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On a wide range of economic pointers, Southeast Asia is gaining fast.

For 15 years, since the Asian Financial Crisis of 1997 and 1998, the young tigers of Southeast Asia have been looked upon with suspicion by most investors while they struggled to rebuild their foreign currency reserves, signed currency swaps, strengthened their banking systems and made other reforms. In the meantime, the BRICS - Brazil, Russia, India, China and South Africa - have been gaining all of the publicity.

Today, the leaders of the 10-nation association, particularly Thailand and Indonesia but also even the perennially lagging Philippines, are becoming the focus of leading multinationals who see the region's potential as a production base supplying not just the west but China's burgeoning economy, with rapidly expanding consumer societies, ample natural resources including extractive industries, and reform and opening up by the region's less-developed members, although corruption and mismanagement still handicap states such as Myanmar, Cambodia and Laos.

As Asia Sentinel reported on Feb. 20, Thailand, recovering from six years of political chaos and environmental disaster, has been leading the region, recording the fastest growth in the fourth quarter of 2012 since the country began compiling economic data in 1993. While the record 18.9 percent gross domestic product fourth quarter year-on-year growth is admittedly coming off a low base from the disastrous floods that inundated the center of the country in late 2011, extensive infrastructure development is extending rapidly into Laos, Cambodia and Myanmar and toward Kunming in China to make Bangkok the economic and industrial hub of the region. Indonesia, although it is increasingly being dragged back by economic nationalism, is also being driven by investment and growing consumer consumption.

Myanmar, once the richest country in Southeast Asia, and the Philippines, long saddled with disastrous economic and political mismanagement, are both on a recovery path. Given the enormous handicaps bequeathed to them by corruption and bungling, it will take a while before they return to anything like true health. But both now appear to have found more competent leadership that, combined with their enormous raw material potential, should put them right unless political disaster strikes again.

In 2011, foreign direct investment in Asean rose 25.7 percent annually to reach a record US$116.5 billion. The International Monetary Fund forecasts that Asean GDP will increase to US$3.8 trillion by 2017, with population rising to 660 million, equating to a per capita GDP of US$5,782, suggesting a significant rise. The economies are spotty, ranging from Singapore, with per capita annual gross domestic product by purchasing power parity of US$59,390 according to World Bank figures, down to Myanmar at about US$500. Industrial development is similarly varied, with countries like Cambodia and Laos at the very edge of development. Laos derives 80 percent of its gross domestic product from the sale of hydroelectric power to Thailand.

While China has gained attention as the factory to the world, Asean's competitiveness has already surpassed China's in labor-intensive industries. According to a report issued last week by the Seoul-based Samsung Economic Research Institute, the working age population growing substantially relative to dependent population at a time when China is pricing itself out of the process through rising wages and yuan appreciation. The China-to-Indonesia wage ratio increased to 3-to-1 in 2012 from 2-to-1 in 2005, with the Economist Intelligence Unit projecting a rise to 4.5-to-1 by 2015.

That has driven several manufacturers already to shift operations to Asean, following a decades-long pattern in which Japan's clothing and textile makers transferred production bases to countries such as Vietnam. In capital-intensive industries, including electronics and automobiles, leading global companies are building production bases in Asean for risk diversification and market entry.

Major Japanese carmakers including Toyota, Nissan, Honda and Mitsubishi have begun a "China+1 strategy" by building factories in Thailand and Indonesia to secure production capacity, according to the SERI report. According to the World Bank's "Ease of Doing Business" index, Singapore (No.1) and Thailand (18th) rank on a par with advanced countries, while Vietnam (99th) and Indonesia (128th) are at the level of the BRICs countries. The Asean countries, particularly Malaysia, are also providing incentives to foreign investors to facilitate job creation and establish their industries.

"However, Asean members need to improve their infrastructure and stabilize their labor market to replace China as a global factory," the SERI report notes. "Roads and reliable energy supply are behind China's level and conditions for parts and raw materials procurement are weak."

In addition, wages are increasing and labor regulation is strengthening in some Asean countries. For example, Malaysia and Thailand implemented minimum wage systems in 2012 and 2013, respectively. Thus, the stability and better working environment that Asean members offer foreign companies is coming at a heftier price.

Solid domestic demand fueled by burgeoning middle-class populations has helped take up the slack in lower trade on which the early Tigers built their mercantilist economies after the global trade structure collapsed in 2008. Today, private consumption accounted for 53.2 percent of the GDP of the Asean countries in 2012, higher than the 44.6 percent in the BRICs. The number of PCs is expected to increase by 50 million and mobile phone subscribers 110 million between 2010 and 2020.

The so-called Y-generation in the region aged 15-29 stands at 160 million, accounting for 27 percent of the population, higher than the share in China and Russia at 24 percent and 23 percent, respectively. These teenagers and young adults actively use mobile devices to shop and acquire information. Social networking services are increasingly popular, with Facebook users in Indonesia and the Philippines standing at 50 million and 30 million, respectively, ranking fourth and eighth in the world. The mobile marketing industry is projected to more than double by 2016 in Indonesia.

Against perceptions, Muslims, who account for more than one-third of the Asean population, are becoming an important consumer segment, the SERI report says. "Amid the rising Muslim population, demand for halal food, food permitted by Sharia law, and financial products is surging. They strongly prefer global brands, and thus global leading companies are utilizing the region as a test bed."

After McDonalds' halal menu succeeded in Singapore and Malaysia, the fast food giant opened units in Australia and the UK. Standard Chartered Bank in 2012 selected Malaysia as a global hub for Islamic consumer finance, and started strengthening entry into the market, the SERI report notes.

Considerable credit goes to the ethnic Chinese, who account for fewer than 5 percent of the population although their invested capital accounts for a large portion of the economy. As of July 2011, the market capitalization of 72 Asean ethnic Chinese businesses was US$411 billion, 20 percent of the aggregate market capitalization of their respective countries. Ethnic Chinese companies also cast a wide net over business sectors. They dominate commodity markets. In the past 10 years, China's huge appetite for raw materials has solidified the Asean commodity traders.

Based on their long-time operation in Asean, Japanese companies dominate the consumer and infrastructure markets. Japanese carmakers account for 95 percent and 90 percent of the Indonesian and Thailand car markets, respectively. Japanese companies also have been heavily involved in energy development, building road and railway networks and upgrading disaster response systems in ASEAN. Such capacity has helped enable 11 Japanese companies, including Mitsubishi and Hitachi, to participate in a ?3.4 trillion (US$36 billion) Jakarta development project.

Mindful of Korean and Chinese companies pushing into the region, Japanese businesses are focusing on strengthening ties with Asean even more. After relations with China worsened in mid-2000s, the Japanese government began to turn toward Southeast Asia. Japanese Prime Minister Shinzo Abe has followed up on this, choosing Vietnam, Thailand and Indonesia for his first foreign trip after taking office at the end of 2012. During his Southeast Asia tour, Abe announced five principles in his Asean policy, including more trade and investment and exchange among younger generations.

Reform and opening up have ignited investments and growth in Cambodia, Laos, Myanmar and Vietnam, the so-called CLMV countries, the SERI report continues. They account for less than 10 percent of the aggregated Asean economy but they have expanded at annual average rate of 6.1 percent since the 2008 global financial crisis. Their total population -- 28 percent of Asean -- makes the four attractive markets for consumer goods suppliers. Their strategic position between China and the Indian Ocean supports a pan-Asian infrastructure buildup; and the Mekong River running through the nations has the potential to generate 30,000 megawatts of power.

Still, foreign companies entering the CLMV countries cannot expect a smooth landing. Political risks and underdeveloped institutional frameworks to handle foreign businesses interests can easily upend plans. A comparison of worldwide governance indicators show that systemic risk in CLMV countries is higher than that in Middle East and North Africa, and they have yet to establish a stable market economic system. Vietnam, the first mover of the CLMV, has excessive investments, financially troubled state-owned companies and an unstable banking sector. There is also higher policy volatility, lack of skilled labor and a weak infrastructure in Cambodia, Laos and Myanmar.

The Asean economies should become increasingly attractive despite the risks. A strategy that focuses on specific areas and sectors will raise efficiency as it will be difficult to catch up to Japan in official development assistance and investment. In devising their approach, companies will need to consider the wide range in economic development, income levels and business environment among the member nations.

The first-mover member states, including Indonesia and Thailand, have the potential to become the next BRICs, and their vast domestic demand market should be targeted. By promptly responding to the consumption trends of younger generations and Muslims, new markets should be explored while expanding advancement into industrial and social infrastructure, which are expected to see fast growth. Finally, the government can examine making bilateral free trade deals with major Asean countries, which has greater market opening effects than the current Korea-ASEAN free trade agreement.

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