S.E.A. View

Bring SMEs on board Asean trade union

DUE to become a reality by the end of this year, the Asean Economic Community (AEC) aims to create a single market, with freer flow of capital, services, products and skilled workers across borders.

Big hopes abound of rivalling the European Union in 10 or 15 years, fully integrating Asean as a powerhouse in the global economy.

Yet, given the obvious potential of this powerful union of 10 member states with 625 million citizens - the world's seventh-largest economy and one of its fastest-growing - why hasn't the idea of the Asean Economic Community taken off in a big way yet?

Larger companies are well set for the AEC, but the more important challenge is to bring on board the small and medium-sized enterprises (SMEs) that generate around 50 per cent to 85 per cent of Asean jobs, and 30 per cent to 50 per cent of gross domestic product.

A recent survey by the Asian Development Bank and Institute of Southeast Asian Studies found that fewer than one-fifth of Asean businesses are prepared for the change.

This is despite the fact that by growing the economic pie, all member states of Asean should benefit.

But to realise this potential, everyone has to pull together. Among the people and businesses of Asean, there are those who believe in the benefits of the AEC, while others are sceptical and some may not be aware of what is happening at all.

One has to wonder, does closer integration not matter as much to Asean's smaller companies as it does to large firms?

Clearly, raising awareness is paramount. While various programmes exist for SMEs at the country level, what is needed to address this bigger gap is a pan-Asean framework of governmental support, highlighting the benefits of the AEC to smaller businesses.

As well, large companies already operating across all 10 Asean member states - such as Standard Chartered, the only international bank to do so - have a clear role to play in promoting the benefit of closer integration.

Complexity of policies a speed bump

BUT it is worth remembering that Asean countries are highly diverse - historically, culturally, politically and economically. More help is needed for businesses venturing into the Asean marketplace to make sense of the vastly differing administrative policies and regulatory standards.

In fact, Asean is so complex that it can be easier to pursue opportunities elsewhere. For example, it takes four days to clear goods being imported into Singapore, 14 days for Malaysia and 23 days for Indonesia. Asean must eliminate these speed bumps by creating a more consistent set of regulations and rules.

To address this, member states have adopted a Trade Facilitation Framework, but the private sector can speed up the process by working closely with regulators, central banks and trade authorities and sharing best practices.

This is already happening via channels such as the Asean Business Club and Asean Business Advisory Council.

For example, last year the Asean Business Club inked a research grant programme with the United States Agency for International Development to provide research on policies and business procedures to expand SMEs' access to finance and support their integration into the AEC.

The Asean SME Working Group has not only established joint consultations with SME agencies in the region, but also strengthened ties with China, Japan and South Korea, facilitating dialogues on best practices.

The group also implemented projects to assist SMEs, including the Asean Technology and Business Incubator and the Asean SME Guidebook.

SMEs will also stand to gain from the development of numerous export processing zones, once dominated by China.

The Batam Free Trade Zone (Singapore-Indonesia), Tanjung Emas Export Processing Zone (Indonesia), Port Klang Free Zone (Malaysia), Thilawa Special Economic Zone (Myanmar), Southern Region Industrial Estate (Thailand) and Tan Thuan Export Processing Zone (Vietnam) will attract foreign investment, improve supply chain infrastructure, enhance labour skill-sets and help SMEs stay cost-competitive in exports.

These are all encouraging developments. However, to avoid duplication, perhaps what we need is a properly resourced, solution-driven centralised body to consolidate these efforts. For instance, the financial sector in the region can form an advisory group to make recommendations, integrate the resources of groups working on SME development and implement projects to support SME growth prospects.

Obviously, there is more work to be done. It has often been said that the AEC is a journey rather than a destination. While it will take time to iron out differences and reach common ground, celebrating progress along the way is important.

I would like to see the AEC supporting SMEs: A government and private sector partnership with a common goal to build a more conducive business and policy environment where SMEs can develop and play an even bigger role in the global and regional supply chains.

If we work together to make Asean's economic integration a reality, the day will eventually come when SMEs benefit from the promise of this great region.

The writer is chief executive officer, Asean, at Standard Chartered Bank.

S.E.A. View is a weekly column on South-east Asian affairs.

A version of this article appeared in the print edition of The Straits Times on June 25, 2015, with the headline 'Bring SMEs on board Asean trade union'. Print Edition | Subscribe