Field Trip with GMS Tourism Class

1. Khon Kaen University International CollegeBusiness in the Greater Mekong Sub-regionCourse number 050 451 - Second semester 2013Wednesdays at 9:00 in room 823Lecturer: Michael Cookeoffice room 817E-mail: Michco@kku.ac.thWeb: KKU.AC.TH/Michco

2. Field Trip with GMS Tourism Class • To Southern Laos (Pakse) by bus • Leave 10 January (Friday) • Return January 13th (Monday) • Ten seats available • Cost 8,900 baht per person plus visa • Includes transportation, hotel, some meals • Cross border near Ubon • Contact Aj. Chonlada or Aj. Michael

3. Pakse Laos

4. 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

5. Country risk ratings • 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 sample

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

8. Mekong River Commission Secretariat

9. 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/

10. Mekong Institute Focus on Labor • http://www.mekonginstitute.org/images/abook_file/policy_brief_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.”

11. 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 PramotePrasartkul, 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.

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

13. 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

14. Comparative Statistics GMS-China https://www.cia.gov/library/publications/the-world-factbook/geos/

15. 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

16. CLMV Exports to Japan • Labour-intensive goods such as footwear and textiles are important exports to Japan • Apparel competiveness gains are made versus China, but CLMV countries lose to Bangladesh • Recent increases in Cambodian exports to Japan were due to a Japanese footwear company in the new PPSEZ • Myanmar’s export competitiveness is retarded by poor infrastructure • Air transport is used for pearls and precious stones • The business environment is needs reform • Laos exports coffee and other natural resources based goods • Sustainability is an issue • Unprocessed 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 Bangladesh • Higher value added products such as machinery and medical instruments are export growth areas

17. CLMV Trade with ChinaIn $US MM China Statistical Yearbook

18. CLMV Labour Competitiveness with China • Wages 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 years • Labour productivity has been rising in China • Between 2003 Chinese manufacturing labour productivity doubled • In Vietnam productivity was stable between 2003 and 2007 • Much 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 technologies • For 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

19. 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 districts • Insufficient infrastructure (such as roads, electricity, irrigation) • Lack of export supporting industries and lack of large business organizations

20. And the Good News* • From the Korean and Japanese perspectives, investment in China is seen as risky • CLMV countries can exploit this by improving the foreign investment climate to attract FDI • These countries must participate in East Asian production networks • Positive impact of SEZs and infrastructure developments • Export oriented industrial policies • FDI stimulating technology transfers • Improving quality of education • AEC and freer movement of goods • Urbanization and growing awareness of need for environmental protection *Ueki, Kagami, Bhongmakaput BRC Research Report 2012 pp9-11

21. 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 industry • These 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

22. GMS Growth Areas Economic 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 Bank • The 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)

23. 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

24. 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.

25. The GMS Structure and Initiatives • GMS economic cooperation began in 1992 with an initiative of the Asian Development Bank • Cooperation was targeted at six sectors • Transport • Telecommunication • Energy • Human Resources • Environment • Trade and investment • Highest priority was given to transportation • Focus 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

26. GMS Corridor Map – East-West

27. GMS Corridors – High Level Source: Chiang Mai University USER 2007

28. 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.

29. SE Asia Trade 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.