China and Myanmar stand to be the most promising destinations for foreign direct investment between now and 2015, according to the "2013 ASEAN-BAC Survey on ASEAN Competitiveness".
The survey was conducted by the ASEAN Business Advisory Council and was released last week, as the bloc pushes on with its efforts to realise the ASEAN Economic Community (AEC) by the end of 2015.
About 17 per cent of businesses that had internationalised - engaged in export or outward foreign direct investment (OFDI) activities - or planned to do so within the three-year 2013-15 period indicated that China was the most attractive in the world for such activities. This was followed by 12 per cent voting for Myanmar.
However, ASEAN as a unit is considered the most attractive, winning votes from 57 per cent of the businesses (Malaysia, 11 per cent; Singapore, 8 per cent; Indonesia, 7 per cent; Brunei, 0.3 per cent; Laos, 4 per cent; Vietnam, 6 per cent; Thailand, 3 per cent; the Philippines, 1 per cent; and Cambodia, 3 per cent.)
ASEAN's attractiveness was also rated higher than China's both as a market for goods and services and as a production location. Close to half of the businesses planned their investments in ASEAN coun-tries over the three years by con-sidering the investment attractiveness of the region as a whole rather than of individual countries in the bloc. This was up from two-fifths in the 2011-12 survey.
Some 94 per cent of businesses planned to invest or raise investment in an ASEAN country over these three years. The main reason for investing in ASEAN countries, as identified by the largest share of businesses, was to "access a new or growing market", which attests to business optimism in growth prospects of this region.
This was followed by "to supply main or leading customers" and "low-cost production facilities".
'ASEAN strategy' becoming popular
"There are growing signs that more businesses are adopting an 'ASEAN strategy' in their approach to expansion, marketing and branding in response to ASEAN's move towards [the] AEC," the report said.
The survey collated 502 usable responses across various firm-size categories, age, ownership profiles and industries from all 10 ASEAN member economies. Another key finding was that the majority of businesses perceived ASEAN economic integration as presenting more of an opportunity rather than a threat.
Investor interest in the ASEAN region also remains strong and more businesses are seeing it as a unit in making their investment decisions.
The survey found that more than half of the businesses considered ASEAN economic integration to pose a low or very low threat to their organisations, rating the threat level at an average of 2.5 on a scale of 1 (very low) to 5 (very high). Close to 60 per cent considered ASEAN economic integration to be providing high or very high opportunity for their organisations, giving the opportunity level an average rating of 3.6 on a scale of 1 (very low) to 5 (very high). However, the survey also noted that a lower share of small or local firms shared this sentiment.
Importantly, the survey found that among the respondents, one-third did not engage in international activities and had no plans to do so over the 2013-15 period. The majority were either small or local firms, and cited reasons such as the intention to focus on the local market, financial constraints and competition from abroad for not internationalising. Businesses that had internationalised tended to be larger, older and having foreign equity ownership. A much higher share engaged in export rather than OFDI activities.
A global mindset of the top manager and a more dynamic industry environment seemed to spur firm internationalisation.
'Simplify, and enhance transparency'
"ASEAN must ensure the timely and effective implementation of measures towards an AEC to spur even more businesses to adopt an ASEAN strategy. In this regard, ASEAN should give priority attention to harmonising, simplifying and enhancing the transparency of rules and regulations in the areas of business registration, investment and customs procedures," the Business Council said.
The region was also urged to strengthen the process of information dissemination and consultation with businesses on AEC initiatives.
"In particular, ASEAN should redouble its efforts to reach out to local small firms - to allay their fear of ASEAN economic integration as a threat to their businesses and alert them to the opportunities from an AEC.
"As local small firms are also more likely not to be engaged in export or OFDI activities at this point in time, ASEAN should step up measures to facilitate their internationalisation by addressing their financial constraints, enhancing their understanding of overseas markets and improving their capabilities. This will enable them to participate fully in the AEC and strengthen AEC's pillar to achieve equitable economic development," ASEAN-BAC said.
The findings and related policy recommendations have been presented to ASEAN leaders and economic ministers by ASEAN-BAC at their annual dialogue and consultation sessions.