High-end hoodies unmask reality of Asean’s ‘promise’; Doing business in the region means bridging the gap between rhetoric and reality

March 4, 2014 5:00 pm

High-end hoodies unmask reality of Asean’s ‘promise’

By Jeremy Grant

Doing business in the region means bridging the gap between rhetoric and reality

If you are a garment manufacturer and want to sell your upmarket hooded sweatshirt in Indonesia, you are probably on to a good thing.

While 82 per cent of the population in southeast Asia’s largest economy earns less than $4 a day, according to Standard Chartered Bank, there is a growing segment of young consumers who have enough disposable income to afford the 800,000 rupiah ($68) price tag for must-have gear like this.

The story is the same across much of the 10-member bloc known as the Association of Southeast Asian Nations (Asean), which includes Indonesia, Malaysia, Thailand, Vietnam, the Philippines and the countries of the Mekong region.

But the problem for the garment maker is that clothes imported into Indonesia must have labels stitched on that describe its size and other details in the country’s bahasa Indonesia language. So far, so sensible – from the point of view of the Indonesian government, which is concerned about consumer protection and transparency. Not so good for the garment maker, though.

Getting those labels made and sewn on outside Indonesia – say, in Europe, where the garments are being made – is likely to cost far more than doing it in a bonded warehouse in-country, just before the products are distributed.

This label question is part of a knot of problems that comes with doing business in a region where the cheerleading about “promise” threatens to drown out warnings of harsh realities on the ground.

In commercial terms, Asean is no longer the polite fiction it once was. Far from being marginalised by China – as some feared a decade ago – the region has grown as an economic bloc amid a combination of domestic demand and huge inflows of foreign investment.

It has a population of 620m and a combined gross domestic product of $2.3tn – ahead of Brazil and Russia and just behind Britain. For the past 15 years, GDP growth has averaged 6 per cent per year. Few other regions of the world can say that. ANZ, the Australian bank, describes Asean as “the third pillar of Asia’s growth” behind China and India.

Much of the foreign investment is being channelled through Singapore, which is increasingly seen as a springboard for doing business in southeast Asia.

General Motors, which last year restarted production of Chevrolet vehicles at an idled plan outside Jakarta, is set to open a new regional headquarters in the city-state in a few weeks. Rakuten, Japan’s largest e-commerce company, opened an office in Singapore in January.

Companies like this have their sights on the creation of an Asean Economic Community (AEC) by the end of 2015, which envisages a tariff-free single market and production base, with “substantially no restriction” on service companies moving across borders in the region.

Yet, as Indonesia’s labelling issue shows, there is still a gulf between the rhetoric and reality on the ground. Take infrastructure. Factories in the southern Philippines must carefully schedule deliveries to and from the main port in Manila, because congestion can be so bad on the single usable road that trucks are periodically banned from using it. That is hardly an encouraging state of affairs for companies looking to set up shop in the country – even though it is the region’s best-performing economy.

More broadly, a plan to forge a unified electricity grid across all 10 Asean countries – allowing one country with surplus power easily to sell to a neighbour with a deficit – has languished since 1986. The harmonisation of intellectual property rules and customs clearance is also woefully behind schedule.

Nevertheless, companies from Britain – which accounts for a quarter of inward investment into Asean from the European Union – have been stepping up enquiries about the region, diplomats say.

Conveniently, a new pilot programme initiated by the UK government three months ago may help them navigate a region more diverse even than the 28 member EU. Civil servants, who once handled queries through diplomatic missions, will now collaborate with their local British chambers of commerce, staffed by business people, in a kind of public-private consultancy.

The UK initiative, initially earmarked for 21 countries, kicked off with Singapore four months ago and aims to help companies make sense of Asean. This is a sensible move. But it will pay any British company to avoid the hyperbole about Asean and ask some tough questions, especially if they plan to sell high-end hoodies in Jakarta.