What do you see as the biggest opportunities for companies interested in ASEAN in 2017?
With the US potentially withdrawing from global engagements, particularly trade-related ones, there will be great opportunities for companies in the region. With a population of approximately 625 million and almost 5 percent average annual GDP growth, increasing integration within ASEAN has enormous potential for companies both inside and outside the region. Opportunities will still exist for US companies, but they’ll have to be careful given the way the domestic environment is developing. Most American companies will remain engaged in the region, but likely with less investment than they have had in the past, making it more difficult to maintain their market position. This creates a huge opportunity for China to grow its role in Asia’s economic development, including ASEAN, and I’m sure they’re salivating at the prospect of less competition with the US.
Do you feel the US withdrawal from TPP is the principal cause of this optimism or are there other factors in play?
TPP never actually came into existence, but it’s certainly a missed opportunity. The direction the Trump Administration is going in terms of trade policy will create opportunities for other countries. The EU remains committed to trade in the region, and is trying to negotiate FTAs with ASEAN, and this is more likely with reduced US involvement. China and the EU will likely be the largest beneficiaries of US withdrawal.
What do you see as the greatest risks in the ASEAN region for 2017?
Corruption is still a significant risk, the Foreign Corrupt Practices Act (FCPA) settlement with Rolls Royce was astounding in its scope, spanning twenty years of corruption in the aviation and energy sectors. Obviously, it takes two to tango in these situations, and it’s pervasive. I think it has gotten better in some ways, but it remains a risk. I’ll be curious to see whether the Trump Administration continues to push FCPA or lower the bar like some of our competitors, which I certainly hope does not happen.
Can you identify some bright spots in the region?
Singapore has best practices, very good governance and a strong economy, despite slower growth. Indonesia represents the greatest opportunity in ASEAN, accounting for roughly 40 percent of ASEAN’s population, and is the only big country in the region that is a member of G20. Also, governance has improved under Jokowi, whose ratings are high. Indonesia is also a huge commercial market with a growing middle-class that presents significant infrastructure and consumer opportunities. Companies like GE and P&G and others will be eager to take advantage of these opportunities in Indonesia and elsewhere across the region. It takes a great deal of effort to influence the bureaucracies in places like Indonesia, so these projects will take time, but persistence will pay off.
How do you see ASEAN countries receiving American companies and even the Trump Administration in the coming year? Has the mood shifted significantly?
ASEAN will continue to welcome American companies. I’ve been in Malaysia during times of horrible geopolitical relations with the US under former Prime Minister Mahathir, but economic relations have always been great. ASEAN countries, at least the big six, generally appreciate the way US companies do business, so I’m not concerned about a loss of market access. There won’t likely be bilateral trade agreements or bilateral investment agreements, so in the short-term, the environment may not improve, but it won’t worsen either.
What exactly do ASEAN countries appreciate about the way American companies do business?
Our say/do ratio is very high. For better or worse, US companies honor their commitments and contracts, so they are excellent vendors and partners for countries that engage in proper business practices.
“I think the largest source of trade flow will be within the ten ASEAN countries themselves.”
What do you think about ASEAN countries in terms of the global economy, given all the uncertainty that exists?
As you know, ASEAN has some of the highest percentages of trade as a percentage of GDP; Singapore’s trade is three times bigger than its GDP; Malaysia’s two times; with other countries still being very trade focused. There will be interest in completing the ASEAN-EU FTA. But I think the largest source of trade flow will be within the ten ASEAN countries themselves. Overall global trade is likely going to decline, given where the US is heading, so trade within ASEAN will have to grow. There is a lot they can do in terms of integration like single-customs windows, common standardization, and the free flow of professional labor through the region.
What do you see as the biggest opportunities in civil aviation, not only within ASEAN, but the context of the global market?
The aviation industry is going to continue to grow, particularly in Asia and countries with a rapidly growing middle-class. That said, infrastructure is a constraint to growth in Asia, as airports are currently at capacity. Nearly every airport in the ASEAN region is under expansion, but they are simply not keeping up with demand. It’s something of a good problem to have, but current capacity is inadequate. Civil aviation departments will need to emphasize safety standards while this expansion is underway. The other big change is that low cost carriers are growing considerably faster than legacy carriers. Profitability at full service airlines is challenged while low cost carriers continue to do very well, based on price and their business model, and that is likely to continue.
Where do you see the global map for civil aviation, and ASEAN’s role in it? It seems like a hot market for the aviation industry, is this likely to increase in 2017? What kind of competition would American companies face in those markets?
ASEAN is already a huge market. Not as large as China or India, but not far behind, with similarly high growth potential. It’s clearly an enormous opportunity, and we’ll see more growth. The South China Sea will be something to monitor, given the hard line in President Trump’s early speeches. Geopolitical risk in China, and therefore Taiwan and North Korea, has the potential to move things in the wrong direction. I mention North Korea because China is a crucial partner in terms of leverage against the Hermit Kingdom. If the US and China aren’t talking, it’s hard to see an easy fix.
What advice would you give to executives confronting this reality?
It is crucial for companies to stay connected with governments in order to stay on top of current events and developing trends. And stay aligned with country priorities.
What are the most important lessons from 2016 for companies looking to enter or expand in the ASEAN market.
I worry that populism will become contagious, and other parts of the world will follow suit, leading to a reduction in global trade. We’re already seeing many people that are opposed to international trade, which could obviously worsen, given the current global environment. However, the integration of the region could insulate ASEAN from this phenomenon to some extent.
Is it safe to say, despite the rise of Duterte in the Philippines and happenings in Thailand, ASEAN presents excellent opportunities for horizontal growth?
While many disapprove of Duterte, he is very pro-business. He is a little bit like the Donald Trump of the Philippines, it’s Philippines first with him. I don’t agree with his anti-drug policies, but it’s still the fastest growing country in the ASEAN region, and the people are pro-US, so there are plenty of opportunities there.
Fellow interviewee Marc Mealy noted that corruption conditions have improved in the Philippines. Have you noticed this yourself?
I have heard this is the trend, but can’t point to any specific examples. It’s important to remember these things take place over fairly long periods of time.
What are some of your own priorities heading into 2017?
The good news is that we still have clients that are interested in ASEAN, despite the Trump Presidency. This is particularly true among mid-sized companies. American Chambers of Commerce (AmCham) are still very active in ASEAN, which can help American companies enter. ASEAN boards of investment certainly want to see investment from American companies.
What are the prospects for a mid-sized company in the ASEAN region?
The rationale is that growth in the US is fairly slow, particularly in mature industries. Boards of investments and AmCham and the US Commercial Service are particularly supportive of mid-sized companies. Obviously, it takes time to build relationships and get established, so it pays to have a long-term view.
What is your number one piece of advice for companies looking to establish themselves in the region?
I advise against establishing a regional strategy at first. I would immediately look to Indonesia, because it’s almost half of ASEAN in terms of both population and growth. If for some reason that isn’t a great fit, then I would look to Malaysia, Singapore and the Philippines, because they are particularly welcoming to mid-sized American companies looking to enter the region. I’m a little bit wary of Thailand, because despite its size, it has very slow growth, aging population political uncertainty.