In the miracle years of the 1990s, there seemed no place for Asean to go but up. But the crisis of 1997-98 changed things and as China forges ahead relentlessly, the challenges are tougher and the outcome uncertain, says THITAPHA WATTANAPRUTTIPAISAN.

ASEAN has long been famous for its economic dynamism and manufacturing prowess. The region supplied 4.2 per cent (US$144 billion or RM547 billion) of world exports in 1990 and 6.4 per cent in 1995.

That expansion slowed down to 6.8 per cent in 2000, partly due to the economic crisis of 1997/98. However, the loss of export momentum and greater global competition lowered Asean’s share of global exports to 6.3 per cent (US$570.5 billion) in 2004.

At the start of the new millennium, therefore, the region is facing a challenging future in regaining the dynamism and competitiveness of the miracle years, in ensuring the availability of decent work for all, and in playing a meaningful role in the knowledge-based global economy.

A decade ago, Professor Paul Krugman ignited a regional controversy on the “quality” of growth. That debate concerned growth through inspiration (creating ideas, smart working) versus growth through perspiration (using ideas, hard-working) in East and Southeast Asia.

The great importance of technological creativity, inventions and capabilities is now well appreciated in Asean. Those determinants of economic dynamism and competitiveness have long been the Achilles heel in Asean development.

Illustratively, foreign holders account for over 98 per cent of all the invention patents issued by intellectual property (IP) offices in Asean in recent years. Patents granted to Asean residents (fewer than 350 in 2002) are insignificant compared with around 6,000 each in China and Taiwan, to 30,000 in the Republic of Korea, and to 118,000 in Japan.

Equally telling, Taiwan and South Korea were technological imitators and followers-up to the mid-1980s.

Currently, however, business enterprises in these two economies have become global leaders in several fields of microelectronics, reaping substantial profits in the process.

Manufacturing technologies in Asean may be increasingly complex over time. With few exceptions, however, they are widely shared, commonly available and mature. Thus, local value addition tends to be limited.

Asean enterprises and workers are hard-working, efficient and flexible. With a few exceptions again, the region is not known as a centre of excellence, of technological and commercial breakthroughs, or of firmly anchored high-value activities.

Meanwhile, there has been unrelenting competition from lower-cost producers and increased mobility through globalisation of all kinds of resources and information. Consumer choices, too, have become more fickle and sophisticated.

All this means that Asean enterprises and workers alike are subject to higher thresholds of expected performance and efficiency.

The competitive norms include lower prices, better design, higher quality, greater reliability and safety, shorter product cycles, and more timely and frequent delivery of goods and services.

At the same time, looming on the regional radar screen is China, now a major global economic power. This country accounted for just 1.8 per cent (US$44 billion) of world exports in 1990, but four per cent in 2000 and 6.9 per cent (or US$622.8 billion) in 2004.

Several Asean economies have lost to China some of their third-country market shares in labour-intensive, standard technology products.

On the other hand, import demand to fuel China’s spectacular export surge has yielded substantial spin-offs for the region.

From just US$2.6 billion (or 4.9 per cent of China’s imports) in 1990, Asean exports to China jumped to US$45.2 billion (or 7.8 per cent) in 2004.

The five larger regional economies accounted for 94 per cent of such exports, which are dominated by microelectronics products.

Singapore has been the largest exporter to China within Asean, earning US$15.4 billion in 2004, up from US$6.8 billion in 2002. Malaysia is the second biggest exporter, with exports worth US$8.5 billion and US$5.2 billion in those two respective years. Thailand came third, with exports to China of US$7.1 billion in 2004 and US$3.5 billion two years earlier.

For now, mutual complementarities between Asean and China in the microelectronics value chain are thus more important than direct competition.

The challenge ahead is for Asean to match the improved quality and productivity from rival suppliers in China and elsewhere, too.

Sample surveys show that first-tier manufacturers in China are comparable to their American counterparts in several critical best practices. Among those are on-time delivery, low defect ratios at first pass, and high investment in modern machinery and workers’ training.

Furthermore, major firms in China are spending heavily on research and development for globalisation purposes.

Indeed, Bill Gates, chairman of Microsoft, noted in July 2004 that China had overtaken the United States as the centre for handset technology.

Inevitably, Asean enterprises and workers must reach higher levels of productivity, technological capabilities and business creativity. Overseas experiences, including those from Taiwan, India and South Korea, reveal a number of insights.

Small and medium-sized enterprises (SMEs) are an integral part of the technological transformation process.

They have a direct contribution as inventive enterprises and indirectly as innovative and competitive subcontractors to dynamic, large export firms.

Systemic reform in education and training can improve technical competence and stimulate imagination and thinking “outside the box”. Such reform has been high on the Asean policy agenda, although progress to date is slower than expected, except in Singapore.

But technological creativity and inventions must be successfully tested and commercialised. Another integral part of the transformation scenario in Asean should thus include training in entrepreneurship and business development, plus business internship, incubation and exchange programmes.

Last but not least, intellectual property rights systems and instruments in Asean can be user-friendlier and less costly for registration, maintenance and protection purposes. In all the unfinished agendas noted above, there remains a great scope for closer regional co-operation and linkages among member countries.

*The writer heads a studies unit at the Asean Secretariat. The views expressed are her own.

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