Waking up to the neighbours

Waking up to the neighbours

CLMV economies are growing rapidly while Thailand stalls, but by working more closely together they could all prosper.

Thailand's drive to become a leading economy in Asean has stalled, with internal and external factors cutting economic growth to 1% or less in 2014, well below the Asean average of around 5.3%.

While Thailand struggles, investors are increasingly turning their attention to the CLMV countries — Cambodia, Laos, Myanmar and Vietnam — where they see political stability, low labour costs and ample natural resources. The result has been a dramatic upturn in foreign direct investment (FDI), especially in manufacturing, in countries that were regarded as economic basket cases not that long ago.

Gross domestic product (GDP) growth in the CLMV countries has averaged 6-7% annually for the past few years and could tick upward to 10%, say senior executives from Thailand's largest agribusiness conglomerate, Charoen Pokphand Group (CP).

However, the rise of the neighbours offers Thailand a great opportunity to reap sustained benefits by embracing a "CLMV+Thailand" strategy to promote collaboration and mutual development, says Boonkiat Cheewatragoongit, senior vice-president for corporate strategy and business development with CP.

Such a strategy would enhance the competitiveness of the five "mainland Asean" countries with 220 million people and combined GDP of $660 billion, and opportunities to develop a smooth logistics system because of proximity to China and India.

"The CLMV countries have lower potential than others in Southeast Asia. To compete with larger economies, they must support each other," said Mr Boonkiat.

"Thailand and the CLMV countries should join hands to develop a collaborative growth strategy. The grouping could represent a smaller collaboration within the bigger Asean and Thailand could be the leader."

Tourism is one particularly promising area, in his view. "Each country shares the same resources like the Mekong River and some mountainous areas, as well as culture and religion. They also share similar consumption behaviour, especially the rice culture and other characteristics," said Mr Boonkiat.

"There are many worthwhile opportunities for Thai companies to tap into the CLMV markets. Many Thai products are already favourably accepted because of their quality, pricing and hygienic standards. CP processed food products are doing very well in Myanmar where hygienic concerns have yet to emerge."

CP Group, led by billionaire Dhanin Chearavanont, was the first movers in the CLMV countries, starting with animal feed production, chicken and pork farms, food processing and retailing. The company also aims to double its sales in the CLMV group over the next five years.

Mr Boonkiat acknowledged that there was still a big development gap between Thailand and the CLMV countries, which could learn from the experience of their more prosperous neighbour. "Thailand stands out from the rest of the group because it was the first to have liberalised its market. Therefore, it can play a leading role and be an example for other countries," he said.

However, Thailand has lost opportunities because of years of political strife, compounded by natural disasters such as the 2011 floods. The country's population is ageing, industrial development has stalled because few businesses are ready to move to the next level, and expansion of agriculture faces limitations.

Consequently, the CLMV countries could serve as a platform for Thai businesses, especially small and medium-sized enterprises, to expand and help Thailand lift its profile in Southeast Asia. But Thailand and its businesses need to act now to secure first-mover advantage.

OPPORTUNITIES ABOUND

"In the coming years, the CLMV countries will undergo a substantial change in all social, economic and perhaps political aspects," said Assoc Prof Dr Sompop Manarungsan, president of the Panyapiwat Institute of Management. "The middle-income class will be expanding and consumption will be increasing. Lifestyles are changing and there are ample opportunities for the Thai private sector in the CLMV markets."

He outlined nine elements of the transformation that is occurring in the CLMV countries and others like them around the world. The first is what he calls the "motorcycle revolution", signifying the birth of a consumer class.

Second, the traditional retail trade evolves while modern-trade operators move in, starting with convenience stores. Third, home electrical appliances and consumer electronics become widely used, but as he cautioned: "In some countries, electricity distribution is still unreliable."

Fourth, demand emerges for more modern consumer products, fed in part by migrant workers who have worked in places like Thailand and are returning home. Mr Sompop said the CLMV countries had yet to develop sufficient capabilities to produce their own products, so opportunity abounds for Thai brands that already have a solid foundation in those countries.

"Thailand can be the centre of the supply chain, as well as a centre of research and development (R&D) and centre for the service industry. It has to move toward an outside-in policy and position itself as the gateway of Asean, attracting foreign investment from Korea, Taiwan, Japan and China," he said.

The fifth notable change in the CLMV group is the transformation of the agricultural sector which will become more machine-intensive. "Agricultural areas will definitely expand," he said. "Myanmar, for instance, has 130 million rai of unspoiled farming areas, compared to Thailand with 150 million rai that is fully cultivated."

He added that Myanmar was still a subsistence economy for many, but opportunities exist for Thai companies to introduce agribusiness and market economy principles to develop value-added agricultural products.

Sixth, an import substitute industry starts to grow as CLMV countries foster labour-intensive industries to reduce unemployment. Seventh, construction booms, especially for physical infrastructure which needs a massive overhaul.

Eighth, urbanisation climbs and with it a new consumer lifestyle, as well as higher purchasing power. The last major transformation, Mr Sompop said, would be more interaction and trade across borders. Thus, industrial and special economic zones should be in place to meet the demand when the Asean single market officially starts at the end of 2015.

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