarketdue to higher competition from Europes single policy benefits the overall consumers
Price convergence between EU Member States*
* Definition: coefficient of variation of comparative price levels of final consumption by private households, including indirect taxes. Source: SCB EIC analysis bassed on data from Eurostat Structural Indicators
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Leading companies in Europe began to focus on their core businesses and expand investment into other countries in the region. With stronger competition, European businesses concentrate on their core businesses, where they have the compentency and can benefit from economies of scale. The single market policy also facilitated business expansion into other countries. Some businesses were able to differentiate their products from others and gained market force. During 1987-2000, leading European companies have reduced their businesses, on average, from 5 to 3 businesses, while increasing their investment in member countries, from the average of 3 to 6 countries.
business where they 10 European companies concentrate on themember countries have comparative advantage and expand investment into
Trend in geographic and product segment diversification of leading EU f irms, 1987-2000
Note: EU defined as EU12 in 1987 and 1993 and EU15 in 1997 and 2000 Source: SCB EIC analysis based on data from Harry P. Bowen (2004), European Integration: The Third Step
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There was also a concentration of output production as large companies enjoyed more marketing force, especially developmental research and marketing firms. During 1987-2000, the share of output of the 5 large companies in each business which produce differentiated products and do not compete on prices rose substantially from 30% to almost 40%. For firms with homogeneous products, the share went up from 15% to 20%. Moreover, firms which give importance to advertisement had more marketing power.
benefit large 11 European integration seemed tocompeting oncompanies, especially those which were not prices
Producer concentration* of industries in Europe, 1987-2000 Unit: %
* Producer concentration means total output of the 5 largest companies divided by total output in one business. Source: SCB EIC analysis based on data from Adriaan H. Dierx, F. Ilzkovitz, Khalid Sekkat, European integration and the functioning of product markets
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However, even for the EU which has connecting borders for most of its members and a supranational body, integration took a long time; AEC integration is therefore not going to be all that simple. It took 10 years, from 1958-68, for 6 of the originating EU members to reduce their tariffs, but the real free trade among members only took place 25 years later-in 1993. Intra-EU trade became simple for the transport of goods, with no customs procedures. This was effective after the Single Market Program (SMP) came into force in 1993. Prior to 1993, transport trucks had to stop at border checkpoints for inspection and go through customs, causing a long line of queue, which was rather costly and time-consuming.
12 AEC has some characteristics which are different from the EU, which are critical for a successful integration
Characteristics Remark
* Single Market Program (SMP) was announced in 1992 and became effective in 1993. Prior to this, there have been tariff reductions, liberalization in labor movement, and lifting of customs and inspection procedures for trading among members. Source: SCB EIC analysis
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Furthermore, ASEAN relies more on the external market, which does not give incentives for integration. Currently, intra-ASEAN trade is only 25% of the value of total trade by ASEAN. This is a stark contrast to Europe, which enjoyed a 55% share for intra-EU trade prior to the Single Market Program, and 65% share after the convergence. In parallel, foreign direct investment among ASEAN is only 13% of total FDI in ASEAN, while the share of the EU is as high as 66%. Moreover, when it comes to foreign investment destination, ASEAN, in particular Singapore, a major investor abroad, has tendency to invest outside its own region, such as in China and India.
of the AECs key challenges is 13 Onetendency to invest outside thethat its own major investor has region
Share of outward FDI of each ASEAN country to total in 2010 Unit: %
Source: SCB EIC analysis based on data from UNCTAD and Singapore Department of Statistics
It is expected that the AEC process will be beneficial to businesses in the same way as the EU process, although the magnitude would be different due to the different structure. Because ASEAN does not have a supranational body, its borders are not connected throughout the region, has no plan to issue a common currency and to have common external tariff, ASEAN businesses will not be able to reap the full benefits from the larger market and single production base as in the case of the EU.
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BOX: AEC and agricultural opportunities among ASEAN

ASEAN integration under the AEC platform will also create bigger opportunities for the agricultural sector among members. In the past, Thailands investment in ASEAN was largely in the form of contract farming in neighboring countries (Cambodia, Laos, and Myanmar) under the Ayeyawady - Chao Phraya - Mekong Economic Cooperation Strategy (ACMECS). The main objective was to encourage the Thai private sectors to cultivate and harvest crops in these countries in order to reap the benefits of cheaper land and labor cost, and ship these farm produce to process further and add more value in Thailand, or even export them to the third countries. The contracting parties will agree in advance upon the volume, quality of output, price, and timing of purchase. Meanwhile, business entrepreneurs or investors will provide support in terms of capital, seeds, and production technology. In the first phase, crops under this economic cooperation include soybean, peanut, sweet corn, castor bean, potato, cashew nut, eucalyptus, millet, green bean, and another 3 energy crops, namely oil palm, cassava, and sugarcane. At present, lots of Thai investors have already made substantial investment in the neighboring countries, both in the form of contract farming and government concession for cultivated area. For instance, Mitr Phol Group has granted concession to grow 60,000 rai of sugarcane and produce sugar in Laos; Thai Hua Rubber, PCL. has rubber plantation and is building factories for processing rubber products in 3 locations in Laos; Charoen Pokphand Group (CP) has granted concession to grow corn and forage crops in Myanmar and Laos; Chaiyo-AA Group (double A) grows eucalyptus in Laos; Sutech Engineering, Co.Ltd., is doing sugarcane contract farming model in Myanmar. These investments have enhanced the value of border trade between Thailand and its neighbors significantly. Moreover, Thai investors can also benefit from the reduction in tariffs or tariff waiver for farm produce originated from these countries which have Least Developed Countries (LDCs) status. In addition, they also serve as a channel for product distribution and an export base to the third countries outside ASEAN. At the same time, with the AEC to become effective in the next 3 years, investment in the agricultural sector between Thailand and other ASEAN members can reach a new high. One of the key objectives of the AEC is to promote the development of a single market and production base to foster free flow of factors of production among the member countries. In particular, freer movement of labor and capital would substantially benefit the ACMECS initiatives already underway while enhancing and diversifying investment as well as agricultural development within ASEAN. Nevertheless, it is worth noting that the key to success is removal of non-tariff barriers, i.e., regulations on the quality of agricultural output, sanitation and phytosanitation (SPS), outbreak of insect pest, rules of origin, or domestic protection. These are rather sensitive issues for ASEAN and are currently the major obstacles for investment in the agricultural sector. If these barriers are significantly lessened or removed, we can expect to see a dramatic increase in investment and business expansion in a foreseeable future. For the founding members, or ASEAN-6, Indonesia is the most attractive country to Thai investors, especially for processed agricultural products, which have to rely on raw materials and agricultural labor force. Indonesia is endowed with the largest cultivated area in ASEAN, almost 3 times larger than Thailand, while its labor force in agricultural sector is approximately 2.5 times larger. Furthermore, Indonesia also has high potential in agricultural production, especially in Java and Sumatra islands. At present, production of its major crops such as rice, corn, cassava, oil palm, cocoa, and coffee is still not sufficient for domestic consumption, and it still needs substantial investment for processing agricultural products. Since these are the areas where Thailand has more expertise, Thai investors can tap into the processed agricultural product industry, sharing knowledge and advice to local farmers to improve production efficiency, designing product packages and promoting markets for value-added products, all of which are encouraged by the Indonesian government. Likewise, such business expansion also means bigger opportunities to bridge huge, unmet demand from over 240 million consumers in Indonesia.
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14 Indonesia has the largest cultivated area in ASEAN, while labor force in agricultural sector is approximately 2.5 times larger than Thailand!
Cultivated area (2009 data) Unit: Million hectares Agricultural labor force (2008 data) Unit: Million persons
Source: SCB EIC analysis based on data from Food and Agriculture Organization (FAO)
One interesting example is the expansion of cultivated area for oil palm in Indonesia. The demand for oil palm in Thailand both for food and energy crops continues to rise at a faster rate than output. At the same time, the production cost also went up accordingly. To ensure sufficient supply of palm fruit and raw oil palm in the future, expansion of cultivated area within ASEAN has therefore become one of the strategic solutions. Indonesia has the second highest oil palm yield per hectare in the world, second only to Malaysia, and 20% higher than Thailand. It also has the comparative advantage in terms of production cost, which is lower than Thailand by almost 40%. According to a study by the Center for International Trade Studies, University of the Thai Chamber of Commerce, the establishment of the AEC in 2015 and tariff reduction of oil palm among members will mean it is cheaper to buy imported oil palm from Indonesia and Malaysia than to produce it in Thailand. Thus, seeking government concession for cultivated area in Indonesia will not only help reduce production cost, but also bring down the risks associated with food and energy shortages. This is in line with Thailands energy policy in promoting alternative energy and biodiesel as the price of crude oil in the world market is on an increasing trend. PTT Green Energy, Co.Ltd, a subsidiary of Petroleum Authority of Thailand, PTT PCL, has already been active in cultivation and setting up oil palm factory in Indonesia. Of which some output will be sent to the central market in Indonesia, a major oil palm market in the world, while some will be brought into the production process in Thailand.
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oil 15 Demand forthanpalm in Thailand both for food and energy crops is rising at a faster rate output
Demand and supply of oil palm in Thailand Unit: Tons Oil palm output (2010 data) Unit: Index
Source: SCB EIC analysis based on data from office of Agricultural Economics (OAE) and Food and Agriculture Organization (FAO)
Myanmar has the greatest potential for agricultural business among the CLMV economies. Myanmar has the largest share of agricultural sector to GDP, 12 million hectares of cultivated area, over 19 million farmers, and the lowest minimum wage among the CLMV. It is worth noting that the hiring cost of one Thai worker can hire as many as 9 Burmese workers. Meanwhile, its agricultural yields of many major crops are still relatively low compare to other ASEAN countries. As a result, there will be plenty of opportunities for Thai investors to assist Myanmar in terms of capital, agricultural know-how, and modern technology for cultivating and harvesting crops to improve production efficiency and enhance yields.
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has the greatest potential 16 Myanmaramong the CLMV economiesfor agricultural business
Yields of major crops (2010 data) Unit: Index
Source: SCB EIC analysis based on data from World Bank, Food and Agriculture Organization (FAO), and Department of Labor and Employment, Republic of the Philippines
However, we need to be aware of the environmental impact which may result from rapid expansion of cultivated area for commercial purposes. Commercial agricultural production and expansion in investment and cultivated area abroad have been the main strategy in dealing with shortage of certain crop outputs and relatively high cost of production in Thailand. Yet, the increased cultivated area for mono crops has been seriously blamed for forest encroachment. For instance, the oil palm plantation in Indonesia is currently under close watch of world environmental organizations like Green Peace due to the heavy deforestation and forest fires in the area. The increased carbon monoxide (CO2) in the atmosphere can aggravate global warming situation and climate change related problem. Similarly, the smog and haze situation in Northern Thailand is likely a result of illegal burning of rice fields and forest area after cultivation process in the neighboring countries, especially at the border areas which have extensive amount of contract farming projects. Therefore, a right balance must be achieved, between agricultural development and investment on the one hand, and its impact on the environment and community on the other.
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3
17
Impact of AEC
on service sectors
Retail business
Modern trade in ASEAN has substantial growth prospects, especially for Malaysia, Vietnam, and Indonesia. According to EIC analysis, the 5 factors driving growth of modern trade are: (1) retail sales per capita (2) share of urban population (3) share of labor force with age 15-64, which is targeted customers of retail business (4) share of modern trade and (5) ease of doing business. Overall, it is found that Malaysia, Vietnam, and Indonesia are the most attractive destination for modern trade investment. Although Malaysia appears to have lower retail sales value than Vietnam and Indonesia, after taking into account the number of population, it has the highest retail sales per capita. For Vietnam and Indonesia, the number of modern trade stores is somewhat modest even though the growth of urban population and labor force indicates that they still have room for branch expansion.
Although the size of the retail sales in Vietnam and Indonesia is rather modest, they have a sound customer base and room for branch expansion
Investment climate indicators in ASEAN retail business Unit: Index
* higher number means small share of modern trade, implying that more room for branch expansion Source: SCB EIC analysis based on data from World Bank, United Nations, The Nielsen Company and CEIC
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18
Although the share of retail sales per capita of Indonesia and Vietnam is only slightly lower than Thailand, the share of modern trade is much lower
19
The number of modern retail stores in ASEAN countries does not keep pace with the rising trend in urban population
Retail sale per capita and share of modern trade in ASEAN countries
Modern trade branch per Share of urban population urban population in 2009 Unit: % Unit: branch per 1 million urban population
Source: SCB EIC analysis based on data from The Nielsen Company, and CEIC
Source: SCB EIC analysis based on data from United Nations, The Nielsen Company and CEIC
Modern trade in Malaysia has room for further expansion owing to the high retail sales per capita and the rising share of the middle - to - high income consumers. Malaysia has a higher share of middle-to-high income population, from 30% in 2002 to about 60% in 2010, resulting in the continued growth of the retail sales. Malaysias retail sales per capita is 4 times higher than that of Thailand, but the share of modern trade is close to Thailands at around 50%. Moreover, Malaysias share of modern trade to urban population is much smaller than those of Thailand and Singapore. As a result, Malaysia is still an attractive investment destination. Although the share of retail sales per capita in Indonesia and Vietnam is somewhat close to Thailand, the share of modern trade is relatively low. Retail sales per capita of Indonesia and Vietnam is relatively moderate compared to Malaysia. However, it continued to grow due to the increase in purchasing power. During the past 5 years (2006-11), retail sales grew at 12% and 15% per year, respectively, while the share of modern trade is at only 30%, far below the ASEANs average of 50%. This shows that modern trade has growth opportunities while retail sales continues to perform well.
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Growth of urban population, especially in Indonesia and Vietnam, is a major driving force for retail sales expansion. According to a study on urbanization, more ASEAN are moving into cities, especially for Vietnam and other CLMV, whose share of urban population is expected to rise to 45% within 2030. This is expected to further generate higher growth of retail sales. For Vietnam, retail sales in 6 key cities, i.e., Ho Chi Minh, Hanoi, Haifong, Danang, Kantho, and Nachang, combined is almost half of its total retail sales. This reflects a bright outlook for the retail market on account of city expansion. Furthermore, Indonesia and Vietnam have only 50 modern trade stores per 1,000,000 populations, compared with Thailands 370, which means modern trade has not kept pace with the growth of urban population. To penetrate into ASEAN retail market, investors should take into account consumers spending behavior, which has become more diverse. Due to the higher income and growing urbanization, the spending behavior of consumers has changed noticeably. Although many countries in ASEAN still spend mostly on food, in the past 10 years the spending structure has begun to change. Indonesia and Vietnam, for instance, have a lower share of spending on fresh food and spend more on processed food. The share of non-food items also rose steadily, such as furniture and household items and electrical appliances. The share of spending on fresh food for Malaysia and Thailand is only 20%, reflecting the change in spending behavior from grocery to non-grocery items, following higher income which led to more demand on diverse goods and services and modern amenities.
more diverse, on while the shares of processed food items are on the 20 The spending structure of ASEAN is and householdwith a lower sharerise fresh food,
Share of household spending in ASEAN countries Unit: %
Source: SCB EIC analysis based on data from CEIC and IMF
There are opportunities for retail business, for both grocery and non-grocery stores. Although the demand for non-grocery has increased, the share of grocery stores is higher than non-grocery in some countries, especially Indonesia. This is owing to expansion in grocery stores, in particular hypermarkets, which diversify their products to non-grocery items such as electrical appliances and household items, stealing some of the market share of the retail sales on non-grocery. Nevertheless, for Malaysia and Vietnam, the share of retail sales on non-grocery store is quite large and shows good prospects since the higher income leads to more quality lifestyle and increases demand on diverse products other than food and necessity items. According to Euromonitor, during 2011-15, retail sales on non-grocery store in Vietnam is expected to grow by 7% per year and grocery store growth of 3%.
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on non-grocery 21 Although retail salesstore is still quitestore demonstrates good prospects, the share of grocery large in some countries
Grocery and non-grocery retail sales Unit: million USD
Source: SCB EIC analysis based on data from Euromonitor International 2011
Despite fiercer competition from multi-national corporations rapid retail branch expansion, especially for hypermarkets, the relatively low number of branch per capita, especially in Vietnam, will provide important opportunities for Thai investors. ASEANs market share of modern grocery (consists of hypermarkets, supermarkets, convenient stores, and cash and carry) is at around 45% of total retail sales. This is largely attributed to branch expansion of the multi-national corporations, such as Tesco, Casino, Carrefour, with compound annual growth rate of 15% per year during 2006-09, which have intensified competition in the retail market. However, share of the traditional grocery stores are still large at 90% in Vietnam. It is therefore possible to penetrate the modern grocery market since Vietnam has 1.2 times more population than Thailand but 50 times fewer hypermarket branches per capita.
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22
Hypermarket has the largest share in modern grocery, with substantial investment from foreign investors
23
Branches of hypermarkets and convenient stores have high growth while that of supermarket moderated
Share of modern grocery and major retail players of ASEAN countries Unit: %
The number of modern grocery Unit: branch per million population
Source: SCB EIC analysis based on data from PWC and The Nielsen Company
Source: SCB EIC analysis based on data from PWC, The Nielsen Company and CEIC
In Malaysia, Indonesia, and Vietnam, non-grocery stores, especially department stores and specialty stores in clothes and shoes, home and garden, leisure and personal products, and electronics, have good growth prospects. Although the fast-growing hypermarket has gained market share from non-grocery stores, the products oered in non-grocery stores are more diverse and able to satisfy consumers demand. Thus the department stores or specialty stores are expected to continue to perform well. The categories with good prospects include clothes and shoes, leisure and personal products, electronics, and home and garden products. Vietnam, in particular, has only 1 shopping mall per 1,000,000 populations, compared with developed countries average at 1 shopping mall per 100,000 populations. The potential for Vietnam is therefore promising. According to Euromonitors estimates, non-grocery category is expected to pose a high growth rate averaging around 8-10% per year during 2010-15.
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and garden 24 Retail sales for department store and specialty store, especially homegood growth products, electrical appliances, leisure and personal products, shows prospects
Retail of non-grocery store by store type Unit: million USD
Source: SCB EIC analysis based on data from Euromonitor International 2011
To effectively penetrate the market, investors must be able to differentiate their products and concentrate more on middle - to - high income consumers because the share of these consumers has increased. In addition to Malaysia, Indonesia is also expected to have a larger share of middle -to-high income consumers, from 20% in 2010 to 50% in 2015. This group of cunsumers has high purchasing power and has potential for increasing retail sales. For example, the department stores in Indonesia are highly concentrated, with only 2 major stores, Matahari and Ramayana, catering towards the low - to - middle income consumers with the market share combined at 50%. Thus it would be easier to penetrate the middle -to-high income market, whose competitors are chain department stores from abroad, such as Debenhams and Sogo. Their combined market share is still relatively low at around 10%. Moreover, the EBITDA margin of these department stores during 2009-11 was moderately high at 15%, compared with department stores for low - to - middle income customers at 9%. For Vietnam, the purchasing power is increasing rapidly, and consumers are spending more on luxury items and brand names from abroad. Vietnamese consumers with higher income are expected to spend more substantially, reflected by the number of debit card and mobile phone users which went up thirty-fold during 2003-09. Furthermore, they buy more brand names from overseas and luxury items. According to Research and Markets, clothing, accessories, and luxury products in Vietnam grew on average 22% per year during 2004-09, and they accounted for about 8% of total retail sales in 2009.
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Liberalization under the AEC will open doors for the retail business in some countries. At the same time, however, domestic regulations remain a hurdle for foreign investors. Malaysia and Indonesia not only require investors to form partnership with local business and a minimum amount of investment, but also have other restrictions for retail business. For instance, while investment in large retail like department stores or hypermarket is allowed, the small and medium retail stores (SMEs) are protected against foreign investors. There are also regulations on zoning similar to Thailand, where city planning law is used to control branch opening by retail stores. Malaysia keeps hypermarkets 3.5 kilometers away from the city, and population density of 350,000 persons per 1 branch. Indonesia restricts them to be located on major roads with high-speed traffic.
AEC will facilitate investment in complicated would be a 25 Although theand restrictive rulesmore foreignmajor obstaclethe retail business,
Foreign share holder Unit: % Foreign restrictions and regulations on wholesale and retail business
Source: SCB EIC analysis based on data from ASEAN and Asian Development Bank (ADB)
Thailand has competitive advantage in the retail business despite the existence of multinational corporations and restrictive domestic regulations that are hindrances. Yet, if Thai investors could adapt their business model to be in line with the rules and regulations of each country, this may be an opportunity for a major business expansion. ASEAN has a large market, a booming urban population, rising income and purchasing power, robust demand for diverse products and services and for amenities. Against western corporations, Thailand also has the advantage in terms of benefits from the liberalization in goods and services under the AEC, and the close cultural, social, and economic ties, which should allow Thai investors to perform well in the ASEAN market.
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Medical tourism
At present Thailand is the market leader in medical tourism in terms of the number of international patients, but is not so well received by ASEAN patients. Thailand has the comparative advantage in medical tourism over regional competitors like Singapore and Malaysia due to its reputation as a tourist destination, the quality and friendliness of service which are well-known worldwide, and relative price. The AEC implementation will facilitate the related business and also expand market for Thailand as it makes intra-region travel more convenient. Nevertheless, our ASEAN patient market share is still relatively small as the majority is from the Middle East. This is partly a result of the 9/11 event which made it difficult for Middle Eastern patients to receive treatment in the US. It is worth noting that Indonesia, which has the largest population in the region and a growing middle class, presently prefers to receive medical treatment in Singapore and Malaysia over Thailand.
Thailand is the market leader in medical tourism members, 26 At presentin terms of number of international patients over other ASEAN
International patient market of selected ASEAN countries
Source: SCB EIC analysis based on data from Singapore Ministry of Health (2006), The Malaysia Healthcare Travel Council (MHTC) (2009) and Department of Export Promotion, Ministry of Commerce (2008)
It may not be too difficult for Thailand to retain the leading position in medical tourism after the implementation of the AEC, owing to the comparative advantage of Thai hospitals over other ASEAN members like Singapore and Malaysia. In terms of efficiency, growth, and ability to generate profit, Thailands private hospitals, one of the key players in medical tourism, have greater potentials than regional competitors. Most of the financial ratios are in a better position, as well as the reputation of the Thai hospitals, measured by the number of hospitals being recommended for treatment of foreign patients. This reflects the overall advantage of private hospitals in Thailand in servicing foreign patients. Besides, effective marketing campaign, and the extra efforts by many Thai private hospitals in providing information and coordination centers for foreign patients, translation services, and overseas network and representative offices further strengthen our competitiveness and would maintain Thailands position as the leader in medical tourism in ASEAN.
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services, Thailand 27 For a related business like hospitalthe price factor has many important advantages other than
* Number of hospitals recommended for medical travel by Patientsbeyondborders.com ** Includes representative office Source: SCB EIC analysis based on data from Bloomberg, Patientsbeyondborders.com and many hospital websites
Combining strengths in plastic surgery and dentistry with the reputation in tourism may be the successful ingredients in expanding the medical tourism market in ASEAN. According to a survey, Thai hospital has particular strength on plastic surgery and dental treatment. Furthermore, more marketing focus on heart diseases would be another business opportunity because myocardial ischemia and heart disease caused by high blood pressure are the two leading causes of death in ASEAN4
Details can be found in SCB Insight: How should Thai businesses cope with AEC (February 2011)
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28 Thailands strengths in medical tourism are plastic surgery and dentistry

Number of hospitals recommended for medial travel in well-known website
Source:SCB EIC analysis based on data from Patientsbeyondborders.com
In addition, Thailand can differentiate itself by focusing on plastic surgery, as it is the only country in ASEAN listed on the top 20 of the world in terms of the number of plastic surgery per year, with cheaper price than in Singapore and Malaysia. Greater convenience in intra-ASEAN travel after the AEC comes into force is one of the supporting factors for Thailands medical tourism. ASEAN Open Sky Agreement, as part of the AEC implementation plan, and liberalization in air transport services, under the trade in services agreement, has reduced restrictions in the conduct of business. Airlines are able to increase as many flight routes as they want, which lead to fiercer competition. Since 2001, we have seen the emergence of many low-cost airlines, which now accounts for half of all the seats for ASEAN flights. Consumers have therefore benefited from improved services, more convenience in traveling, and cheaper price. This may also help facilitate medical tourism due to more services available for the patients. In particular, Indonesias international flights are most heavily concentrated in Malaysia and Singapore, with a 55% share, while Indonesia-Thailand has only 4% share. With such little convenience, this may partially explain the low popularity of medical tourism in Thailand for Indonesian patients. It is expected that the Open Sky Policy and liberalization in air services due to the AEC implementation will increase more flights between Thailand and Indonesia.
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under the is expected 29 ASEANs Open Sky Agreement travel and AEC number of ASEAN patients to increase convenience in air the
Share of low-cost carrier seats in ASEAN, 2001-2012 Unit: % of all seats
Share of international ight in Indonesia by destinations, weekly Unit: % (November 2010)
Source:SCB EIC analysis based on data from CAPA-Centre for Aviation with data provided by OAG a UBM Aviation Business
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Furthermore, facilitated mobility of nurses is expected to ease the shortage of medical personnel. The Philippines is the only country in ASEAN which has sufficient number of nurses, and according to Asia Nursing Workforce Forum 2010s estimates, the supply will exceed demand in the next 10 years. Singapore and Malaysia are expected to be able to manage the number of nurses in line with domestic consumption in the next 10 years. Thailand, however, suffers from continued shortage, and it is expected that the AEC may facilitate mobility of nurses to Thailand. Nevertheless, it should be noted that Thailands salary scale may not be attractive enough. In the past, Filipino nurses chose to work in the US, with the share of 83% of total foreign nurses in the US.
allow labor may help reduce shortage in Thailand, many 30 While facilitationoftonurses greater mobility ofchallenges remain
Source: SCB EIC analysis based on data from Asia Nursing Workforce Forum 2010, U.S. Department of Labor, Singapore Ministry of Manpower, Thailand National Statistical Office, Philippines National Statistical Office, and IMF
Yet the main risk to Thailand is impact from the liberalization in trade in services, which would allow ASEAN to hold up to 70% shares in a Thai business. Hospital is ASEANs key sector; it is 1 in 4 of the priority integration sectors. Although the 70% target has been delayed, the commitment remains. As a result, the large market of medical tourism in Thailand is likely to attract more ASEAN investment after the AEC enters into force.
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BOX: MICE market

In addition to medical tourism which is gaining importance in ASEAN, the MICE (Meeting Incentive Convention Exhibition) market is also a major source of income for tourism in ASEAN. It creates value added to the economy in terms of income and employment. The AEC implementation will have impact on liberalization of the related service businesses, such as hotels, event organizers, catering of food and beverages, and public relations and advertisement. Thailand already has an edge on management of these services and may have greater opportunities for investment in ASEAN. Although Thailand is most equipped for meetings and conventions in terms of venue, international organizations and regional- and world-class exhibitions tend to prefer Singapore. To replace Singapore as MICE destination is thus a challenge. As an advanced economy, a center of business, and an English-speaking nation, Singapore has the advantage to position itself as a hub for MICE. Singapore also offers great convenience for both domestic and international travel. It has therefore become a favorite destination for international organizations and world-class exhibitions.
on venue, Singapore is of business and thus a more 31 Despite Thailands advantagepopular MICE destinationmore accepted as a center
Source: SCB EIC analysis based on data from CEI (Conferences Events Incentives ) Asia, International Congress and Convention Association (ICCA), and The Global Association of the Exhibition Industry (UFI)
Nevertheless, with many attractive tourist sites and price advantage, Thailand is preferable, especially for tourism relating to incentive travel. According to the 2012 Incentive Travel Survey5, the budget per head for promotional sales set by leading companies is showing a declining trend, especially for Europe and the US which are facing an economic downturn. This implies that travel for rewards may choose destination with lower cost, and Thailand may have the advantage due to its reputation for the value for money.
Surveyed by MEETINGNET.com
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With the advent of the AEC, Thai businesses relating to MICE can seek greater returns for their investment in larger markets like Singapore. While other countries retained their flexibility and restrictions on certain related sectors, Singapore has opened up its market the most after the 7th round of negotiation on trade in services. Its large MICE market provides business opportunity for other ASEAN countries. Nevertheless, there are areas of concern in making overseas investment, especially with regard to laws and regulations of the host country. For instance, for the food and restaurant business in Singapore, every staff involved in cooking needs to have at least half-day training on sanitation, and every year two high-level staff will need to attend a 3-day training course. The National Environment Agency (NEA) will also send its staff for inspection 2-3 times a year without advance notice to check on cleanliness.
AEC enhances Thai businesses to larger markets 32 TheMICE to invest inopportunities forlike Singapore relating
Related businesses Foreign ownership limit ( = 100%)
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Transport and logistics business

The AEC will increase the demand for logistics since goods and services will be more freely transferred, especially for border trade and transit trade, which are expected to expand substantially. Up to the present, business operators have set up factories in ASEAN under certain restrictions on labor, raw material, market, and regulation. However, under the AEC, these restrictions will be reduced considerably or totally eliminated. Expansion of production base and overall investment into other ASEAN countries is likely to increase in order to maintain advantage in terms of cost, raw material, and labor. Business operators which rely heavily on labor, such as clothing and shoes manufacturers are expected to set up new factories in countries with cheaper labor cost, such as Myanmar, Laos, and Cambodia. Some businesses may move their production base to the country which is their main market for greater convenience in marketing. The reduction in tariffs has so far increased border trade and transit trade, expanding by 8% and 6%, respectively, during 2008-11. When the AEC comes into force in the next 3 years, the transfer of raw materials, goods, and labors will increase dramatically, which will give rise to the demand for logistics in order to manage goods and services throughout the supply chain. Thailand is geographically advantageous, with potentials for being the logistics and transport hub of the region. It needs development in transport infrastructure to connect with neighboring countries. Thailand has connecting borders with Myanmar, Laos, Cambodia, and Malaysia, with numerous highway networks onto Vietnam, Singapore, China, and India. Therefore, land transport in the region mostly has to go through Thailand. At present, there are 12 ASEAN highway networks in Thailand, with the total distance of 6,693 kilometers approximately. There are also major transport development projects along the Greater Mekong Sub-region, i.e., East-West Economic Corridor-connecting Vietnam, Laos, Thailand, and Myanmar; North-South Economic corridor-connecting Thailand, Myanmar/Laos, and China and; Southern Economic Corridor-connecting Thailand, Cambodia, and Vietnam. The Southern Economic Corridor has a connecting route further to Dawei Deep Sea Port in Myanmar that can distribute products to the Middle East and Europe.
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Development of international highway networks would facilitate Thailand as a logistics and transport hub of the region
Source: ADB, Emerging Asian Regionalism, A partnership for Shared prosperity
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In this regard, Thailand should continue to reduce the transport and inventory carrying cost. Although the share of logistics cost to GDP is on a declining trend, from 18% to about 15%, it is relatively high when compared with Singapore (8%) and Malaysia (13%). For Thailands overall logistics cost, the share of transportation cost is the largest, followed by the inventory carrying cost. Domestically, Thailand still relies heavily on land transport, with an 83% share. The increase in oil price also has a major impact on transportation cost. It is estimated that a 1 US dollar per barrel increase in oil price will increase the cost of transport by 9 baht per 100 kilometers6. The government will therefore need to expedite the rail system and maritime transport development since they have lower energy cost than land transport by 3.3 and 5 times, respectively.7 As regards business operators, they will need to improve efficiency, for example, keeping full truck load services for both headhaul and backhaul in order to reduce transportation cost. To reduce inventory carrying cost, it is necessary to enhance efficiency of the supply chain management, for instance, adopting the Just in Time (JIT) technique so that the products need not be kept in inventory too long.
is declining but is considered high relative to other 34 Thailands share of logistics cost to GDPcountries
Thailand Logistics Cost to GDP Unit: %
Source: SCB EIC analysis based on data from NESDB, UNDP and Economist
SCB EIC analysis based on data from Gross, W, C. Hayden and C. Butz (2012), About the impact of rising oil price on logistics networks and transportation greenhouse gas emission, Logistics Research, Vol.4, pp. 147-156. Data from NESDB and World Bank.
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Meanwhile, the government and private sector should enhance the efficiency of Thailands logistics sector to be able to compete in the region. The World Bank has conducted the 2010 Logistics Performance Index and ranked logistics competency of 155 countries. According to the World Bank, Thailand ranks 35, quite a distance from Singapore (2) and Malaysia (29). Singapore is the center of air transport in the region and has a world-class sea port. It would be quite a challenge therefore to overtake Singapore. To compete with Malaysia, the Thai government needs to improve the customs system, such as develop the National Single Window, introduce e-Logistics system to cut logistics cost, reduce paperwork and time spent on import and export. As regards the private sector, the quality of logistics service providers needs to be improved by having a reliable tracking system, on-time delivery, and fast and efficient international transport at a reasonable price.
competency 35 Thailands logisticsMalaysia is inferior to Singapore and

Logistics Performance Index 2010 Unit: Index
Remark: The number in parentheses is the rank of countrys logistics competency out of 155 countries Source: SCB EIC analysis based on data from World Bank
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high substantial paperwork 36 Thailand has relativelyprocesscost, import and export and time-consuming for
A comparison of cost, number of documents and time to import and export of ASEAN
Source: SCB EIC analysis based on data from World Bank
The private sector should explore investment opportunities in the provinces with potential and tap into Thailands Logistics Development Strategy. The government has a development plan for a comprehensive integration of the logistics network. It is to develop the multimodal transport infrastructure, such as land, maritime and railways, to be connected domestically and internationally. It plans to set up an industrial estate on logistics at key strategic points, such as Chiang Khong, which is the gateway to China, and Baan Phu Nam Ron, which connects with Dawei Deep Sea Port. At the same time, the Board of Investment grants some investment incentives for logistics business, for example, waiving import tariffs on logistics equipment and waiving corporate income taxes. The private sector therefore should make use of transport infrastructure and governments supports, and explore investment opportunities in provinces with potential to set up distribution centers and inventories in key strategic points, such as Chiang Saen, Chiang Khong (Chiang Rai), Phitsanulok, Mae Sot (Tak), Baan Phu Nam Ron (Kanchanaburi), Mukdahan, and Hat Yai (Songkla).
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37 Logistics operators should seek investment opportunity in provinces with potential, according to different factors
Source: SCB EIC analysis based on data from Ministry of Transport, Ministry of Labour and Thailand Board of Investment
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An area worth exploring is the investment to facilitate the transport of goods which will receive benefit from the reduction in tariffs due to the AEC enforcement. Such goods are automobiles and parts, sugarcane, electronic circuit, and petroleum oil. Their current tariffs under the AFTA are higher than the target rate in 2015 by over 6%. It is possible that such reduction would increase the trade volume and transport of these goods markedly. Transport businesses or importers/exporters should be prepared for growth in the logistics business and the supply chain of these relevant products. For example, a logistics company may buy a trailer to transport automobiles while importers/exporters may need to study more intensively the customs rules for each country so that they can provide the services more efficiently.
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Logistics business will gain more opportunity from goods which are expected to benefit from the lower tariffs under the AEC
Share of trade value between Thailand and ASEAN, and decreased tariff under the AEC Unit: %
Source: SCB EIC analysis based on data from ASEAN Secretariat and International Trade Centre
Thai logistics operators should take this opportunity to expand their business to the neighboring countries so as to support other businesses by Thais. Currently many Thai corporations have already set up a logistics business in the neighboring countries. Siam Cement Group (SCG), for example, has logistics and transport businesses in Laos and Cambodia. Loxley has a logistics investment plan with a multi-national corporation to co-invest in the neighboring countries. It should be noted that transport businesses are suffering from human resource shortage, in particular truck drivers. Some training programs are thus needed, such as truck driving lessons, international traffic signs, international license test, and language lessons. Moreover, some domestic rules and regulations are subject to change periodically, like the weight allowed for a truck to carry. Business operators must therefore monitor these rules on a regular basis to have a competitive edge over other logistics service providers.
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Thai logistics operators have the advantage in knowledge and expertise in local transport. As such, building a network of local businesses would attract foreign investors to become a strategic partner. One of the challenges of the AEC is that foreign investors with high potential may become a major competitor in the logistics business and drive small businesses o the market. Thai logistics operators can tap into the benets of the AEC by forming a network of strategic partners and expanding into the ASEAN market. This would create diversity of transportations and vehicles and expertise for both domestic and overseas markets, which enables the supply chain and transport to have continuity from beginning to end. With advantages in the local transport, familiarity with the travel route, understanding of language and custom, the Thai operators should strengthen their own business by forging partnership with other operators in order to oer more integrated services. As a result, foreign investors may see potential for strategic partnership. In this regard, if the conduct of business is environmentally friendly or use of alternative energy, foreign investors may be more inclined to join because many businesses in the developed countries place emphasis on sustainable development. Logistics businesses which oer integrated services, advanced logistics, and use of technology will have an edge over their competitors. At present, world-class logistics operators oer more comprehensive services than Thai logistics operators. For example, they oer every type of eets (from vans to large airplanes), provide multimodal transport from land, rail, sea, and air, oer customs brokerage service that takes care of the paperwork, have expertise in transport of particular industry, and oer logistics management solutions. Thai operators can learn from this business model in order to oer a complete line of services in the future. It would also be useful to upgrade to advanced logistics, by adding value to the process during inventory and distribution, such as making specic labels, repackaging, packing dierent products in the same box to promote sales. Furthermore, they should invest in technology for logistics management, such as the Vendor Managed Inventory (VMI) system, to reduce logistics cost.
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World-class logistics operators oer more extensive services than domestic operators
Source: SCB EIC analysis based on data from companys website
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For Thai businesses, the Asset Light Model may be a key to expanding services to a full coverage. The difference between Asset Light and Asset Heavy is the value of the asset of the company. Asset Light business is a logistics service provider that has made little investment in assets, such as having no fleet for transportation or warehouse for its own use, but has to rent instead. This type of business will need to have extensive network and partnership to cover all the key logistics activities and to save logistics cost. On the contrary, Asset Heavy is a logistics company that has huge value of assets. Normally, it is a large corporation which handles every activity by itself but may have networks as local businesses in foreign countries. For the Asset Light, its share of revenue to total asset is over 2.5. This reflects that Asset Light appears to generate relatively higher returns without having to invest in that many assets. Thai operators with small capital should thus adopt the Asset Light model, forging partnership with other operators domestically and internationally, especially ASEAN, to prepare for logistics business growth in the region after the AEC implementation.
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Case study of Asset Light Model shows that it will relatively generate more returns than Asset Heavy Model
Source: SCB EIC analysis based on data from companys website
Large Thai logistics businesses have developed their potential and made preparations for the AEC, such as fostering a network with world-class logistics corporations and investing in information technology system. For small operators, they also need to make the appropriate adjustment for fiercer competition and explore opportunities to be offered by the AEC.
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Financial options for Thai
investors in Indochina
Financial sector liberalization is one of the agreements under the ASEAN Economic Community (AEC). The rapid growth prospects of CLMV, i.e., Cambodia, Laos, Myanmar, and Vietnam, Thailands relaxation of capital account measures, and CLMVs accommodative policies on foreign direct investment are all supporting factors for Thailand to increase trade and investment in these countries. While Thai commercial banks have some advantages over the local banks in international transactions, they need to deepen their understanding of the regional markets to be able to give relevant advice to Thai businesses. The full-fledged free trade necessitates liberalization of the financial services. The financial sector liberalization comprises 4 main components: the payments system, capital mobility, banking system, and capital market. At present, liberalization in the financial sector still lags behind the real sector. Business operators who wish to penetrate these markets will therefore need to have a good understanding of the financial options while the liberalization process is in the initial phase. So far, financial liberalization, especially for banking, has made a slower progress than trade in goods and services, although the AEC sets the goal that all member countries fully liberalize the financial sector by 2020. Because ASEAN countries are at different stages of development, the financial sector will therefore be liberalized according to readiness and the reciprocity-based agreements. Thailand has already made preparations on many fronts. For the payments system, the ATM services have been increasingly integrated within member countries, and development of the international electronic payments system is under way as per the 2012-16 Strategic Plan on Payments. At the same time, regulations on capital outflows have been relaxed to allow more direct investment and securities investment abroad, with a plan to also allow investors to buy currency futures in the derivatives market to hedge against the exchange rate risk by 2012. For the banking sector, the Bank of Thailand has entered into negotiation with ASEAN members to set the framework for the Qualified ASEAN Bank. In the future, the banks which meet the standard can conduct banking business in every ASEAN member country. Liberalization of the capital market has made more concrete strides than other financial sectors. Seven stock exchanges from six countries have signed the cooperation agreement of ASEAN Exchanges. In the first phase, electronic securities trading will be allowed via ASEAN Trading Link for Malaysia, Singapore, and Thailand within August 2012. Such trading through the Single Window will render great convenience for investors, enhance liquidity, and improve efficiency of the ASEAN capital market. Moreover, a regional reference index, ASEAN Stars, will be constructed on the securities of 180 large ASEAN corporations. Capital market development and liberalization under the AEC will increase the channel for fund mobilization for businesses, especially when the banking system needs time for development of international cooperation. As regards CLMV, although Vietnam, Cambodia, and Laos have their own stock exchanges, only Vietnam has a developed capital market with ample liquidity and diverse listed companies. Fund mobilization in other CLMV countries is therefore rather limited to the banking sector. Currently Thai investors who wish to invest overseas can transfer the capital out of Thailand relatively freely, whereas CLMV have a rather open policy toward foreign investment. In addition, Cambodia, Laos, and Vietnam have international payments systems which meet international standards. The Bank of Thailand has eased regulations on capital movement, allowing fund transfer for setting up a business or for a joint-venture abroad with no less than 10% shareholding. There is no amount limit for a juristic person, but for an individual investor the limit is set at 100 million US$ per year. The fund transfer to CLMV can also be made in Thai baht. For CLMV, foreign direct investment in almost all types of business is welcome, with the exception of some key sectors such as banking services and businesses related to national security. CLMV allow a wide variety of investment options, including foreign enterprises with 100% foreign-owned equity, joint-ventures with no less than 30-35% foreign-owned equity, and business cooperation contracts. Repatriation of profits and dividends can be made freely after deducting taxes and the relevant fees. Yet, CLMV have weaknesses in the number of paperwork and the time
47
needed for governments business-related approval, according World Bank (2012). For the payments systems, electronic international transfer (SWIFT) is common and the letter of credit (L/C) is now widely accepted in Vietnam, Cambodia, and Laos, but not for Myanmar where trading largely takes place along the border and often involves payments outside the banking system. Nevertheless, due to recent floating of the kyat, the official rate of exchange now matches the market rate, which will further encourage transactions to take place within the banking system. Likewise, the international payments system will likely be improved.
48
are open to foreign direct and a variety 41 CLMVallowrelatively of investment options investment
Foreign direct investment in CLMV countries
Source: SCB EIC analysis based on data from the Board of Investment of Thailand, the Export-Import Bank of Thailand, the Thai Chamber of Commerce, Ministry of Foreign Affairs, and Thai embassies
49
However, financial access in CLMV is still somewhat limited, both in terms of access to branches and automated teller machines (ATMs), and fund mobilization through the banking system as liquidity in some countries might have been low. The banking system in Cambodia, Laos, and Myanmar is rather small, compared to the size of their economies, and it is in a developmental stage. Their people still have limited access to the branch services and ATMs. The ratio of branches per 100,000 adults ranges between 1.6 and 4.0, while that of ATMs is 3.5-17.6. These are lower than other ASEAN members average. In terms of bank lending, despite the robust credit growth of CLMV during the past 5-6 years, the size of credit in every CLMV country except Vietnam is small compared to other ASEAN countries, both in terms of volume and the percentage to the countrys gross domestic product. Laos and Vietnam also have a high loan-to-deposit ratio. This may be attributed to the limitation of fund mobilization options, which results in the higher cost of bank borrowing in CLMV.
access in 42 FinanciallimitationsCLMV still has

Access to banking in ASEAN Credit and Deposits to GDP Unit: % GDP Access to branches and ATM services Unit: branches, ATMs
Source: SCB EIC analysis based on data from the IMF and the Consultative Gap to Assist the Poor (CGAP).
50
43 Credit size in Cambodia, Laos, and Myanmar is rather small compared to other countries
Credit by commercial banks in ASEAN
Note: Size represents credit by commercial banks Source: SCB EIC analysis based on data from the IMF and the World Bank
have of borrowing 44 CLMVother a higher costASEAN than countries in

Borrowing from commercial banks Loan - to-Deposit Ratio (%) Unit: % Commercial Bank's Lending rate (%) Unit: %
Source: SCB EIC analysis based on data from the International Monetary Fund and the World Bank
51
Thai businesses wishing to invest in CLMV should start by mobilizing funds in Thailand and transfer these funds through Thai commercial banks or foreign banks which have local branches in CLMV. Thailands regulations on capital outflows have been relaxed substantially, and investment in CLMV can be made in Thai baht, which helps mitigate the exchange rate risk. Funds outside CLMV are cheaper and offer more mobilization options. Currently, a few Thai commercial banks are already operating in Cambodia, Laos, and Vietnam. Myanmar has yet to allow foreign banks to provide banking services, but some Thai banks have already set up a representative office in Yangon to prepare for provision of services in the future. Larger banks from other ASEAN member countries are also operating in CLMV, especially those from Singapore and Malaysia.
and countries are 45 Currently commercialupbanksinfrom Thailand officeother ASEAN memberwhich allows providing financial services CLMV, with the exception of Myanmar, foreign banks to set the representative only.
Presence of select commercial banks in CLMV
* Siam Commercial Bank has been granted the license to establish the representative office in Myanmar. Note: JV = Joint Venture, RP = Representative Office Source: Source: SCB EIC analysis based on data from commercial banks websites (April 2012)
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To better serve Thai businesses in trade and investment in CLMV, Thai commercial banks will need to assert their role as the advisor for their customers. At the same time, the government will have to push for a common standard for the financial and banking system under the AEC. Although Thai commercial banks have the advantage over local banks in providing financial services to Thai businesses, limitations remain in terms of advice for investment in CLMV since their local customer base is not extensive enough. Access to economic and business information may also be constrained by the use of local language. Thai commercial banks in CLMV will therefore need to make the necessary adjustment in organizational structure and strategy formulation to better understand the local markets, customers demand, and key players in each business. This would help in making comprehensive and practical advice for Thai businesses. At the same time, through the negotiation framework of the AEC, the government should promote a common standard in the financial and banking system as well as the rating system, credit guarantee, or tariff structure so as to create a common understanding among the relevant parties and allow for Thai business operators to formulate the right business plan.
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Thai services sector
at a crossroad
Although the path towards the AEC has taken some time and may face further delay, the overall target will eventually have to be met. While there may be some negative impact on certain businesses, on balance the increase in cooperation and competition in the region will be beneficial, as demonstrated by the strength and role of the EU to the world economy. Therefore, the valid question for Thai service business is: how and when to respond to the changing business environment. It is essential to start exploring opportunities while making preparations for the increased competition in the period ahead. Investors and business operators should familiarize themselves with the rules and regulations which are about to change owing to the various agreements under the AEC. Moreover, they need to study the markets and relevant businesses to have an early start. Understanding the competitors and preparing ourselves, is an old Thai saying, which may actually be one of the basic strategies in facing opportunities and challenges. Each business should know what its core competency is because fully leveraging it will be advantageous in tapping the opportunities from the ASEAN markets, each with interesting features8. Thai businesses will need to go abroad more, using ASEAN as a starting point in strengthening its position. Although Thailand may be at the advantage at this level of competition, regional cooperation is likely to intensify to another level, for example, the ASEAN+3, where competition will be fiercer with China, Japan, and South Korea. NOW: the service sectors in which Thailand has the ability to compete and clearly has the advantage should start entering the ASEAN arena now, especially for the sector which has been fully liberalized or has reduced most barriers. As competitors will think alike and share the same interest, it is important to start early and be at an advantageous point. For instance, for the healthcare service of hospital, most financial ratios show that Thailand has the advantage, and its reputation has been widely accepted. Despite the delay in increased ceiling for foreign shareholding, healthcare is one of the priority integration sectors which is expected to meet the target date soon. The rising demand from each country due to insufficient number of domestic service providers and higher share of elderly and middle-income class will result in reduction in barriers to facilitate more ASEAN investment. Indonesia, for example, set the size of the hospital at 200 beds for ASEAN investment, and 300 beds for investors outside ASEAN. LATER: for certain sectors which have already been liberalized and Thai business is ready to invest but is faced with a structural problem on cost, it is better to wait for the right moment. An example of this is the problem of market size, which will have implications on the type of investment. While there may not be limitations by the host country, it may not be cost effective for investors at this stage. Healthcare service in Laos is a case in point. It is quite liberalized, but few investors have made an investment, only Thailand and Vietnam on lab services, such as ultrasonography, x-ray, and CT scanner. This may largely be due to the small size of market, and the fact that the well-to-do in Laos often choose to receive treatment abroad. Thus the appropriate investment at this stage may rather be advertisement and packaged medical tour to Thailand. WAIT and SEE: some sectors will be liberalized according to the AEC, but with remaining obstacles that will have major impact on foreign investors. The restrictive domestic regulations which show no sign of improvement or even become more restrictive and preference for local services (home-bias puzzle) may be important challenges, and investors may well stay put for now. Examples of these situations are a store selling imported goods and asset management companies which invest in other ASEAN countries. Nevertheless, these businesses will need to monitor the situation closely so that they will not miss the right opportunity.
Further details can be found in SCB Insight: : How should Thai businesses cope with AEC (February 2011)
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Every business will, sooner or later, need to face the impact from the AEC. The Thai service businesses should use their advantage and find the right timing for an upgrading to access the ASEAN market. This involves studying the market potential, rules and regulations under the ASEAN agreements, domestic rules, and having the right business model to create an advantage. The competency and expertise in a particular field will also be one of the critical success factors in the competition for ASEAN investment in services, whose growth has already surpassed that of manufacturing. Most importantly, all the adjustments have to start now because the AEC does not begin in 2015. Furthermore, economic integration does not end with the AEC. There will be more cooperation and competition from the ASEAN+3, ASEAN+6, and TPP (Trans-Pacific Partnership)9 in the near future.
ASEAN+3 is the 10 ASEAN countries and China, Japan, and Korea. ASEAN+6 is ASEAN+3 and Australia, New Zealand and India. Trans-Pacific Partnership (TPP) starts with 4 countries, i.e., Brunei, Chile, New Zealand, and Singapore, and with other members in the negotiation process: Australia, Malaysia, Peru, Japan, the US, and Vietnam.
55
Contributors
Dr. Sutapa is Chief Economist and Executive Vice President at Siam Commercial Bank (SCB), where she leads the Economic Intelligence Center. She previously served as Head of Credit Risk Analytics Division under Risk Management Group. Before SCB, Dr. Sutapa set up and headed the Risk Analytics and Research Group at TMB Bank during her secondment from ING Group. Prior to joining the banking industry, Dr. Sutapa was Economist (EP) at the International Monetary Fund (IMF) in Washington, DC. She had also served as Advisor to the Thai Senate Committee on the Economy, Commerce, and Industry, as well as Director of Macroeconomic Analysis Section at the Thai Ministry of Finance. In addition to her current role at SCB, Dr. Sutapa sits on the Advisory Board of the Committee on National Village and Urban Community Fund-a mega-scaled fiscal microfinance project of the Thai government through granting one million baht to each of over 70,000 villages nationwide. Dr. Sutapas academic contribution includes lecturing at various universities in Asia including Hitotsubashi University, the Indian Institute of Technology, Chulalongkorn University, and the National University of Singapore. Dr. Sutapa holds an undergraduate degree in Applied Mathematics from Harvard University and a doctorate degree in Economics, Management, and Policy from Massachusetts Institute of Technology (MIT). She was a recipient of Thailands most prestigious Kings Scholarship. In 2007, Dr. Sutapa was honored by the Asia Society as Asia21 Young Leaders Fellow, selected among a diverse group of professionals under 40 from the Asia-Pacific region. Teerin has over 10 years of management consulting experience working with the Boston Consulting Group and A.T. Kearney. She has advised leading companies across South East Asia in various industries such as banking, insurance, energy, consumer goods, and services. Her areas of expertise include growth strategy, competitive business model development, and business transformation. Prior to consulting, Teerin worked with PTT Plc. in oil business and investment management of PTT's subsidiaries.
Dr. Sutapa Amornvivat

Chief Economist Head of EIC and Sectorial Research
Teerin Ratanapinyowong
Head of Sectorial Strategy
Teerin graduated with a Bachelor of Accountancy (First Class Honors with Gold Medal Award) in Accounting Information System from Chulalongkorn University and a Master of Business Administration from Kellogg School of Management, Northwestern University in the United States. Besides the business focus, Teerin has advised World Food Program, a part of United Nations system, in developing cause-related programs for private sectors and end consumers to make a difference through social impact activities. Vithan has previously held positions at the Fiscal Policy Research Institute, Ministry of Finance, working on the development of the medium-term government expenditure framework and the budget allocation model as well as conducting studies on fiscal policies. He also worked in the Research and Information Department and the Strategy Development Department at the Stock Exchange of Thailand.
Vithan Charoenphon
Areas in charge: Hospitality and Services, Building Material and Constrution
Vithan received his Bachelor of Arts with Honors in economics from Chulalongkorn University and a Master of Science in economics from Thammasat University.
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Contributors
Pranida has prior work experience in macroeconomic analysis, analyzing monetary policy framework and monitoring key selected countries that may have repercussions on the conduct of monetary policy in Thailand. She has held positions in the Monetary Policy Analysis Team and the International Economies Analysis Team, Monetary Policy Group, at the Bank of Thailand for more than 7 years.
Pranida Syamananda
Areas in charge: Retail trade and Electronics
Pranida received her Bachelor of Arts with Honors in economics (major in International Economics) from Chulalongkorn University, and a Master of Arts in economics from the University of Texas at Arlington.
Dr. Chinnawut was the Contributor Analytica and has researched in the and education, modelling principally training at the Bank of Thailand and
on Thai economy and politics for Oxford fields of experimental economics, sociology on socioeconomic data. He has his prior Citigroup London (Canary Wharf).
Dr. Chinnawut Techanuvat

Economist
Dr. Chinnawut received his bachelor's degree (First Class Honors with Gold Medal Award) in economics from Thammasat University. A Citibank/FCO Chevening scholar, he completed his master's degree and a doctorate degree from the University of Oxford with his thesis on Thai education and societal changes in the twentieth century. Dr. Sivalai has prior work experience in conducting research and analysis in economic, monetary, and fiscal policies as well as transport infrastructure at the Ministry of Finance, NESDB and Department of Highways. She was also an advisory staff member for the Minister of Transport. Her research interests include entrepreneurship and financial market risks.
Dr. Sivalai Vararuth

Areas in charge: Petroleum and Energy, Transport and Logistics
Dr. Sivalai received her Bachelor of Economics (First Class Honors) from Chulalongkorn University. She was awarded the Royal Thai Government Scholarship to pursue MSc program in Policy Economics at the University of Illinois at Urbana-Champaign, and the World Bank Graduate Scholarship to pursue MSc program in Economics at the London School of Economics. She completed her doctorate degree in Applied Economics and Management at Cornell University. Tubkwan has prior work experience as an equity capital markets analyst in the Investment Banking Division at J.P.Morgan Singapore. In 2010, He commenced at SCB in the Credit Risk Analytics Division responsible for monitoring, quantifying and managing Banks overall risk at portfolio and industry levels.
Tubkwan Homchampa
Areas in charge: Utilities, Food and Beverage
Tubkwan was awarded the Kings Scholarship to study economics for his bachelors degree at Yale University. He later graduated with a masters degree in finance and economics from the London School of Economics (LSE).
Witchuda Chummee
Areas in charge: Agriculture and Agricultural Commodities
Witchuda has prior work experience as senior economist in the Monetary Policy Group at the Bank of Thailand, having held positions in the International Economies Division, Macroeconomic Team, and Economic Intelligence Team for over 10 years. As a central banker, she was awarded the scholarship by the Government of India to attend the three-month training in the Promotion of Financial Markets (PFMs). In addition, she has worked for a leading private firm in business development and project management. Witchuda received her BBA with Honors from Assumption University and a masters degree in International Business Management from Asian Institute of Technology (AIT). As a MBA-exchange student, she was awarded the honorable certificate for participating in the International Business Linkage Program at Helsinki University of Technology, Finland.
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SCB Economic Intelligence Center

Dr. Sutapa Amornvivat Chief Economist Head of EIC and Sectorial Research sutapa.amornvivat@scb.co.th (662)544-6540 Teerin Ratanapinyowong FSVP, Head of Sectorial Strategy teerin.ratanapinyowong@scb.co.th (662)544-7410 Amornrat Kritsophon amonrnrat.kritsophon@scb.co.th (662)544-6413
Dr. Sivalai Vararuth sivalai.vararuth@scb.co.th (662)544-1463

Tanakorn Limvittaradol tanakorn.limvittaradol@scb.co.th (662)544-6103 Tubkwan Homchampa tubkwan.homchampa@scb.co.th (662)544-6546
Alisa Tamprasirt alisa.tamprasirt@scb.co.th (662)544-7413

Dr. Chinnawut Techanuvat chinnawut.techanuvat@scb.co.th (662)544-3085 Dr. Phacharaphot Nuntramas phacharaphot.nuntramas@scb.co.th (662)544-4294 Pranida Syamananda pranida.syamananda@scb.co.th (662)544-2705
Vithan Charoenphon vithan.charoenphon@scb.co.th (662)544-2478 Witchuda Chummee witchuda.chummee@scb.co.th (662)544-1644
Disclaimer : The information contained in this report has been obtained from sources believed to be reliable. However, neither we nor any of our respective affiliates, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information contained in this report, and we and each of such persons expressly disclaims any and all liability relating to or resulting from the use of this report or such information by the receipt and persons in whatever manner. Any opinions presented herein represent the subjective views of ours and our current estimated and judgments which are based on various assumptions that may be subject to change without notice, and may not prove to be correct. This report is for the recipients information only. It does not represent or constitutes an advice, offer, recommendation, or solicitation by us and should not be relied as such. We or any of our associates may also have an interest in the companies mentioned herein.
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EIC | Economic Intelligence Center

January - June 2012

Business opportunities for services sector under the AEC

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

ASEAN Economic Community:

from now to 2015

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

Source: SCB EIC analysis based on data from ASEAN Secretariat

EIC l Economic Intelligence Center

Source: SCB EIC analysis based on data from ASEAN Secretariat

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

BOX: Investment outlook in Myanmar after easing of economic sanctions

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

Source: SCB EIC analysis

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

Trend in geographic and product segment diversification of leading EU f irms, 1987-2000

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

BOX: AEC and agricultural opportunities among ASEAN

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

Investment climate indicators in ASEAN retail business Unit: Index

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

The number of modern grocery Unit: branch per million population

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

28 Thailands strengths in medical tourism are plastic surgery and dentistry

Source:SCB EIC analysis based on data from Patientsbeyondborders.com

EIC l Economic Intelligence Center

Share of international ight in Indonesia by destinations, weekly Unit: % (November 2010)

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

BOX: MICE market

EIC l Economic Intelligence Center

Source: SCB EIC analysis based on data from ASEAN Secretariat

EIC l Economic Intelligence Center

Transport and logistics business

Source: ADB, Emerging Asian Regionalism, A partnership for Shared prosperity

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

competency 35 Thailands logisticsMalaysia is inferior to Singapore and

EIC l Economic Intelligence Center

Source: SCB EIC analysis based on data from World Bank

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center

EIC l Economic Intelligence Center