Business Opportunities and Challenges in Growing Mekong sub-region

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1 Business Opportunities and Challenges in Growing Mekong sub-region Ryo Ikebe Asia and Oceania Division, Overseas Research Department, JETRO July 3, 015 Copyright 015 JETRO. All rights reserved. 禁無断転載 1

2 Today s Topics 1.Outline of the Survey.Growing Opportunities in the Sub-Region 3. Business Strategies and Actions in the Sub-Region 4. Towards the Next Stage Copyright 015 JETRO. All rights reserved. 禁無断転載 Active Urban Development at Phnom Penh (Oct 014)

3 1.Outline of the Survey.Growing Opportunities in the Sub-Region 3. Business Strategies and Actions in the Sub-Region 4. Towards the Next Stage nd Mekong Friendship Bridge between Lao PDR and Thailand (Dec 014) Copyright 015 JETRO. All rights reserved. 禁無断転載 3

4 1. Outline of the Survey Scope: Domestic/Japanese companies in Mekong countries, Japan and Singapore Total Number of Companies Interviewed: 111 Methodology: Interview to the individual companies Survey Period: Oct 014-Mar 015 Singapore Thailand Lao PDR Myanmar Vietnam Cambodia Non- Non- Non- Non- Non- Non- Classification Sector Japane Japane Japane Japane Japane Japane Japan Total Japane Japane Japane Japane Japane Japane se Firm se Firm se Firm se Firm se Firm se Firm se se se se se se Chemical 1 1 Auto-Parts Electric Machinery Mechanicall Processing 1 1 Manufacturers Iron & Steel 1 1 Food Vheicles 1 3 Garment, Foot wear and Sport goods Materials for Construction 1 1 Total Tradeing Real Estate Retail Infrastructure Development 1 1 Engineering Non- Power Geneting 1 1 Manufacturers Bank Construction 1 1 E-Commerce 1 1 Logistics Total Governmental Local Agency Organization Other Agency 1 1 Total Copyright 015 JETRO. All rights reserved. 禁無断転載 4

5 1.Outline of the Survey.Growing Opportunities in the Sub-Region 3. Business Strategies and Actions in the Sub-Region 4. Towards the Next Stage Shopping Mall in Thailand (Jun 015) Copyright 015 JETRO. All rights reserved. 禁無断転載 5

6 . Growing Opportunities in the Mekong Sub-Region (1) Major Improvements on Connectivity (EWEC) Road infrastructure along East-West Economic Corridor (EWEC), especially in Myanmar and Lao PDR, has been steadily improved. Official launch of Single Stop Inspection (SSI) arrangement under Cross-Border Transport Facilitation Agreement (CBTA) shall be the good kick-off for swift cargo release at the border. 1 Feb 015 National Route 9 in Lao PDR With Japan s cooperation, National Route 9 in Lao PDR (58.1km out of total 44km) has been maintained and improved. Opening ceremony was held on 14 Mar July 015 (P) New Route at Kawkarei-Myawaddy With Thailand s cooperation, new route between Kawkarei-Myawaddy, where steep mountain only allows 1 traffic lane, will be developed in July. It shortens more than hours to access to Myawaddy. 3 1 Jan 015 Official Introduction of Single Stop Inspection (SSI) At Dansavan-Lao Bao border along EWEC, Single Stop Inspection (SSI) was firstly officially introduced under CBTA. With full ratification of all CBTA annexes in Thailand in Mar 015, SSI will be introduced at other major border area as well. Copyright 015 JETRO. All rights reserved. 禁無断転載 6

7 . Growing Opportunities in the Mekong Sub-Region (1) Major Improvements on Connectivity (SEC) Operationalization of Tsubasa-Bridge (Neak Loeung Bridge) is the highlight on South Economic Corridor (SEC) hard infrastructure development. Increasing the number of license on traffic exchange between Cambodia and Thailand would facilitate further cross-border logistics. Dawei area development has a potential to change supply chain network. 1 Apr 015 Operation in Tsubasa-Bridge Tsubasa-Bridge (former called as Neak Loeung Bridge) was open to traffic on 6 April 015. This bridge enables pure land logistics along HCMC, Phnom Penh and Bangkok. 3 June 015 (P) Trilateral MOI on Dawei Development 3 Jun Increase Number of Cross-Border License Cambodia and Thailand had agreed to increase the number of cross-border license from 40 trucks/buses to 500 in each country through bilateral discussion on 5 June 015. Copyright 015 JETRO. All rights reserved. 禁無断転載 7

8 . Growing Opportunities in the Mekong Sub-Region (1) Major Improvements on Connectivity (North-South) Together with inland river logistics between Jinghong (China) and Chiang Saen (Thailand), road transportation can be another choice especially for fruits and vegetable trade. 1 1 Dec th Friendship Bridge With China and Thailand s cooperation, 4 th Friendship Bridge and new border check points were in operation on 11 Dec 013. Except for the routes connecting / inside Myanmar, road infrastructure has no more been a significant bottlenecks for logistics. Proper implementation of rules and regulations to facilitate the cross-border trade and to maintain such infrastructure becomes more important. Copyright 015 JETRO. All rights reserved. 禁無断転載 8

9 . Growing Opportunities in the Mekong Sub-Region () Mekong as a Market Together with production base, Mekong sub-region has attracted service industries with its rapid-growing market. Compared with the figure in 009, Mekong countries markets will be expanding -3.5 times in 00. Demand for sophisticated logistics (e.g. cold chain) is observed. GDP Per Capita Estimation to 00 AEON Mall in Phnom Penh (Oct 014) GDP Growth Index (009=100) , Thailand (right axis) 7,000 6, ,000 4,000 3, Cambodia Lao PDR Myanmar Thailand 1000, Vietnam 500 1, (Remarks) Including estimation (Source) World Economic Outlook, Apr 015, IMF Copyright 015 JETRO. All rights reserved. 禁無断転載 9

10 1.Outline of the Survey.Growing Opportunities in the Sub-Region 3. Business Strategies and Actions in the Sub-Region 4. Towards the Next Stage Trucks at Moc Bai Border in Vietnam (Dec 014) Copyright 015 JETRO. All rights reserved. 禁無断転載 10

11 3. Business Strategies and Actions in the Sub-Region (1) Japanese Companies Actions FDI to Mekong countries has surpassed that amount to China in 013 and 014. From 01, number of JCC members in each Mekong country has increase steadily, especially remarkable increase in Myanmar (4.1 times), followed by Cambodia and Lao PDR. In total, approx. 1,000 companies have newly registered to JCCs in Mekong countries. Unit: Mil. USD 16,000 14,000 1,000 10,000 8,000 6,000 4,000,000 0 Direct Investment Amount from Japan to China & Mekong Countries China Mekong Countries (Remarks) Classified based on IMF Balance of Payment Manual ver.5 (BPM 5) up to 013, BPM 6 in 014 (Source) Bank of Japan No. of Companies listed to respective JCCI in each Mekong country Apr-15 Jun-1 Cambodia times 91 Lao PDR times 38 Myanmar times 56 Thailand 1, times 1,379 Vietnam 1, times 1,035 Total 3, ,599 (Remarks) Figure in Vietnam consists of member companies of JCCs in Hanoi, Da Nang and HCMC (Source) JETRO from respective JCCs Copyright 015 JETRO. All rights reserved. 禁無断転載 11

12 3. Business Strategies and Actions in the Sub-Region () Business Forecast on Japanese Companies in Mekong Japanese companies in Cambodia have foreseen business outlook in short term most positively among all other surveyed countries. Japanese companies in Vietnam, Myanmar and Thailand have also forecasted next 1- years outlook fairly good. Future Business Forecast in the Next 1- years Total (n=4,731) Cambodia (n=39) India (n=417) Bangladesh (n=38) Indonesia (n=465) Vietnam (n=457) Myanmar (n=51) Thailand (n=644) Sri Lanka (n=8) Philippines (n=138) Taiwan (n=103) South Korea (n=31) Pakistan (n=19) Singapore (n=316) China (n=970) Malaysia (n=90) Laos (n=13) Australia (n=194) New Zealand (n=77) HK & Macau (n=41) Expansion Remaining the same Reduction Transferring to a third country/region or withdrawal from current local markets (Source) Survey of Japanese-Affiliated Firms in Asia and Oceania (FY014 Survey), JETRO Copyright 015 JETRO. All rights reserved. 禁無断転載 1

13 3. Business Strategies and Actions in the Sub-Region (3) Thailand Companies Actions Thailand s SET 100 companies have 130 business bases in surrounding Mekong countries, mainly in energy and utility sector and commerce sector. Market oriented businesses (e.g. real estate, hotel & restaurant) are also major businesses. Location of subsidiaries by SET 100 companies (as of 013) Myanmar Cambodia (Source) TDRI SET100 Database 5 Energy and utilities Commerce Real estate development Construction materials Others Construction materials Real estate development ICT Medical service Energy and utilities Hotel and Restaurant Agricultural business Banking Commerce Subsidiaries Vietnam Lao PDR Commerce Energy and utilities Commerce Construction materials ICT Agricultural business Consumer product Real estate development Others Construction materials Consumer product Hotel and Restaurant Real estate development Energy and utilities Petrochemicals and chemicals Transportation and logistics Agricultural business Copyright 015 JETRO. All rights reserved. 禁無断転載 13 31

14 3. Business Strategies and Actions in the Sub-Region (4) Cargo Movement Alongside the Corridors Parts trade with Cambodia Parts/Components trade have been newly observed in these years, with Thailand+1 trend. Trade amount grows twice in Aranyaprathet in 3 years, and 1.4 times in Khlong Yai in years 3. Less change with Myanmar No big change on trade structure between Myanmar and Thailand in past 3 years. Logistics improvements including Infrastructure development are necessary to stimulate industrial trade. 1. HDD parts trade between Thailand and China are main cargo along EWEC With 3 rd Friendship Bridge operation in 011, parts trade has been generated in northern road of EWEC. HDD parts/components have been mutually traded between Thailand and China. 1 Mukdahan Nakhon Phanom 4 FY011 FY014 Export Import Export Import Processors Memory Data storage devices Copper Radio TV Garments 43.3 Aranyaprathet FY011 Processors Motor 99.3 Fuel Oil 85.4 Copper Motor Steel products 65.6 FY014 Export Import Export Import Spare parts for motorcycle 56.4 Motorcycle s motor 55.9 Swine FY011 Steel 39.0 Gas Tank 8.5 Aluminum 5.3 Motorcycle s motor 99.0 Spare Parts for Motorcycle 94.3 Tractors 77.4 FY014 Digital Camera component 1.8 Structure to load optical film 83.3 Cassava 48.1 Export Import Export Import Benzene oil 46.7 Beer 5.6 Mae Sot Flavoring additives 4.7 Wooden items 10.0 Cows, buffalo 7.0 Antimony 3.3 Beer Telephones 96.1 Benzene oil 84.4 Cows, buffalo 4.9 Peanut 17. Antimony 10.8 FY011 FY014 Export Import Export Import Fresh fruits 3.7 Petroleum oil 7. Energy drink.3 Sugar Milk 49.8 Snack 36.4 Garments 9.7 Woods 7.9 Bag Khlong Yai FY011 Data storage devices 39.8 Energy Drink 74.7 Battery 31.1 HDD PC 18.0 Telecommunicati on transmission 11.0 Electrical Components 6.1 FY013 Export Import Export Import 6 Mae Sai Alcohol 69.1 Woods 1.0 Molasses 0.3 Clams 0.3 Sugar 81.7 Milk 5.8 Drink 41.3 Wire Harness 9.9 Molasses 5.0 Woods 1.3 (Remark) Fiscal year of Thailand starts Oct to Sept. (Source) JETRO Bangkok from Thai Royal Customs FY011 FY013 Export Import Export Import Fuel Oil 40. Processed foods 33.5 Teak logs.8 Orange 1. Mineral ores 0.7 Fuel Oil 55.8 Alcohol 46.0 Beverages 3.6 Teak logs 3. Mineral ores 1.1 Orange 0.8

15 1.Outline of the Survey.Growing Opportunities in the Sub-Region 3. Business Strategies and Actions in the Sub-Region 4. Towards the Next Stage Southern Economic Corridor in Cambodia (Apr 015) Copyright 015 JETRO. All rights reserved. 禁無断転載 15

16 4. Towards the Next Stage (1) Rising Costs on Production/Services Especially in Cambodia and Lao PDR, increasing production costs (e.g. wage, costs on materials, energy and logistics) has affected negative impact to the business operation. CLM countries need to keep its cost competitiveness for attracting further FDI to develop supporting industries within their countries Impact on Soaring Production/Services Costs Significantly affected Hardly any impact Slightly affected No impact Total (n=4544) Cambodia (n=39) Indonesia (n=445) China (n=938) Laos (n=13) Malaysia (n=67) Singapore (n=304) Vietnam (n=435) Australia (n=188) Thailand (n=64) Sri Lanka (n=6) HK & Macau (n=35) India (n=401) Philippines (n=135) Myanmar (n=49) Bangladesh (n=35) Pakistan (n=17) New Zealand (n=75) South Korea (n=) Taiwan (n=96) (Source) Survey of Japanese-Affiliated Firms in Asia and Oceania (FY014 Survey), JETRO Copyright 015 JETRO. All rights reserved. 禁無断転載 16

17 4. Towards the Next Stage () Challenges on Business Operation in Mekong Countries Wage increase is the common issues for business operation in respective Mekong countries. Country specific challenges, such as Power shortage (C,M), Difficulty in recruiting management staff (C, L), Lack of thorough information on trade rules and regulations (L) and Time-consuming Customs procedures (M) are also observed in CLM countries. Thailand (%) 1 Wage increase (n=635) 70. Difficulty in quality control (n=367) Quality of employees (n=635) Competitors market shares are growing (costwise competition) (n=636) Sluggishness in major sales markets (consumption downturn) (n=636) Vietnam (%) 1 Wage increase (n=445) Difficulty in local procurement of raw materials and parts (n=79) Complicated customs clearance procedures (n=434) Difficulty in quality control (n=79) Quality of employees (n=445) 49.0 Cambodia (%) 1 Wage increase (n=40) 80.0 Difficulty in local procurement of raw materials and parts (n=19) Quality of employees (n=40) Power shortage or blackout (n=19) Difficulty in recruiting middle management staff (n=40) 45.0 Laos (%) 1 Lack of thorough information of trade rules and regulations (n=11) 7.7 Difficulty in quality control (n=6) Wage increase (n=13) Difficulty in recruiting middle management staff (n=13) Cash flow shortage for expansion of business scale (n=13) 53.9 Myanmar (%) 1 Wage increase (n=50) 68.0 Power shortage or blackout (n=9) 66.7 (Source) Survey of Japanese-Affiliated Firms in Asia and Oceania (FY014 Survey), JETRO 3 Restrictions on foreign remittance (n=50) Time-consuming customs procedures (n=50) 56.0 Difficulty in local procurement of raw materials and parts (n=9) Copyright 015 JETRO. All rights reserved. 禁無断転載 17

18 Today s Summary Growing Opportunities in the Mekong Sub-Region Recent improvement of hard infrastructure (e.g. roads and bridges) in the Mekong subregion gradually enables industries to illustrate region-wide business strategy. Huge growing market with more than 00 million population brings various business opportunities. Next Steps 1 Balanced Development of Soft-Infrastructure Ambiguous rules and regulations have affected business predictability. Steady and workable development / implementation of region-wide rules and regulations such as CBTA is indispensable. Efforts on Improving Productivity For continuously attracting FDI, improvement of productivity through tackling current challenges such as soaring wage, low procurement rate and insufficient industrial human resource development, which includes mid-long term issues, shall be also considered. JETRO will continuously contribute to the economic development in this sub-region, through improving business environment with Mekong friends. Copyright 015 JETRO. All rights reserved. 禁無断転載 18

19 Thank you for your attention Copyright 015 JETRO. All rights reserved. 禁無断転載 19