AEC 2015 Prospects: Services sectors abroad

By J. Carlitos G. Cruz
First published in Business World (05/05/2014 p.S1/3)
(Fourth in a five-part series)
IN LAST weeks column, we discussed the Philippines commitments to liberalize its services
sector. We will continue to look into services, but this time from the perspective of our ASEAN
neighbors what are they offering in return?
The Philippine services sector has long made forays into international markets even beyond
Southeast Asia. We have seen, for instance, a Filipino mall chain setting up a megastore in China,
a local port operator buying into Latin American ventures, several banks setting up remittance
centers in the Middle East, and the continued expansion of the business process outsourcing
(BPO) industrys client base in Europe and the United States.
Some firms seeking to operate closer to home, however, have complained about regional
barriers. According to a 2013 study by the government think tank Philippine Institute for
Development Studies (PIDS), companies here have commonly cited the following deterrents to
selling their services to the ASEAN market: restrictions on legal entities, discriminatory taxes,
and a lack of information on opportunities. Furthermore, businesses seeking to set up local
operations in ASEAN countries said minimum capital requirements, restrictive labor regulations,
legal rules for partnerships, and licensing requirements for professionals were significant
stumbling blocks.
These are the observations about the countries in the region the Philippines included that
have been generally conservative in their pledges to liberalize their services sector. Nevertheless,
opportunities can be spotted if one takes the time to comb through the members packages of
commitments.
Our research shows that across three types of indicators labor productivity, growth rates, and
contribution to the service sectors total output five service areas consistently come out as the
Philippines niches: (1) wholesale and retail trade, (2) transport and communications, (3)
financial intermediation, (4) real estate, and (5) business services.
As Department of Trade and Industry Secretary Gregory L. Domingo said in an April 10 forum
organized by the DTI and USAID, the Philippine services sector is poised to come out on top in
the region due to its educated and capable workforce.
What opportunities, then, lie in store for Philippine firms in these five areas, particularly in the
key ASEAN markets of Singapore, Malaysia, Indonesia, Thailand, and Vietnam?

TRADE
The annexes of the 8th ASEAN Framework on Services (AFAS) suggest that wholesale and
retail trade distribution is among the more liberalized service industries among the members.
Singapore, for instance, has declared that there are to be no market access limits involving the
commercial presence of ASEAN firms engaged in commission agent services and the wholesale
trade of products except for pharmaceutical and medical goods and cosmetics.
Both Singapore and Vietnam have also stated that there are to be no market access and national
treatment limits on the commercial presences of franchising services in their countries, except
that the chief of branch in Vietnam has to be a resident there. Malaysia and Indonesia, for their
part, have declared that they allow up to 51% foreign equity in several trade distribution services.
TRANSPORT AND COMMUNICATIONS
The liberalization of the transport sector is more of a mixed bag. For air transport, the ASEAN
Secretariat and the World Bank jointly said in their integration monitoring report last year that
there has been very good progress and good growth in this priority sector, as indicated by the
bilateral air agreements for increased flight seats and frequencies. However, they noted that more
work needs to be done in granting the Fifth Freedom in the region that is, the right to ferry
passengers and cargo between foreign countries and not just the home country of an airline. The
report notes that Cambodia, Indonesia, Laos, and the Philippines have not yet ratified key
agreements relating to the Fifth Freedom.
For the maritime sector, there are less liberalization commitments tabled. Many countries in the
region impose limits on foreign equity in maritime and auxiliary services. Some bright spots,
however, include towage and shipping brokerage in Singapore where there are no declared
market access limits on commercial presence in its AFAS annex. Unfortunately, limits do abound
around the region in terms of road and rail transport industries.
In telecommunications, some countries permit foreign entities to hold a majority stake.
Singapores AFAS annex states that it allows a cumulative total of 73.99% foreign equity in
several telecom services, based on 49% direct investment and 24.99% indirect investment.
Vietnam, for its part, declared that foreign capital contribution shall not exceed 51% of the legal
capital of the joint ventures for various telecom services, while Malaysia has pegged theirs at a
higher 70% foreign shareholding in service providers. Thailand, in contrast, stated that foreign
equity participation must not exceed 49% of the registered capital.
FINANCE
Judging from the ASEAN members package of commitments, the financial intermediation
industry is perhaps the most closely guarded. Several members impose a limit on the number of
foreign bank branches, their lending volumes, and the number of foreign executives.
Malaysia, for instance, confines the entry of offshore banks and insurance firms to the federal
territory of Labuan. It further mentions that only 13 wholly foreign-owned commercial banks are
permitted to remain wholly-owned by their existing shareholders and has reserved the right to
keep its policy for new licenses unbound. Singapore has similarly stated that new foreign
banks may only be established as offshore bank branches or representative offices. Indonesia has

stated that there are to be only two sub-branches and two auxiliary offices for a foreign banks
branch office or for a joint venture bank. Vietnam has a condition whereby it may limit equity
participation by foreign credit institutions in equitized Vietnamese state-owned banks to equal
that of Vietnamese banks. In Thailand, a foreign firms market access to locally incorporated
banks is limited to the acquisition of shares in existing banks, with the caveat that foreign equity
participation is restricted to a maximum 25% of paid-up registered capital.
Many other restrictions are detailed in each countrys fifth package of commitments for financial
services; these are worth a careful read for financial institutions keen to expand in the region.
REAL ESTATE AND BUSINESS SERVICES
Meanwhile, firms engaged in property management, rentals, urban planning, and even
landscaping would do well to look into our neighbors liberalization commitments. Singapore has
declared that there will be no limits on ASEAN countries market access and treatment in terms
of commercial presence in the areas of residential and non-residential property management,
except for the resort island of Sentosa and the Southern Islands of Singapore, which only the
Sentosa Development Corp. is allowed to develop and manage. In Indonesia, ASEAN firms are
allowed to hold not more than 51% of the share capital of a joint venture company with a local
partner for services like urban planning and landscaping. Thailand has declared that it allows up
to 70% foreign equity participation in joint venture firms with a Thai national providing urban
planning services limited to land use, site selection, road systems and servicing of land. It further
stated that it allows up to 49% foreign equity participation in the registered capital of firms
involved in residential property leasing and management, and up to 70% for residential
condominium management.
In comparison, the business services sector is fraught with more restrictions, particularly with
regard to the licensing of foreign professionals. Firms in the areas of architecture, law,
engineering, accountancy, advertising, computer services, and management consultancy
among others would do well to look into the AFAS annexes of Singapore and Vietnam, which
offer opportunities for foreign entry. Malaysia, Indonesia, and Thailand, meanwhile, allow
majority foreign equity in some of these services.
As with anything in business, information is the key to a winning strategy. As wealth in this
emerging part of the world continues to grow and trickle down, the demand for services will
increase rapidly to support the smooth running and expansion of ASEAN economies. Many
opportunities in the region lie in store for Philippine service firms as long as they come prepared.
J. Carlitos G. Cruz is the Vice-Chairman and Deputy Managing Partner of SGV & Co.
AEC 2015 Prospects: Services sectors abroad

By J. Carlitos G. Cruz
First published in Business World (05/05/2014 p.S1/3)
(Fourth in a five-part series)

IN LAST weeks column, we discussed the Philippines commitments to liberalize its services
sector. We will continue to look into services, but this time from the perspective of our ASEAN
neighbors what are they offering in return?
The Philippine services sector has long made forays into international markets even beyond
Southeast Asia. We have seen, for instance, a Filipino mall chain setting up a megastore in China,
a local port operator buying into Latin American ventures, several banks setting up remittance
centers in the Middle East, and the continued expansion of the business process outsourcing
(BPO) industrys client base in Europe and the United States.
Some firms seeking to operate closer to home, however, have complained about regional
barriers. According to a 2013 study by the government think tank Philippine Institute for
Development Studies (PIDS), companies here have commonly cited the following deterrents to
selling their services to the ASEAN market: restrictions on legal entities, discriminatory taxes,
and a lack of information on opportunities. Furthermore, businesses seeking to set up local
operations in ASEAN countries said minimum capital requirements, restrictive labor regulations,
legal rules for partnerships, and licensing requirements for professionals were significant
stumbling blocks.
These are the observations about the countries in the region the Philippines included that
have been generally conservative in their pledges to liberalize their services sector. Nevertheless,
opportunities can be spotted if one takes the time to comb through the members packages of
commitments.
Our research shows that across three types of indicators labor productivity, growth rates, and
contribution to the service sectors total output five service areas consistently come out as the
Philippines niches: (1) wholesale and retail trade, (2) transport and communications, (3)
financial intermediation, (4) real estate, and (5) business services.
As Department of Trade and Industry Secretary Gregory L. Domingo said in an April 10 forum
organized by the DTI and USAID, the Philippine services sector is poised to come out on top in
the region due to its educated and capable workforce.
What opportunities, then, lie in store for Philippine firms in these five areas, particularly in the
key ASEAN markets of Singapore, Malaysia, Indonesia, Thailand, and Vietnam?
TRADE
The annexes of the 8th ASEAN Framework on Services (AFAS) suggest that wholesale and
retail trade distribution is among the more liberalized service industries among the members.
Singapore, for instance, has declared that there are to be no market access limits involving the

commercial presence of ASEAN firms engaged in commission agent services and the wholesale
trade of products except for pharmaceutical and medical goods and cosmetics.
Both Singapore and Vietnam have also stated that there are to be no market access and national
treatment limits on the commercial presences of franchising services in their countries, except
that the chief of branch in Vietnam has to be a resident there. Malaysia and Indonesia, for their
part, have declared that they allow up to 51% foreign equity in several trade distribution services.
TRANSPORT AND COMMUNICATIONS
The liberalization of the transport sector is more of a mixed bag. For air transport, the ASEAN
Secretariat and the World Bank jointly said in their integration monitoring report last year that
there has been very good progress and good growth in this priority sector, as indicated by the
bilateral air agreements for increased flight seats and frequencies. However, they noted that more
work needs to be done in granting the Fifth Freedom in the region that is, the right to ferry
passengers and cargo between foreign countries and not just the home country of an airline. The
report notes that Cambodia, Indonesia, Laos, and the Philippines have not yet ratified key
agreements relating to the Fifth Freedom.
For the maritime sector, there are less liberalization commitments tabled. Many countries in the
region impose limits on foreign equity in maritime and auxiliary services. Some bright spots,
however, include towage and shipping brokerage in Singapore where there are no declared
market access limits on commercial presence in its AFAS annex. Unfortunately, limits do abound
around the region in terms of road and rail transport industries.
In telecommunications, some countries permit foreign entities to hold a majority stake.
Singapores AFAS annex states that it allows a cumulative total of 73.99% foreign equity in
several telecom services, based on 49% direct investment and 24.99% indirect investment.
Vietnam, for its part, declared that foreign capital contribution shall not exceed 51% of the legal
capital of the joint ventures for various telecom services, while Malaysia has pegged theirs at a
higher 70% foreign shareholding in service providers. Thailand, in contrast, stated that foreign
equity participation must not exceed 49% of the registered capital.
FINANCE
Judging from the ASEAN members package of commitments, the financial intermediation
industry is perhaps the most closely guarded. Several members impose a limit on the number of
foreign bank branches, their lending volumes, and the number of foreign executives.
Malaysia, for instance, confines the entry of offshore banks and insurance firms to the federal
territory of Labuan. It further mentions that only 13 wholly foreign-owned commercial banks are
permitted to remain wholly-owned by their existing shareholders and has reserved the right to
keep its policy for new licenses unbound. Singapore has similarly stated that new foreign

banks may only be established as offshore bank branches or representative offices. Indonesia has
stated that there are to be only two sub-branches and two auxiliary offices for a foreign banks
branch office or for a joint venture bank. Vietnam has a condition whereby it may limit equity
participation by foreign credit institutions in equitized Vietnamese state-owned banks to equal
that of Vietnamese banks. In Thailand, a foreign firms market access to locally incorporated
banks is limited to the acquisition of shares in existing banks, with the caveat that foreign equity
participation is restricted to a maximum 25% of paid-up registered capital.
Many other restrictions are detailed in each countrys fifth package of commitments for financial
services; these are worth a careful read for financial institutions keen to expand in the region.
REAL ESTATE AND BUSINESS SERVICES
Meanwhile, firms engaged in property management, rentals, urban planning, and even
landscaping would do well to look into our neighbors liberalization commitments. Singapore has
declared that there will be no limits on ASEAN countries market access and treatment in terms
of commercial presence in the areas of residential and non-residential property management,
except for the resort island of Sentosa and the Southern Islands of Singapore, which only the
Sentosa Development Corp. is allowed to develop and manage. In Indonesia, ASEAN firms are
allowed to hold not more than 51% of the share capital of a joint venture company with a local
partner for services like urban planning and landscaping. Thailand has declared that it allows up
to 70% foreign equity participation in joint venture firms with a Thai national providing urban
planning services limited to land use, site selection, road systems and servicing of land. It further
stated that it allows up to 49% foreign equity participation in the registered capital of firms
involved in residential property leasing and management, and up to 70% for residential
condominium management.
In comparison, the business services sector is fraught with more restrictions, particularly with
regard to the licensing of foreign professionals. Firms in the areas of architecture, law,
engineering, accountancy, advertising, computer services, and management consultancy
among others would do well to look into the AFAS annexes of Singapore and Vietnam, which
offer opportunities for foreign entry. Malaysia, Indonesia, and Thailand, meanwhile, allow
majority foreign equity in some of these services.
As with anything in business, information is the key to a winning strategy. As wealth in this
emerging part of the world continues to grow and trickle down, the demand for services will
increase rapidly to support the smooth running and expansion of ASEAN economies. Many
opportunities in the region lie in store for Philippine service firms as long as they come prepared.
J. Carlitos G. Cruz is the Vice-Chairman and Deputy Managing Partner of SGV & Co.
AEC 2015 Prospects

Part one: Overview and trade in goods

By Cirilo P. Noel
First Published in Business World (04/14/2014 p.S1/6)
AS THE day of reckoning for the Association of Southeast Asian Nations (ASEAN) Economic
Community (AEC) draws closer, our clients have been asking how further integration will
impact doing business and operating in a regional environment given the diversity of culture,
political platform, scale of market and geography.
Though many companies have long engaged in cross-border operations in the region, the larger
market access envisioned under the AEC raises questions about what to expect and how to
adjust. To answer these, we are rolling out a five-part series in this column to not only condense
explanations on the ASEANs various agreements but also to pinpoint opportunities and
challenges in 2015 and beyond.
This first installment will provide an overview of the opportunities, challenges and the overall
big picture scenario in the AEC before delving into the nitty-gritty of trade in goods
particularly what to expect in terms of tariff cuts as we move toward a single regional market and
production base. Next week, Part Two will explain how to qualify for lower or zero tariffs by
making sense of tariff codes and rules of origin. Parts Three and Four will go on to discuss
services liberalization, starting with the Philippines commitments and then those of other key
ASEAN members. Part Five will conclude with a look at envisioned enhancements to the flow of
investment within the region.
OVERVIEW
The AEC is due to be officially realized by Dec. 31, 2015, five years ahead of the original
deadline, following an acceleration agreement signed by ASEAN leaders in Cebu. However, in
that same city just last February, Department of Trade and Industry Assistant Secretary Ceferino
S. Rodolfo emphasized that the AEC is actually virtually upon us already.
Speaking to participants at the ASEAN Economic Forum organized by SGV & Co. and the
Sun.Star media group, Mr. Rodolfo pointed out that more than 90% of tariffs among the
ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) have already
been at zero since 2010. The other members Cambodia, Myanmar, Laos, and Vietnam
(CMLV) are likewise undertaking tariff cuts albeit at a slower pace.
After all, the idea underpinning the blueprint is to phase in the initiatives depending on the
development of each member. This is in keeping with AECs goal to achieve not just a single
competitive production base integrated with the rest of the world, but also one that engenders

equitable economic development. By tailoring the initiatives to each members capabilities, the
integration project does not pit ASEAN members only as competitors but also as complements.
Taking on this mindset of complementarity will help companies unlock the ability to imagine the
full potential of the AEC. The question is no longer solely about what business will be lost to
competitors but, instead, what gains can be reaped from new alliances.
Some firms have long recognized this. They import inputs such as intermediate goods and
services from neighboring suppliers, allocate operations across their ASEAN subsidiaries, and
leverage the regions combined consumer bases as a larger selling platform. This has been the
case in the electronics, automotive, and consumer products industries even back in the 1990s.
Moving forward, the AEC can be expected to enhance the use of such linked supply chains and
cooperative strategies with the freer flow of capital, investments, services, and not least of all
goods. Capital flow and demographic shift could also be enhanced with a single market and
production base.
TRADE IN GOODS
For 2015 specifically, opportunities relating to the single market and production base can be
gleaned from combing through the countries tariff commitments in the annexes of the ASEAN
Trade in Goods Agreement (ATIGA).
Our research shows that the bright spots for 2015 are two-fold: first, increased market access to
the lesser developed but fast-growing CMLV, which are beginning to ease more into the AEC;
and second, a lowering of tariffs on sensitive agricultural products like rice and sugar among the
more affluent ASEAN-6. In short, firms regional strategies will be enhanced with the inclusion
of more members and more sectors into the integration project next year.
The CMLV market is particularly promising because it is a valuable addition to the market of the
ASEAN-6, which had pursued integration more aggressively. The International Monetary Fund
expects Vietnams Gross Domestic Product to grow by 5.4% in 2014 and 2015, while
Cambodias economy is forecast to expand by a swifter 7.2%-7.3%.
A key change anticipated in 2015 is Vietnams commitment to cut even further tariffs on
imported automotives and motorcycles, thus creating an opportunity, say, for car companies to
export units from the Philippines instead of putting up a factory in Vietnam. Vietnams tariffs on
imported vehicles are slated to fall to 35% in 2015 as part of a yearly cut in the tariff, which is
meant to drop to 0% by 2018 according to news reports. Already, Vietnams 2012-2014 tariff
schedule shows that import duties which stood at 70% in 2012 have been cut by 10 percentage
points each year ending at 40% for 2014.

Furthermore, according to the Philippines Tariff Commission, Vietnam has committed to

eliminate its existing tariff rate quotas (TRQs) in three tranches leading to 2015 with flexibility
up to 2018. Vietnam imposes TRQs on eggs, cane sugar, tobacco, and salt.
Cambodias tariff schedule, on the other hand, shows that various goods imported with 5% tariffs
will enjoy a 0% to 5% rate come 2015, signaling possible elimination of, or at least cuts in,
duties. These goods include Philippine key exports such as wiring harnesses, chemicals, bananas,
mangoes, seaweed, and many others.
Laos, for its part, had committed to implement tariff cuts on sensitive agricultural produce back
in 2013, but it is slated to slash tariffs even further in 2015 for a host of vegetables and fruits
such as onions, cucumber, sweet corn, cassava, and papaya. Myanmar, meanwhile, has pegged
the tariff for certain rice varieties at 5% for the next year.
Similarly, the Philippines and other ASEAN members have committed to slash tariffs on rice and
sugar. In the Philippines, rice tariffs will fall to 35% from 40% in 2015 under Executive Order
(EO) 894, making it cheaper to import rice from ASEAN members like Thailand and Vietnam
that are large rice producers. For sugar, the tariff imposed by the Philippines on ASEAN imports
will fall to 5% from 10% in 2015 under EO 892.
Companies that work with these commodities would also do well to check tariff cuts in other
ASEAN countries scheduled for 2015, as this could translate into opportunities to either export
such goods or set up processing factories that rely on them as input.
Indonesia, for instance, has committed to slash rice tariffs to 25% in 2015 from 30% in 2014. It
has also committed to cut tariffs on cane sugar to 5% from 10%, while for refined sugar,
Indonesias commitment is to bring tariffs down to 10% from 20%
Besides tariff cuts among the 10 ASEAN members, there may be other opportunities in store in
the six markets with which ASEAN has free trade agreements, namely: Australia, New Zealand,
India, China, Korea, and Japan, which together account for a hefty portion of world trade.
Businesses equipping themselves with information may have already won half the battle as
preparation can spell the difference between gains and losses. The next concern moving forward
will be the execution steps across the region. A case in point is how to avail of such preferential
tariffs amid the various rules on origin imposed by Customs authorities, a topic which will be
tackled in the next part of this series.
Cirilo P. Noel is the Chairman and Managing Partner of SGV & Co.
AEC 2015 Prospects Part 5: Attracting Investments

By Cirilo P. Noel
First Published in Business World (05/12/2014 p.S1/3)
(Fifth in a five-part series)
AS we come to the final installment of this five-part series on the ASEAN Economic Community
(AEC), it may be useful to recall the ultimate goal of pursuing freer flows of goods, services,
capital, and labor. At the end of the day, the vision is to establish a competitive, sustainable, and
inclusive region that is integrated into the global economy.
Numerous indicators exist to measure how far ASEAN members have come in reaching this
goal, with many analysts concluding that the implementation of various commitments in support
of the AEC will fall short of the 2015 deadline. A more straightforward way to judge the success
of the integration effort is to check on the regions ability to attract investments.
This is the view shared by the Ernst & Young (E&Y) report Trade Secrets ASEAN
Economic Community and Inward Investment. The idea is to treat the AEC as a large-scale
and coordinated exercise for attracting foreign direct investment (FDI). This way, the focus goes
beyond just keeping an inventory of policies for implementation; instead, it shifts to a concrete
approach wherein an attractive climate is established to lure in business.
That is not to say, however, that a one-size-fits-all approach should be used. The report argues for
the need to involve each countrys business community in order for implementation to be locally
relevant and sensitive to the political, economic, and cultural differences among all the ASEAN
members.
Otherwise, the integration effort will be for naught. The E&Y report notes that while total FDI
for ASEAN as a whole has grown over the years, the amount is still dwarfed by FDI into China.
Furthermore, the ASEANs share of global FDI over the past 30 years has actually declined and
has not regained its 1996 peak prior to the Asian financial crisis.
Recognizing this, economies in the region have come up with the ASEAN Comprehensive
Investment Agreement (ACIA) in order to jointly pursue four pillars: 1) investment protection; 2)
facilitation and cooperation; 3) promotion and awareness; and 4) liberalization.
Under the ACIA, action steps include harmonizing investment policies, streamlining procedures,
enhancing the business environment, and using investment missions focused on regional
clustering and production networks.

The ACIAs focus on these four pillars confirm the three areas identified in the E&Y report as
critical to promote FDI across the region: enhancing business registration, strengthening
investment promotion bodies, and eliminating obstacles to cross-border trade.
STARTING A BUSINESS
However attractive the ASEAN market may be, the ease of setting up a business in the region
can still be the deciding factor for a major investment. The Philippines, along with the other
member countries, would do well to consider simplifying, streamlining and harmonizing their
respective screening processes and pre-entry requirements.
As it stands, there are yawning gaps between members respective regulations and standards.
Foreign ownership restrictions vary as do requirements for authorized capital requirements and
registration documents, as indicated in the E&Y report. Marked differences also abound in the
cost and speed of processing times, as well as provisions on whether foreigners can hold
executive positions in the investment project.
An investor lured by the promise of a single ASEAN market and production base may thus
hesitate when faced with the tangle of contrasting regulations in each country.
To address this, the E&Y report recommends a three-pronged approach covering the regional,
national, and local levels. This entails a regional effort to identify differences in, develop
standards for, and publish information on investment regulatory procedures.
A national effort to involve the business sector and cascade integration information and deadlines
is also prescribed. At the local level, working committees composed of government
representatives and professional firms that assist foreign investors can ensure efficiency at the
grassroots level.
As the report states, it is important that the local government maintains dialogue with the
business community to ensure that the processes and regulations remain relevant. The reality is
that the integration effort must be tailor-fit to each members nuances while keeping in mind the
pursuit of a common regional goal.
INVESTMENT PROMOTION AND TRADE BARRIERS
Another area for improvement is in the functions of investment promotion bodies. The E&Y
report notes that some ASEAN members have authorized their respective investment bodies to
influence policy-making when it comes to attracting FDI, while others are hampered in their
ability to smooth the path for inbound investment. Many do not have overseas presence to
reach out to potential investors. Singapore and Malaysia, for instance, are said to have 19 and 24

overseas offices, respectively, dedicated to investment promotion while the rest have to contend
with fewer resources.
Then, there is the issue of cross-border trade barriers, many of which have been detailed in the
earlier installments of this series. For trade in goods, this column earlier discussed the need to
ease the qualification processes for preferential tariffs. National Single Windows, as well as
harmonized product standards, will facilitate the flow of goods. For services, we mentioned in
Part 3 the need to put in place implementation procedures for Mutual Recognition Arrangements
(MRAs) that will allow professionals to access the regional market. Links in transport services as
well as uniform service standards would also be a boon.
For investments, granting businesses a full understanding of regulations will go a long way in
putting the ASEAN on the shortlist of investment locations. This can be later followed by more
extensive work on harmonizing and streamlining entry and incentive policies.
More importantly, investment promotion bodies should take this opportunity to exercise
increased cooperation. They can identify potential areas for collaboration, such that investors can
be made to appreciate the complementation offered by each member countrys economic niche.
As the E&Y report puts it, this way, investors get a more complete view of ASEAN and what it
has to offer.
Indeed, differences among the ASEAN members may make integration difficult at the get-go, but
each economys unique background and varied offering is also what makes meaningful trade and
exchanges worthwhile. Realizing the envisioned ASEAN economic community will be far from
easy, but done right, it could unlock a wealth of opportunities this emerging region truly
deserves.
Cirilo P. Noel is the chairman and managing partner of SGV & Co.
The growth of the global middle class

By J. Carlitos G. Cruz
WHILE there are signs that the global economy may be moving (albeit slowly) towards stability,
one thing is clear: the world has changed significantly from the one that we knew just a few
years ago. As the centers for trade and economic power shift away from traditional western
bastions, analysts are looking to rapid-growth markets (RGMs) to shore up the still-wobbly
global economy.
A recent Ernst & Young (E&Y) publication, Rapid-Growth Markets Forecast, identifies RGMs
as countries that emerged from the 2008 recession with minimum damage and are projected to
grow up to 6% in 2014. These countries cut across the globe and include nations in Southeast

Asia, Africa, Latin America and the Middle East, among others. [The report did not classify the
Philippines as an RGM for now, but the country is viewed as a high-potential market.] The
expectation is that an increasingly interconnected world can benefit from the trading
opportunities that will arise from this anticipated phenomenal growth.
Under this scenario, one anticipates that as RGMs achieve prominence, their economies will
become stronger, their governments will become more influential and this is most important
their people will become more visible because of their buying power. This will drive a
significant shift in worldwide demographics, with the expected growth of the global middle
class. Logically, increased economic performance will eventually flow down to the largest socioeconomic groups in most developing countries the poor who are also the ones who will
benefit the most from increased prosperity.
Who do we expect will constitute this new middle class? The report uses the same definition
used by the Organization for Economic Cooperation and Development (OECD): households with
daily expenditures between $10 and $100 per person in purchasing power parity terms. This
income group includes consumers of television sets, refrigerators, cars and mobile phones, and is
therefore clearly seen to be the driver of the global economy.
No longer will the global demand for goods and services be driven primarily by consumption
patterns in the United States. The middle class in RGMs is expected to create a burgeoning
demand in the coming years as they rise out of poverty, with their spending increasing from $21
trillion to $56 trillion in 2030. And as the RGM middle class expands, they will draw more
imports and increase demand for services. It is highly possible that RGMs will become a key
destination for more service exports, including sophisticated banking, insurance and other
financial services that were previously more prevalent in western markets.
The global middle class is expected to grow organically and to have a healthy appetite. It is
projected that the size of this group will hit 3.2 billion by 2020 and 4.9 billion by 2030,
according to the OECD Development Center. The bulk of this growth will come from Asia; by
2030, Asia will represent 66% of the global middle class population and generate 59% of middleclass consumption (compared with 28% and 23%, respectively, in 2009). China, India and
Indonesia together are expected to account for 27% of global consumption by 2020 and 45% by
2030. ASEANs proposed economic community, expected to be in place by 2015, will likely
further fuel consumption within, and beyond, ASEAN.
The Philippines, which demonstrated 7.6% GDP growth in the first semester of this year and is
projected to grow by 7% in 2014, is a high-potential market. The positive views and upgrades
given by the credit ratings agencies have brought an increase in investor interest in the country,
supported by socio-economic progress of recent years. With our robust domestic demand,
coupled with our talented working-age population and growing middle class, the Philippines can

be seen as being in a similar position to other RGMs in long-term performance. Local businesses
would be well-advised to prepare for the growth opportunities to come, as well as increasing
competition from foreign players.
There are a few key factors that have contributed to RGMs leapfrogging from third-world status
to the new engines of the global economy.
One is technology. Mobile communications, broadband connections, tablets and smartphones
all these have changed consumer purchasing habits and accessibility to goods. There are
increasing numbers of online retailers in Russia, China and various RGMs that are capitalizing
on having a huge global market without needing an actual, physical retail environment.
Then there is the growing number of foreign-educated youth who are bringing in skills, capital
and new ideas to their home countries, and contributing to the economic and social welfare of
their nations. From these individuals will eventually rise a new generation of companies that will
embody modern entrepreneurial ideas and insights. As the middle class becomes more educated,
they begin demanding more from themselves and the government.
Consequently, their social and economic conditions will improve, leading to a better relationship
with the government and a more advanced society one that offers the best in terms of
employment opportunities, medical facilities, infrastructure, law and order, ease of doing
business, and cross-border trade. This will, in turn, lead to stronger fiscal and monetary policies,
which will benefit businesses and consumers. Under these scenarios, there are tremendous
possibilities for forward-thinking companies to begin preparing, whether by establishing
footholds in RGMs or building strategic alliances that will allow them to market positively to the
coming global middle class.
The question is, are businesses ready to meet this coming demand?
To borrow an often-used phrase, the global financial crisis has resulted in a brave new world for
all of us. One where the bold be they companies, individuals, or even a social class as a whole
may find great advantages in seizing the initiative.
J.G. Cruz is the vice-chairman and deputy managing partner of SGV & Co.

Preparing for the Asean economic community in 2015

Junie del Mundo

@inquirerdotnet

Philippine Daily Inquirer

7:04 PM | Sunday, August 25th, 2013

Lets call a spade a spade: regional economic integration-envisioned to create one common
market for the countries comprising ASEAN is fraught with as much risks as opportunities.
Cutthroat competition, price wars, and economic displacement loom large in the minds of many,
with the realization that many local enterprises have no competitive advantages to speak of in the
free trade arena. As countries race to prepare themselves for the 2015 deadline, not a few
organizations and individuals are realizing that there is so much to do in so little time.
But whether countries are prepared or not, regional economic integration is inevitable and in less
than two years, Filipino firms will have to embrace all the possibilities that the ASEAN
Economic Community (AEC) will bring.
As 2015 approaches, conversations regarding AEC are growing, with many individuals bringing
forward ideas on how Filipinos can collectively work to prepare for the countrys entry into the
free trade arena.
Many of these conversations took place during the AEC Exchange foraa series of discussions
that took place on the initiative of the Management Association of the Philippines (MAP), which
signed a Memorandum of Agreement with the ASEAN Business Advisory Council of the
Philippines in 2012.
The AEC Exchange was conceptualized when MAP realized that too few businessmen knew
about the AEC, even if they stood to be greatly affected by it.
The discussions inevitably boiled down to one point-the need to strengthen the Philippine
domestic economy before the floodgates of trade are thrown open. Hinged on this are various
measures that need to be undertaken to shore up Philippine industry in preparation for the
vigorous competition as well as the tremendous opportunities that AEC will foster. At the
minimum, policy changes at the macroeconomic and microeconomic levels will be necessary to
strengthen industries and companies ahead of the AEC.

I believe, though, that it is imperative for all firms, regardless of size, to prepare themselves for
all eventualities that the AEC would bring. Each firm would need to identify its strengths and
comparative advantages in order to stay ahead of the competition in this new, and immensely
more challenging environment. Introspection, I always say, is a must in this rough and tumble
world, and it holds true for both individuals and organizations.
Allow me then to add to the ongoing conversation on how organizations can prepare for
economic integration with what I call the ABC to AEC.
A stands for Audit. This entails scanning your environment to understand the threats and
opportunities that are present, or may arise, both domestically and from neighboring countries.
At the same time, it calls for examining ones value chainprocurement, operations,
distribution, marketing, human resourcesto identify ones sources of strength and weakness.
This exercise in stock taking should allow one to come up with enough inputs for business
mapping.
B is about building your brand. Ones brand reflects the potential and the promise of the
company, and in the regional arena, your brand will be a source of differentiation for your
company. Therefore, it is crucial to strengthen your companys image and reputation as credible
player in the region. This calls for embracing the basic tenets of corporate governance and
transparency. At the same time, it also calls for aligning the brand with the needs of the market.
C is about communication. Having built up your comparative strengths, it is necessary to
communicate this to the proper audience using appropriate platforms. What differentiates your
company, products and services in the new regional battlefield? How would the company forge
forward? How will the AEC change things for everyone in the company and how could each one
contribute to ease the companys transition into the new reality? Enterprises should be able to
connect with relevant stakeholders, both internal and external, and engage them in meaningful
interaction in target locations at the proper time.
There are, of course, many strategies to adopt. Yet I always stress that in this time of great
change, when there are more questions than answers, the most valuable tool one can accumulate
is information that hopefully, can be processed into knowledge. Knowledge enables people and
organizations to prepare for the uncertainties that they can and cannot foresee, and come up with
innovations to put them ahead of the competition. Innovation, I dare say, is the one competitive
advantage that will always stay valuable for enterprises in all economic climates.
To provide the Filipino business community with the information and knowledge to prepare for
the AECs myriad challenges, the MAP will have as its theme Business Beyond Borders: Global
Perspectives, Domestic Dynamics at the 11th MAP International CEO Conference 2013 which
is copresented by BusinessWorld and Healthway. Through the various presentations, attendees
can learn from the global experiences of other companies to find new areas for innovation and
explore possibilities for cross-border collaboration.
International speakers will lead a series of hard-hitting discussions on the pitfalls and prospects
of AEC 2015. To give everyone a comprehensive understanding of the AEC, Indonesia-based

H.E. Le Luong Minh, Secretary-General of Asean, will provide an overview with his talk entitled
Business beyond Borders: The AEC Experience.
Taking a regional perspective, Jayant Menon, Lead Economist of Office of Regional Economic
Integration of the Asian Development Bank (ADB), will speak on The World and a Borderless
Asean: The Regional Perspective. The global view will also be discussed in the talk The World
and a Borderless Asean: The Global Perspective by France-based Thierry Apoteker, CEO and
Chief Economist, TAC Applied Economic and Financial Research.
To illustrate the AECs possible impacts on specific sectors, in particular the health industry,
Malaysia-based Dato Dr. Jacob Thomas, President of Association of Private Hospitals of
Malaysia and President of Asian Hospitals Federation, will talk on The Internationalization of
Healthcare: HR Mobility and Talent Retention.
The challenges of integration calls for leaders to take their companies and industries past the
uncertainties and parlay threats into opportunities. Recognizing this, Canada-based Doug
Keeley, Founder and Global CEO of The Mark of a Leader, will deliver an Inspirational Message
on Leadership Challenges in the Asean Economic Community.
I am confident that the discussions in this Conference will further enrich the ongoing
conversations on the AEC 2015 and hopefully nurture the spirit of innovation that I know resides
in every Filipino enterprise.
To reserve your seats for the Sept. 10 MAP International CEO Conference 2013, please visit
<mapceoconference.ph> or send an email via <map@globelines.com.ph> and
<mapsecretariat@gmail.com> or call the MAP Secretariat at (632) 7511149 to 51.
(The author is the Chair of the MAP Asean Integration Committee and the MAP CEO
Conference Committee. He is the Chair and CEO of EON The Stakeholder Relations Firm,
regarded as the pioneering stakeholder relations firm that puts TRUST at the heart of its
collaborations and dialogues with different stakeholders of its clients. Feedback at
map@globelines.com.ph and junie@eon.com.ph. For previous articles, please visit map.org.ph).
Read more: http://business.inquirer.net/140211/preparing-for-the-asean-economic-community-in2015#ixzz3N6BVzcKQ
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