The Rise of the Service Economy

in Southeast Asia:

Taiwan’s Perspective

International Conference on Towards an Integrated ASEAN Economic Community: Strategies, Progress and Prospects for

Enhanced Taiwan-ASEAN Economic Collaboration

Kristy Hsu

Program Director, Taiwan ASEAN Studies Center, CIER, Taiwan

Outline

I. Services economy in ASEAN

II. Drivers of the development of services sector in

ASEAN

III. FDI inflows in ASEAN

IV. Rise of regional services brands

V. Conclusions, Challenges and Recommendations

ASEAN as a Growing Market

• Total population of 616 million, more than 50% of population is middle class

• Combined GDP of US$ 2.31 trillion (2012)

• Average growth rate of 6.07% between 2010~2012

• Exports of US$ 1.25 trillion, imports of US$ 1.22 trillion

• 85.4 million visitors arrivals

• GDP per capita US$ 3,751 at current prices; US$ 5,869 based on Purchasing Power Parity (PPP)

• In 2001~2010 period, the extent of absolute poverty ($1.25 in PPP terms) for ASEAN-6 countries has declined from around 29% to 15%, for the CLMV countries from around 45% to 16%.

Service Economy in ASEAN

• For most ASEAN countries, service sector accounts for a lion’s share of national economy, but its share in GDP may fluctuate. The sector also has major stake in employment.

• Rapid growth of services trade in the region, particularly in the priority sectors set in the AEC: communications, computer & information, travel, business services, royalties & licenses.

• Growth in imports more apparent than growth in exports. Except for Singapore, most ASEAN countries have for a long time suffered trade deficit.

• Fastest growing subsectors of imports include communications, computer & information, travel, finance & insurance, business services and royalties & licenses.

• Despite significant increase, individual share in world trade less than 1% except for Singapore and Thailand.

Services Profile of ASEAN-6 and Taiwan

(2012)

Commercial

services

exports

Global

Rank

Commercial

Services

imports

Global

Rank

Net trade

Balance

Malaysia 34,913 32 37,490 30 -2,577

Indonesia 19,941 38 31,820 31 -11,879

Thailand 40,851 26 50,919 23 -10,067

Philippines 15,450 42 11,615 54 3,835

Vietnam 8,769 56 11,707 53 -2,938

Singapore 128,891 10 113,827 11 15,063

Taiwan 45,993 24 41,321 28 4,672

Unit: Million USD

Sources: Service profile, WTO.

Service Profiles of ASEAN-6 and Taiwan

(2012) – cont.

Services to total

GDP Ratio

Employment in

services to total

employment Ratio

Commercial

services exports to

total GDP Ratio

Malaysia 38.5% 53.5% 12.5%

Indonesia 32.1%

(2011)

43.3%

(2011) 2.4%

Thailand 43.1% 36.4% 11.8%

Philippines 51.5% 47.1% 6.9%

Vietnam 34.4% ----- 7.1%

Singapore 94.3% 79.2% 53.8%

Taiwan 58.1% 55%% 9.9%

Sources: Service profile, WTO.

Drivers of Development of Service Sector

in ASEAN

• The AEC will establish ASEAN as a single market and production base in ASEAN.

• The AEC aims to achieve free flows of goods, services, investment, skilled labour and freer flow of capital in the region by 2015.

• Services liberalization concessions in the AFTA, ASEAN+1 FTAs

(not including FTAs with Japan and India) and bilateral FTAs.

• The ASEAN Framework Agreement on Services (AFAS) signed

on 15 December 1995 aims to:

Enhance cooperation in services to improve efficiency

Eliminate substantially restrictions to trade in services

Liberalize trade in services by expanding concessions under

GATS of the WTO - GATS-plus principle

Drivers of Development of Service Sector

in ASEAN – cont.

• Strong FDI inflows in the region help promote development of

services sector and encourage ASEAN countries to unilaterally

undertake services liberalization measures & regulatory reforms.

• Friendly environment for M & A deals as a popular entry

strategy for Trans-national Corporations (TNCs)

• The rise of regional services brands and strong interests in

regionalization and globalization.

• Integrated services markets in FTA partner countries. ex. Chinese

tourists and students. China will further liberalize services trade

to ASEAN in an “Enhanced Version” of ACFTA.

• The negotiations of the RCEP encourage ASEAN countries to

take a more aggressive approach to service liberalization.

FDI inflows to ASEAN (1995-2011)

FDI flows to ASEAN by Industry (2011)

2010 2011 Growth Rate

Agri, fishery and

forestry 543.3 702.3 29.27%

Mining and

quarrying 4,851.2 7,524.8 55.11%

Manufacturing 25,158.2 25,021.9 -0.54%

Construction 709.2 1,968.4 177.55%

Trade and

commerce 8,349.4 17,927.6 114.72%

Finance 22,347.0 13,000.7 -41.82%

Real estate 13,837.3 10,897.6 -21.24%

Service (ICT,

(transportation etc) 14,393.3 9,129.1 -36.57%

Others (water, elec.

supply) 394.8 915.4 131.86%

Total 92,278.3 114,110.5 23.66%

Source: ASEAN Secretariat, ASEAN FDI database

Unit: US$ million

M&A Sales in ASEAN by Industry (2011)

Rise of Regional Brands

Singapore

Rank Company Industry/business

1 Singapore Airlines Air Transport

2 Wilmar International Agribusiness, oil palm value chain

3 DBS Group Banking, Finance

4 Singapore Telecommunications Telecommunication

5 United Overseas Bank Banking, Finance

6 Keppel Corporation Conglomerates

7 OCBC Banking, Finance

8 Fraser and Neave Drink, property, printing and publishing

9 Sembcorp Industries Energy, water and marine

10 Olam International Agriculture products and food ingredients Sources: UNCTAD, FDI database; Bloomberg and Brand Finance.

Rise of Regional Brands – cont.

• P.57, 58

Sources: UNCTAD, FDI database; Bloomberg and companies’ websites.

Malaysia

Rank Company Industry/business

1 Petronas Oil and gas

2 Genting Conglomerate, leisure

3 CIMB Banking

4 YTL Corporation Telecommunication

5 Malayan Banking Banking

6 Sime Darby Conglomerates

7 Public Bank Banking

8 Tenaga Nasional Power, utilities

9 Malaysian Airline System Air Transportation

10 Digi.Com Telecommunication

Top 10 ASEAN Banks by Assets (2012)

Bank Total assets Market Cap Home country

DBS Group 294.2 29.5 Singapore

OCBC 235.2 27.0 Singapore

United Overseas

Bank 198.6 24.9 Singapore

Malayan Banking 155.7 25.0 Malaysia

CIMB Group 105.0 18.5 Malaysia

Public Bank 88.2 18.3 Malaysia

Bangkok Bank 76.6 11.9 Thailand

Siam Commercial 70.5 19.5 Thailand

Krung Thai Bank 67.9 8.5 Thailand

Kasikorn Bank 65.1 15.4 Thailand

Sources: UNCTAD, FDI database; Bloomberg and companies’ websites.

Unit: US$ million

Taiwan and Services Markets in ASEAN

• First wave of Taiwan FDI flows in Southeast Asia took place in the 1970s, then became more visible in the middle of the 1980s.

• Beginning in the early 2000s, Taiwan services industries followed the manufacturing industries to expand their presence in the growing markets.

• For example, Taiwan FDI first focused in labour intensive manufacturing industry in South Vietnam, then expanded to more capital- and technology-intensive industry in North Vietnam. In the meantime, service industries followed suit in order to continue to provide services to their TW customers or to make presence in the fast growing Vietnamese markets.

• In Vietnam, currently more than 16 Taiwanese banks have established branches or representative offices.

Taiwan and Services Markets in ASEAN – cont.

• Compared with Japan and Korea, Taiwan is a late comer in

ASEAN services market.

• Moreover, as Taiwan is not a member of ASEAN+1 FTAs nor

has FTAs with any ASEAN countries, Taiwan investors have

faced trade and investment barriers in services sector. Ex. Some

ASEAN countries freeze issuing new licenses to foreign banks

applying for setting up branches.

• In recent years, some Taiwanese firms have adopted franchising

as their market entry strategy into the growing markets. For

example, Taiwanese retail brands are increasingly visible,

including restaurants, beverages, convenience stores, etc.

• Some adopt M&A strategy to increase presence in the market.

Conclusions

• ASEAN is the largest services trader compared to other developing

countries’ regional groupings. However, its share to total world

exports and imports of commercial services continues to be small.

• ASEAN is accelerating liberalization of its service sector and

integrating services trade with the region.

• Companies from ASEAN are going regional and global to increase

market reach, customer base and location complementation.

• Increasing FDI inflows also focus more in services sectors.

• Taiwan has growing interests in the services markets in ASEAN,

but need to catch up with its competitors.

Challenges to Developing a Services

Economy in ASEAN

• Compared with liberalization of trade in goods in ASEAN,

services liberalization is a recent development, different from

negotiations of goods trade and involves comprehensive

deregulation of rules and regulations.

• Services cover diverse and large number of sectors/subsectors,

regulated by numerous government agencies and ministries.

• The services sectors are at different levels of development, trade

volume and significance of trade in services vary significantly

among ASEAN countries.

• Most ASEAN countries suffer increasing service trade deficit.

• Significant gap between more advanced countries and less

developed countries.

Policy Recommendations

• ASEAN should accelerate liberalization of services and

investment to allow more healthy competition by diverse services

providers and emerging service types and business models.

• The Trans Pacific Partnership (TPP) and the negotiations of the

Plurilateral Services Agreement (PSA) under the WTO may

bring new momentum to services liberalization in the world.

ASEAN countries should consider active participation.

• ASEAN and Taiwan should promote joint efforts in developing

high value added service industries and regional brands, and

exploring traditional and emerging markets.

• ASEAN should take a more active policy approach to attract

more Taiwanese FDI to take advantage of its capital, innovation,

know how and and talents.

Thank You for Your Attention!

Kristy Hsu

Taiwan ASEAN Studies Center,

Taiwan WTO Center, CIER

TEL: 886-2-27356006*318

Email: kristy@cier.edu.tw