by Dinesh Senan: Published: The Straits Times, Singapore: June 2002
The lamentable ‘beggar thy neighbour’ stance that often rears its ugly head within Asean can and must be eradicated. And perhaps the only way to start to achieve this may lie in the prayer of St Francis of Assisi: ‘for it is in the giving that we receive’.
From an economics perspective, it may be seen that given the unprecedented levels of global competition today, it is no longer sufficient for businesses to structure their operations such that they identify an area of need to be filled in the market, and then establish a single business unit (eg a simple company) to work through the various steps (economic value adding steps or components of activity) within that business unit, so as to deliver the end product or service which satisfies that need.
Increasingly, we see that kind of simplicity necessarily having to give way to a more complex form of business unit, which has to recognise that each value adding component of activity to be performed within the process, comes under pressure to be located in the best possible environment for the most cost-effective production of that component, before globally competitive pricing of the end product / service may finally emerge, when all the components are finally assembled.
For example, the typical Toyota car is in fact manufactured in approximately 50 countries, before being finally assembled in their plants, such that each component is strategically manufactured in a country where the cost effectiveness of manufacture of that particular component is highest, before being shipped for ‘just-in-time’ delivery to the country of assembly (eg in the US). As a matter of interest, Toyota’s globalised operations are so sophisticated that every such component is actually manufactured simultaneously in at least two countries, so as to avoid economic or political risks to production roll-out.
Seen in another way, it is now necessary for businesses wishing to flourish globally to think in terms of what I call ‘value chain dispersal’ methodologies in planning their strategic operations and in seeking out cost-effective locations for the various components of activity, as opposed to mere ‘value chain replication’ from start to finish in the production process being located simply within one territory. This poses a more challenging environment from the management perspective, but the net returns by far outweigh the burden.
For us in Asean, this then yells opportunity for us, as loudly as it may yell threat. And the difference between the two views depends on how the change leaders amongst our members may set the tone for cooperation amongst ourselves, at both public and private sector levels simultaneously.
Clearly higher orders of cost effectiveness of production of goods and services at the regional level may be attainable than may be possible at the individual national level. Instead, we are often seeing instances of one neighbour, consciously or otherwise, seeking to replicate economic activity entirely, to the possible detriment of another member. However, this will not be optimally cost-effective as it will more than likely see unnecessary ‘re-invention of wheels’ as well as the location of certain components within the production process being less optimally located than if there had been intelligent cooperative planning, sharing and splitting of the components of economic value adding between the two members instead!
For instance, Singapore’s human and financial resources along with physical infrastructure well supports the more knowledge-intensive aspects of production, whilst say Indonesia, Malaysia or Thailand are more cost-effective locations for other economic value adding components of activity such as manufacturing etc. As another example, we have gained certain levels of expertise in certain specific areas eg port development and operations, which could be deployed in supporting our neighbours develop their ports more rapidly than if they were to try to do it themselves, for mutual gain. In the process, they may come to see the futility of going on an all-out rampage to replicate all that we are doing in that area, as our ports could serve them well whilst they deployed their resources in other areas.
Before we relegate such optimistic thinking to the wastebasket of idealistic thinking, which will only serve to perpetuate the prevailing lack of true cooperation and synergising amongst numerous Asean members, we should recall Kennedy’s axiom, that it may be possible to be “an idealist, without illusion”. With prudent economic incentives backing up the proactive attitude of seeking first to help each other gain better access to what is ours, for their betterment, the prevailing unproductive mindset can be changed.
In this regard, it would be good if Asean could explore, for instance, the establishment of an appropriate body which would look into, say, the award of a special ‘Intra-Regional Strategic Economic Relocation Status’ for economic plans from member nations / commercial operations seeking the intelligent shifting, at the component level, of value adding steps amongst member nations, where for instance, the ‘welcoming’ country grants to the ‘relocating’ country’s economic activity certain preferential tax and other fiscal incentives etc, etc to so relocate.
On a system of win-win reciprocity, such economic value adding components of activity could be say 95% owned by the ‘relocating’ entity, (who has the expertise in that area, and should have management control), whilst the ‘welcoming’ country is granted say 5% of the equity therein, in consideration of its supporting gesture. Needless to say, whilst the ‘relocating’ entity gains from a more cost-effective environment for the production of such components into the ‘welcoming’ country, the ‘welcoming’ country will gain not only by having more employment opportunities for its citizens…
Seen from a higher level, this intelligent planning will also help prevent the ‘hollowing out’ syndrome oft feared by countries whose cost structures are moving upwards, (relative to the particular forms of economic activity they are presently engaged in), as this shifting at the component level will encourage, ultimately, the retention and growth of only such economic components of activity as are necessarily best suited for the welcoming and the relocating countries respectively, anyway. In this regard, concurrent profit repatriation tax incentives for the relocated business back to their home countries will also help reduce the real risk of ‘hollowing out’ altogether.
The real competition is out there, beyond our regional shores. Asean had better rise above its petty sibling rivalry and get its act together to strengthen its economic base considerably through such eminently possible forms of mutually beneficial, intelligent economic cooperation. But such a shift will not happen unless some of us start to ‘give’ before we think to ‘take’. And in that order of nature, as St Francis promises, we will eventually receive. Not to try is not an option, anyway.
The Pragmatic Idealist 