Bernardo M. Villegas
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Engaging China, India and AEC (Part 3)

          Both India and the Philippines are global leaders in the BPO-IT sector and can complement one another in this important component of the digital age.  In fact, there are significant Indian investments in the Philippine BPO-IT sector such as WIPRO, TLS, L &T Infotech, Genpact, Infosys, Intelenet, Aegis, HIMT and Tech Mahindra.   Indian companies also have a strong presence in the Philippine pharmaceutical industry such as Dabur Pharma, Lupin Ltd., Torrent Pharmaceuticals Ltd, Zydus Cadilla, and Claris Life Sciences.  Estimated Indian investments in the Philippines is about $650 million, an amount that can be significantly increased if Filipino entrepreneurs go out of their way to seek partnership with their Indian counterparts especially in new ventures in software development, where India is also a global leader.  In the Build Build Build program, there should be an active search for Indian infrastructure companies like the GMR Group that partnered with Megawide in the construction of the new Mactan International Airport.

         If the Philippines can benefit from closer economic relations with the two largest markets in the world, China and India, even more can Filipino entrepreneurs find vast opportunities in partnering with their counterparts in the ASEAN Economic Community, which has become a veritable free market where tariffs have dropped close to zero for practically all traded goods and services and where there is free flow of capital, investment and selected skilled workers and professionals.  Among the ten countries of the ASEAN, Philippine firms have already been actively investing in Indonesia, Vietnam and Myanmar in such sectors as food manufacturing, furniture, retailing, energy, water utilities, education, agribusiness, professional services such as accounting, and pharmaceuticals.  The AEC will constitute a large consumer market with the fastest growing middle class among emerging markets.  In 2014, there were an estimated 81 million middle-class households (with $7,500 annual income).  This number is projected to rise to 163 million households in 2030.  Indonesia has the largest middle-class market, followed by Thailand, then Malaysia, the Philippines and Vietnam.  With the exception of Singapore and Thailand, all ASEAN economies will continue to have young and growing populations for at least the next twenty years. 

         Among the industry sectors that are expected to benefit from the single market and production base of the AEC are agro-based products, air travel, automotive, e-ASEAN, electronics, fisheries, health care, rubber-based products, textiles and apparel, tourism, wood-based products and logistics services.  Among the pioneers in the penetration of ASEAN markets are Indonesian enterprises in food manufacturing and infrastructures; Philippine firms in professional services, education, infrastructures, and health care; Singaporean firms in finance, shipping, and port facilities; and Thai firms in cement, agribusiness and tourism.  ASEAN firms should follow the lead of multinational enterprises coming from outside the ASEAN who are implementing the strategy of industrial complementation.  For example, there are Japanese and European enterprises that are manufacturing entire consumer products or parts of a particular product such as cars and appliances and exporting from one ASEAN country to another to attain economies of scale.  ASEAN companies should also integrate themselves into the global economy by looking beyond the borders of AEC and considering regulations outside the region in formulating policies related to AEC, including the adoption of international best practices and standards in production and distribution. This will be critical in enabling businesses within the AEC to compete successfully in global markets, achieve production objectives to become key global suppliers and ensure the ASEAN market remains attractive to foreign investors.

         As reported in a publication of Baker and McKenzie, it is the responsibility of the policy makers in the AEC countries to adopt certain key measures that will facilitate and speed up the market integration within the ASEAN.  These measures are:  1) Create a deeply integrated and highly cohesive ASEAN economy that would support sustained high economic growth and resilience even in the face of global economic shocks and volatilities; 2) Foster robust productive growth through innovation, technology and human resource development, and intensified regional research and development that is designed for commercial application to increase ASEAN’s competitive edge in moving the region up the global value chains into higher technology and knowledge-intensive manufacturing and services industries; 3) Promote the principles of good governance, transparency, and responsive regulatory regimes though active engagement with the private sector, community-based organizations, and other stakeholders of ASEAN; and 4) Reinforce ASEAN centrality in the emerging regional economic architecture by maintaining  ASEAN’s role as the center and facilitator of  economic integration in the East Asian region.  With these measures, the AEC can manage to hold its own as one of the three key players of the Asian Century, i.e. China, India and the AEC.  For comments, my email address is