Khon Kaen University International College

Business in the Greater Mekong Sub-region 

Course number 050 451 - Second semester 2013

Wednesdays at 9:00 in room 823

 Lecturer: Michael Cooke

office room 817E-mail: Michco@kku.ac.thWeb: KKU.AC.TH/Michco

Field Trip with GMS Tourism Class

To Southern Laos (Pakse) by busLeave 10 January (Friday)Return January 13th (Monday)Ten seats available

Cost 8,900 baht per person plus visaIncludes transportation, hotel, some mealsCross border near Ubon Contact Aj. Chonlada or Aj. Michael

Pakse Laos

GMS Projects Find a successful industry in GMS, or one which shows potential

to be successful (13 Nov) Explore reasons the industry located in GMS What is the nature of the business (capital or labor intensive, etc) Any spillover effects? What was the mode of entry for the businesses?

Study a GMS country in which the industry is successful (4 Dec) What are the strengths of that country from a business perspective? What are the weaknesses? Look for barriers to further business success in the country

How do you see the business evolving (5 Feb) Effect of ASEAN or other alliances (trade, labor mobility, etc) Relevant demographic, economic, trade projections Infrastructure, education, and other changes as a result of government

or business initiatives Advice you would give to government units to encourage industry growth

ICRG Country risk information (oldest source) https://www.prsgroup.com/ICRG_TableDef.aspx

If the link does not work: www.prsgroup.com◦ Ask for free samples

Give e-mail address and name, purpose = education Decline contact if you wish

◦ On free samples page, click *To see a list of ICRG Tables

◦ Download the sample5

Country risk ratings

Mekong Watershed36% of the River’s Volume is from Laos

Mekong River Commission Secretariat

Resources• JETRO (Japan External Trade Organization) established 1958 helps small to 

medium size Japanese firms maximize their global export potential • JETRO-Institute of Developing Economies (IDE) Bangkok Research Center links

– http://www.ide.go.jp/English/Links/southeast_asia.html– Good for links to government and university sites for the GMS countries

• Institute of Developing Economies (IDE) Bangkok Research Center publications– http://www.ide.go.jp/English/Publish/Download/Brc/– Relevant and relatively recent research reports– Examples:

• "Five Triangle Areas in the Greater Mekong Subregion" Edited by ISHIDA Masami / Published in 2013• "Economic Reforms in Myanmar: Pathways and Prospects" Edited by HANK LIM and YASUHIRO YAMADA / Published 2013• "Cause and Consequence of FIRMS' FTA Utilization in Asia" Edited by HAYAKAWA Kazunobu / Published in 2012 • "Emerging Economic Corridors in the Mekong Region" Edited by ISHIDA Masami / Published in 2012 • "Industrial Readjustment in the Mekong River Basin Countries: Toward the AEC" Edited by Yasushi UEKI AND TEERANA 

BHONGMAKAPAT / Published in 2012• "Investment Climate of Major Cities in CLMV Countries" Edited by ISHIDA Masami / Published in 2010 • "Economic Relations of China, Japan and Korea with the Mekong River Basin Countries (MRBCs)" Edited by KAGAMI 

Mitsuhiro / Published in 2010 • "Major Industries and Business Chance in CLMV Countries" Edited by UCHIKAWA Shuji / Published in 2009 • "A China-Japan Comparison of Economic Relationships with the Mekong River Basin Countries" Edited by KAGAMI 

MItsuhiro / Published in 2009 

• Mekong Institute (on the KKU Campus) http://www.mekonginstitute.org/

Mekong Institute Focus on Labor• http://www.mekonginstitute.org/images/abook_file/policy_bri

ef_labour_supply.pdf• From a study of a Laos SEZ: “The breakdown in occupational skills indicate 

mismatches in supply and demand for specific  skills areas such as IT/computer operators, maintenance mechanics, welders, sewers/dressmakers, gem lapicides, and others. On the other hand, majority of students at TVET schools enroll in accountancy and Business management courses.”

• From a study of a Cambodian SEZ: “The new SEZs that have been set up in the border areas with Thailand and Vietnam have reduced the pull factor to migrate to Phnom Penh for work. The preference of students for enrolling in academic courses such as management and accounting due to the perception that vocational training will lead to a career of hard labor and low wages in factories. In Laos, many prefer to migrate to Thailand where they can earn more even without the necessary educational credentials.”

City Singles (Excerpts from the Bangkok Post 30 September, 2013)

Urban women tend to prefer single status to those in rural areas. About 30% of Bangkok woman are single. Thai women are tending to marry later, or not at all Even those in a marriage may postpone having a child because of the high cost of raising a child

The total fertility rate (TFR), a direct measure referring to births per woman, is now the lowest in Thai history, according to Pramote Prasartkul, of Mahidol University's Institution for Population and Social Research (IPSR). The TFR dropped from more than six births per woman before 1970 to 1.6 at present. In the Southeast Asian region, only Singapore has a lower TFR rate than Thailand at 1.2. Vietnam is

at 1.8, Malaysia is at 2.6, and Cambodia, Laos and Myanmar are more than three. Due to the low TFR, the IPSR estimates people in the workforce aged between 15 and 59 years

will decrease from 67% of the Thai population in 2010 to 55.1% in 2040 The 11th National Economic and Social Development Plan (2012-2016), approved by the cabinet last

year, expresses concern about the change in demographic structure. The plan focuses on improving the workforce's skills and expertise to meet emerging challenges as

well as technology development. Besides the low birth rate, longer life expectancy is also a factor in Thailand's rapidly ageing

society. Thailand was classified as an ageing society in 2005 when the number of people aged over 60

reached 10% of the population. This number is expected to reach 20% by 2027, by which time the country will be an "aged" society. People aged over 65 will reach 20% in 2031, which is classified as a "super aged" society.

As the government of China relaxes the one child policy, the government of Singapore provides financial incentives to have children and academics encourage the Thai government focuses on improving workforce skills and expertise to meet emerging demographic challenges.

http://link.springer.com/article/10.1007%2FBF03031794?LI=true#page-4

Implications of the Demographic Shift• Smaller households require different housing• Families with fewer children spend more/child• With fewer people of working age– Cost of labor will rise– Low skill jobs will go to countries with younger populations– Need to move to higher value added (skills)

• More retirees and elderly – a unique market• Japanese model– Higher value added industries– Investment abroad

• Pressures for immigration from labor surplus countries

Comparative Statistics GMS-China

Urban % Rate urbanization

Fertility Literacy Median age

Labor force GDP/cap PPP

Thailand 34% 1.6% 1.66 93% 35.1 39MM $10,300

Myanmar 33% 2.5% 2.21 93% 27.6 33MM $1,400

Vietnam 31% 3.0% 1.87 93% 28.7 49MM $3,600

Cambodia  20% 2.1% 2.72 74% 23.7 8MM $2,400

Laos 34% 4.4% 3.00 73% 21.6 4MM $3,100

China 51% 2.9 1.55 95% 36.3 799MM $9,300

https://www.cia.gov/library/publications/the-world-factbook/geos/

How German Companies Enter VN• By some measures Germany is the worlds most successful exporter

– Much of Germany’s export success is from small and medium size businesses– These small and medium sized businesses often rely on a network of Chambers of 

Commerce• German Chambers of Commerce Abroad has 120 offices in 80 countries• The overseas offices are linked to 80 regional chambers within Germany

• When the owner of a small business in Germany wanted to export to Vietnam:– He contacted the German Chamber’s  office in HCMC– For a small fee the HCMC Chamber conducted surveys and contacted potential 

distributors– When the owner flew to VN, the Chamber hired translators, scheduled visits with 

potential distributors, and arranged transportation– Within days the owner signed a distributor

• Some Asian countries, including South Korea and Taiwan offer similar services• Other countries, such as the USA, are studying the German model

Wall Street Journal 20 Nov 2013

CLMV Exports to JapanLabour-intensive goods such as footwear and textiles are important

exports to JapanApparel competiveness gains are made versus China, but CLMV

countries lose to BangladeshRecent increases in Cambodian exports to Japan were due to a

Japanese footwear company in the new PPSEZMyanmar’s export competitiveness is retarded by poor infrastructure

Air transport is used for pearls and precious stonesThe business environment is needs reform

Laos exports coffee and other natural resources based goodsSustainability is an issueUnprocessed wood ex[ports from Laos are prohibited (smuggling

results)Wood is exported to Vietnam and assembled into furniture

Vietnam exports labour intensive products such as apparel and footwear, Vietnam’s labor competitiveness is challenged by CLM and BangladeshHigher value added products such as machinery and medical

instruments are export growth areas

CLMV Trade with ChinaIn $US MM

CN 2010 - export

CN 2010 - import

Cambodia

1,347 94

Laos 484 601Myanmar 3,475 967Vietnam 23,101 6,984

28,408 8,646

China Statistical Yearbook

CLMV Labour Competitiveness with ChinaWages in China are higher than in the CLMV

Factory wages in Vietnam were about 56% of China factory wages in 2009, down from 66% in 2003

Chinese wages have risen rapidly in recent yearsLabour productivity has been rising in China

Between 2003 Chinese manufacturing labour productivity doubled

In Vietnam productivity was stable between 2003 and 2007Much higher levels of productivity in China makes unit

labour costs lower than in Vietnam for many industries Chinese productivity growth is in part due to higher

education and new technologiesFor the CLMV countries to become successful, labour

productivity must rise*

*Xingmin Yin “New Division of Labor between China and CLMV Region” BRC Research Report 2012

Summary of Obstacles to Industrial Development in CLMV

Low manufacturing labour productivity (less than ½ of China’s)

Poor quality and yield in agriculture Labour shortages in CLMV industrial districtsInsufficient infrastructure (such as roads,

electricity, irrigation)Lack of export supporting industries and lack

of large business organizations

And the Good News*From the Korean and Japanese perspectives, investment

in China is seen as riskyCLMV countries can exploit this by improving the foreign

investment climate to attract FDIThese countries must participate in East Asian production

networksPositive impact of SEZs and infrastructure developments

Export oriented industrial policiesFDI stimulating technology transfers

Improving quality of educationAEC and freer movement of goodsUrbanization and growing awareness of need for

environmental protection

*Ueki, Kagami, Bhongmakaput BRC Research Report 2012 pp9-11

Recent Economic Growth in NE Thailand Trade growth and property development in the Northeast has been rapid,

boosting economic growth.This brings rapidly increasing land costs, with investment and speculation in land

in many provinces, especially in business zones in Muang districts. Bangkok-based buyers are speculating on property development Khon Kaen is at risk of an oversupply of condominium units

Land prices are becoming an obstacle to housing development, because locals will be unable to afford the price of housing units

Like in Greater Bangkok, developers in the Northeast face a labor shortage, as labor shifts to agricultural with rising farm-product prices

Foreign direct investment flows to the NE mainly from China, Taiwan and Japan Investors anticipate development of regional logistics and transport routes.FDI flows to both heavy and light industryThese investors are betting on the development of regional logistics and

transport routes Chinese and Vietnamese investors are developing four large mixed-used

projects across the river in Laos

http://www.bangkokpost.com/breakingnews/374525/northeast-housing-market-overheating

GMS Growth AreasEconomic Corridors Proposed in 1998

The expectation is for corridors to stimulate nodes of economic activity, such as special production and trade zones, from existing opportunities and resources along the routes.

The East-West Corridor pilot project links Myanmar with Da Nang (Viet Nam) via north-central and north-east Thailand and Savannakhet (Laos).The East-West Corridor is the priority corridor project of the Asian

Development BankThe East-West Corridor is expected to improve access to raw materials,

stimulate trade and exports, bring together many of the inherent factors of production found throughout the region

North-South Corridor linking Kunming (Yunnan, China) and Chiang Rai (Thailand) through north-western Laos

Bangkok to Phnom Penh (Cambodia) to Ho Chi Minh City and Vung Tau (Viet Nam)

Kunming to Hanoi to Haiphong (Viet Nam)

GMS Assets (ADB) One of the GMS’s greatest assets is its strategic location between the

world’s two most populous countries, China and India Thailand can be South-East Asia’s regional transportation and services hub The GMS can be one of Asia’s primary energy producers because of the

hydropower potential in the Lao People’s Democratic Republic, Myanmar, Yunnan, and to a lesser extent, Cambodia

The GMS is also well-endowed with vast tracts of fertile land A wide variety of resources such as timber, minerals, gems, coal, oil,

natural gas, and metals are abundant in the sub-region and, in many cases, are only beginning to be exploited In Cambodia, the north-east area contains a wide variety of minerals, coal, and

other valuable resources, but almost no extractive activities are being undertaken

The energy sector is operating at a little more than two per cent of the full potential.

Though the overall level of education and skill is below other parts of Asia, the GMS has a large, low cost, and ambitious labor force.Viet Nam is reputed to have one of the most disciplined and hard working

populations in Asia and its workforce is eager for training and is highly adaptable.

Thailand’s large labor pool provides an excellent combination of intermediate and advanced skills with competitive wages

Perceived Investment Opportunities Tourism has become one of the GMS’s most important sectors Natural resources: GMS contains extensive amounts of minerals and other natural

resources, many of which are only beginning to be harnessed Governments of the sub-region offer private firms various types of concessions for

resource exploitation, depending on the type of resource and other factors. While the processing of resources is typically conducted outside of the GMS, conditions

may be favorable for establishing processing plants and refineries within the sub-region.

Manufacturing: electronics assembly, automotive assembly, and consumer products are rapidly expanding throughout the GMS. Companies realize the market potential in the whole GMS compared to the typical

perception of individual small markets.Some GMS members continue to receive preferential trade and tariff treatment by

wealthy Western countries for garments and textiles Infrastructure is an appealing sector because of the network plans and projects for

roads, rail, seaports, telecommunications, and aviation. Agricultural industries present investment opportunity in the GMS because of the

crop base in the GMS. Given available land throughout the sub-region, experienced farm workers, and a climate and topography that allow a wide variety of crops to be cultivated, the GMS can be a base for agriculture and processing industries.

Private Investment in the education sector is growing due to the demand. Educational services for English, computers, and business are extremely popular in the GMS.

The GMS Structure and InitiativesGMS economic cooperation began in 1992 with an

initiative of the Asian Development BankCooperation was targeted at six sectors

TransportTelecommunicationEnergyHuman ResourcesEnvironmentTrade and investment

Highest priority was given to transportationFocus on sub-regional development Cross-border improvements of major roads was targeted

Tourism and agriculture were added as development sectors in 1994 and 2001

Guangxi Province was added to the GMS in 2005

GMS Corridor Map – East-West

GMS Corridors – High Level

Source: Chiang Mai UniversityUSER 2007

Sekong Province, LaosWith road Improvement comes plantation corridor

then processing corridor.

Attracting one set of plantations and factories along a corridor can result in economic development. Primary producers also get more leverage as transport improves and producers organize into cooperatives.

SE AsiaTrade routes from East Asia to South Asia, the Middle East, and the Suez Canal pass through the Straits of Malacca, northwest of Singapore. The area is a haven for pirates. In November two large tankers were hijacked there. The East-West corridor would connect East Asia to the Indian Ocean well north of the Straits.