Moving Forward With The AEC

EIC | Economic Intelligence Center
Monthly/February 2011
Insight
Moving forward with the AEC
Moving forward with the AEC

What the ASEAN Economic Community (AEC)
really means for businesses in Thailand
The ASEAN Economic Community or AEC will make ASEAN a more interesting place to do business.
The AEC will have an aggregate population of 580 million, more than that in the European Union itself.
Given the low levels of income in many of the ASEAN countries, however, the aggregate size of the economy
in the AEC is not that large, roughly that of just South Korea. This makes it incumbent on businesses to
identify those salient characteristics of ASEAN which should make it of particular interest. For example,
aggregate FDI in ASEAN is quite substantial, and it is a top tourist destination, second only to France.
But what the AEC will achieve in 2015 will still be quite far removed from the European Union (EU)
in terms of achieving a single market. For example, while the AEC has achieved a FTA in the form of the
ASEAN Free Trade Area (AFTA), there are no immediate plans for a customs union (charging the same tariff
on imports from outside the region). Restrictions on investment and labor will remain more significant
than in the EU. Significantly, many of the supranational agencies which will facilitate the emergence of a
true single market (e.g., common central bank, competition authority, and the like in the EU) are all but
absent in the AEC. The AEC has taken a more consensual, intergovernmental approach, with the expected
consequences.
Next up in the AEC is the liberalization of trade in services, investment, labor mobility, and greater
harmonization of rules and regulations. Liberalization of trade in goods under AFTA was completed in
2010. The AEC also makes the usual calls for greater economic cooperation in such areas as SME networking
and joint research.
Businesses in Thailand will confront greater challenges from the AEC as a result of (i) the higher
percentage of ownership by ASEAN investors in services sectors; and (ii) the greater ability of skilled
professionals to move within the region. Ownership limits are raised to 70% for ASEAN investors. The four
priority sectors earmarked for such liberalization in 2010 include ICT, tourism, healthcare, and air transport,
with others to follow in 2013 (logistics) and 2015 (the rest). The immediate impact of higher foreign ownership
may not be that large as ownership levels in many sectors are still below the 49% statutory ceiling. But
higher remuneration of professionals elsewhere in the region-e.g., Malaysia and Singapore-may eventually
mean greater competition for skilled workers in the 7 professions liberalized to date.
With greater challenges come greater opportunities for Thai businesses to expand elsewhere in
ASEAN. Thai businesses will benefit from higher investment ceilings in countries such as Indonesia, Malaysia,
and the Philippines. (Statutory ceilings are already high elsewhere.) Sectors with particularly high EBITDA
margins include retail in Singapore and IT in Malaysia. Despite such greater liberalization of statutory
limits, however, businesses need to be aware that many countries still have in place domestic rules and
regulations (e.g., on minimum investment and modes of investment) which will continue to discriminate
against foreign investment.
Taking full advantage of opportunities from AEC will require Thai businesses to focus on those particular
areas where Thailand has an advantage (our core competencies) and where ASEAN is particularly
distinctive. The AEC will tend to result in a greater concentration of production in the region. But given
the limited size of the aggregate market, it is important to identify specific opportunities from Thailands
and ASEANs unique relative strengths. For example, Thailand has a traditional strength as a food producer.
Demand for halal food has been growing much faster than demand for food overall. With around 270
million Muslims, ASEAN has the largest Muslim population in the world. Taken together, this suggests an
opportunity for Thailand to be a key (if not the key) producer of halal food for the region and beyond.
EIC Economic Intelligence Center
What is the AEC and what
changes will it bring?

The ASEAN Economic Community (AEC) is not merely about trade liberalization, despite frequent
news coverage focusing on tariff reduction agreements among ASEAN Member States as well as
between Thailand and other countries. In fact, the AEC involves the economic integration of ASEAN
countries. It also covers the liberalization and facilitation of capital movement, labor movement, the
harmonization of customs regulations, standards for goods, and economic policies among ASEAN
countries. These factors make the AEC more than just a free trade agreement that Thailand has with
more than 10 countries.
The AEC is one of the three pillars of the ASEAN Community. The other two pillars are the ASEAN PoliticalSecurity Community and the ASEAN Socio-Cultural Community. These components will one day help realize
the grand vision of an integrated and united ASEAN Community, like the European Union.
Integration towards the AEC will make ASEAN more attractive, with a market larger than the EU in
terms of population. ASEAN can play a greater role in the global economy. Despite the moderate size
of the ASEAN economy, it is increasingly an investment and tourist destination. Therefore, the realization
of the AEC will increase ASEANs appeal in many aspects.
Economic Community (AEC)

offers greater opportunities
1 ASEAN
ASEAN Economic Community*
580 million
Europe Union
1.5 trillion USD
South Korea
Population
GDP size
International trade
1.6 trillion USD
FDI
Compare to
50 billion USD
International tourists
65 million persons
6 times Thailand
60% of China
ranked 2nd globally
next to France
* International trade, FDI and international tourists include intra-region figures

Source: SCB EIC analysis based on data from Association of Southeast Asian Nations (ASEAN); China Ministry of Commerce;
United Nations Conference on Trade and Development (UNCTAD); and International Monetary Fund (IMF)
Nevertheless, the completion of the implementation of the AEC Blueprint does not necessarily mean
that the goal of a true, integrated economic community has been realized. It just means that the
AEC Blueprint has been fully implemented. The Blueprint covers four important aspects of the AEC which
are (1) becoming a single market and production base, (2) enhancing regional economic competitiveness,
(3) building equitable economic development, and (4) integration into the global economy. The success
of the integration process will be assessed by its outputs and outcomes, for instance, whether trade
liberalization and tariff reduction have helped bridge price gaps among ASEAN countries; or whether the
facilitation of labor flow has increased labor movement to a level that narrows wage differences.
Full implementation of the AEC Blueprint does not

by itself mean integration has been achieved
ASEAN Economic Community
73.6%
of target achieved
Single market and

production base
Competitive
economic region
Equitable economic
development
Integration with the

global economy
82%
50%
100%
100%
Laying the
foundation for
competition
policy, consumer
protection,
intellectual property
rights, and
ratifying transport
agreements
Studies and
development
of SMEs and
Initiative for ASEAN
Integration Work
Plan 2
Liberalization
and facilitation
of free flow of
goods, services,
investment, skilled
labor, and capital
Entry into force

of Free Trade
Agreements
Source: SCB EIC based on data from Department of Trade Negotiations, Ministry of Commerce
Box: What will happen in 2015?

Changes arising from the AEC will not be abrupt because the Blueprint towards
the AEC has been carried out incrementally, with completion targeted for 2015.
For example, tariff reduction, and the increase of investment ceilings in the Priority
Services Sector to 70% for ASEAN investors have been in force since 2010.
One concrete output of integration towards AEC are the changing rules and
regulations. This includes, for example, an increase of the investment ceiling in the
services sector to 70% for ASEAN investors, less paper work, and easier goods inspection
at checkpoints in ASEAN countries due to harmonized standards. However, in addition
to those agreements, some parts of the AEC consist of terms of cooperation
which may not yield tangible outputs, including networking among SMEs, networking
among ASEAN universities, and promotion of research and technology cooperation
in the field of agricultural products, foods, and forestry. Therefore, economic unity
within ASEAN after the completion of the AEC building process could be evident, or
remain vague in 2015. Many countries still have reservations over parts of the AEC,
such as the preservation of some business areas for their nationals, and the free
movement only of skilled labor.
The AEC in 2015 is unlikely to meet the high expectations of reaching the EU
model. There have been discussions that by 2015 the AEC will transform ASEAN
economies into a single market and production base like the EU, but a number of
different factors affecting the AEC will prevent ASEAN from reaching those goals
within that time-frame.
Features
European Union
ASEAN
1. Becoming a single market

and production base
- Trade in Goods
Internal tariff rate
- reduced to 0%
- reduced to 0%
External tariff rate
- all member countries
- each member country
enforcing the same tariff
enforces its own rate
- Trade in services (share ownership)
- 100%
- 70%
- Movement of labors
- free flow of labors
- free flow of only

skilled labor
2. Other aspects of integration
- Single currency
- National currency
- European Central Bank : ECB
- Intergovernmental
- Supra-national authorities with
method without clear
central organizations such as:
authority over each
European Parliament
member state
European Court
European Legal System
European Competition
Commission
The EU was originally determined to build a supra-national authority. It has authority to make decisions on
behalf of all member countries within its agreed scope of responsibility, and member countries are bound by
these decisions. This supra-national authority has created unity among member countries, and enabled the EU
to move forth more easily while ASEAN is struggling with a slow pace and, in some cases, the impossibility
of moving forward due to its intergovernmental nature, which means that member countries are still holding
their sovereignty above the institution. Consensus is required in stepping forward, yet it is not easily reached.
Although there have been ideas and attempts to develop ASEAN into a supra-national institution, ASEAN
remains short of a concrete plan of action towards such a goal. Moreover, even the EU itself is facing
difficulties in their attempts toward further integration, for instance, from differences in their fiscal policy as
evidenced by the ongoing Eurozone public debt problems. The path towards integration followed by the EU
may not be an easy one.
Much more remains to be done to fully realize the AEC vision. If we look at the
whole process of AEC building, we have completed only one part of it, which is the
reduction of tariffs among ASEAN countries, with the ASEAN Free Trade Agreement
already in force. There are other important components requiring ASEANs collective
effort and time to accomplish. This includes, for example, common external tariffs,
which means a single tariff rate to be enforced in all ASEAN countries with their
trade with external partners. This tends to be very difficult in practice and, in the
end, may result in selective cooperation. For example, it is highly unlikely that
Singapore would increase its tariffs from 0% to a higher rate as might be agreed by
other ASEAN countries. The harmonization of economic policies among all member
countries is another difficult task because so far there are no legal provisions or
regulations binding all member countries. This is a major difference between ASEAN
and the EU.
works left to be carried out

towards realizing the AEC
3 Much
Main types of international economic integration
Free trade area Customs union
Common market Economic union
Removal of
tariffs and
quotas
Common
external
tariffs
Only AFTA
has been
completed
Investment
mobility
Labor
mobility
Harmonization
of economic
policies
Source: SCB EIC analysis based on data from David J. Dennis and Zainal Aznam Yusof (2003) 1
David J. Dennis and Zainal Aznam Yusof (2003), Developing Indicators of ASEAN Integration - A Preliminary Survey for a Roadmap,
final report to REPSF Project 02-001
BOX: Illustrative example of tariff

reduction under AFTA
As one of the steps towards the AEC, every member country is required to cut
their tariffs on all goods from ASEAN to 0%, except for those on their sensitive lists.
Thailand, Singapore, Malaysia, Indonesia, the Philippines, and Brunei have already
eliminated their tariffs since the start of 2010. The rest - Cambodia, Lao PDR,
Myanmar, and Vietnam, will work towards 0% tariffs by 2015. (More details regarding
impacts on goods can be found in Outlook special issue: FTAs.)
In order to assess the positive and negative impacts on businesses, it is not enough
to focus only on AFTA because Thailand has at least 10 FTAs in force with 6 trading
partners beyond ASEAN2. The combined import value of the six trade partners is as
much as USD 53 billion, which is higher than ASEANs.
Therefore, we will analyze tariff reduction on goods by employing a projection
approach to see how every existing FTA and those in the pipeline would affect each
business. For example, canned fruits and vegetables will feel a far greater impact
from tariff reductions on China, the No. 1 source of imports, in 2010, and India, the
No. 2 source of imports, with tariffs falling from 29% in 2010 to around 8% in 2017
than from ASEAN. This will intensify competition in the future.
fruits and vegetables business has to prepare

for more intense competition from 2012 onward
4 Canned
Weighted average import tariff rate of canning and preservation of fruits
and vegetables sector by FTA countries for the period of 2010-2020
Unit: %
ASEAN
China
India
Korea
Japan
Australia
New Zealand
35
30
28.7
25
21.8
20
18.0
15
2020
2019
2018
2017
2016
2010
2.8
0
0
2015
0.2
2014
4.1
2013
7.7
2012
8.4
2011
10
Source: SCB EIC analysis based on data from Revenue Department; Department of Trade Negotiations,
Ministry of Commerce; and Office of National Economic and Social Development Board
Excluding Peru which the agreement will be effective by second quarter, 2011
Liberalization of trade in services is on the way. After trade in goods, freer trade in services will follow
suit and lead to the liberalization of investment and labor mobility within ASEAN. This report focuses
on impacts from freer trade in services. The main topic of interest is an agreement to increase the
percentage of share ownership by ASEAN nationals, as the ceiling of shares held by ASEAN nationals in
most business will be elevated to 70%.
allow ASEAN investor to hold up to 70%

share ownership in services businesses
5 AEC
Schedule of liberalization of ASEAN equity participation in services businesses
2006
2008
2010
49%
51%
70%
49%
51%
49%
51%
2013
2015
Priority Integration Sectors
ICT
Healthcare
Tourism
Air transport
Logistics services
Other services
30%
Source: SCB EIC analysis based on data from ASEAN
10
70%
70%
Impact of the AEC on
services in Thailand
While the ASEAN Agreement on Trade in Goods (ASEAN Free Trade Area: AFTA) is already in force,
liberalization of trade in services, investment, and labor mobility are still on the negotiation table. Services
business thus will be increasingly impacted in the near future. In this paper AEC analysis for the most
part focuses on the impact of agreements on business rather than the role of cooperation within the
AEC framework.
The liberalization of trade in services will affect Thai services primarily in two aspects: (1) an increase
in shares held by foreigners, and (2) freer mobility of the professional workforce that is an important
factor for services businesses. The importance of the latter is underscored by GATs defining the 4th
mode, the temporary movement of natural persons, as a vital component for supplying the services
described in Modes 1-3. (see BOX: the liberalization of trade in services within the AEC)
Services businesses in Thailand will be affected by the elevation of permitted maximum shares held
by ASEAN nationals, including legal consultancy, retail food, packaging services, and hospitality services
because these businesses already have a high proportion of foreign share holding, with an average of
39%. If the ceiling is lifted to 70%, there is a high possibility of encountering further foreign investors. On
the other hand, some services businesses such as retail apparel, commercial printing, and IT services, have
not been popular among foreign investors. The average of foreign equity participation in these businesses
is only 4%, despite a ceiling of 49%.
Current foreign share ownership in services business in Thailand*

Unit: %
53
Current ceiling = 49%
0
Commercial printing
Apparel retail
Restaurants
Distributor
12 10
Home improvement
Environmental services
Publishing
Construction**
Healthcare
Entertainments
Airlines
16 16 15
15 14 14 14
Advertising
Internet services
Air logistics
21 20 19
Educational service**
Department store
Telecommunication
Marine
Broadcasting
30 30 28
26 24
Hotel & resort
Food retail
Paper packaging
35
IT services
44
Legal consultancy**
Food retail, packaging services, and hospitality

services tend to be immensely affected
* Weighted average data of 5 largest listed companies by market capitalization in each sector
** Figures based on data from Business Online PCL as they are non-listed
Source: SCB EIC analysis based on data from SETSMART
11
In fact, foreign investors currently have other channels facilitating greater investment than the AEC. This
could mean that the impact may not be as much as anticipated if foreign investors are already using
other available channels to increase their investment. For instance, investment promotion in some specific
fields by BOI allows a more flexible percentage of shares ownership. Therefore, it is not surprising to
see businesses in some areas owned 100% by foreigners.
Furthermore, impacts on one sector may help others. The education sector is facing more intense
competition from increasing investment by foreigners, but this competition will lead to the development
of students who will compose a quality workforce for other businesses in Thailand.
Another negative impact is a shortage of professional workers due to greater labor mobility in
ASEAN. If we look at the remuneration and cost of living of an accountant, for example, we will find that
remuneration in Singapore and Malaysia is about 3 times higher than in Thailand. This could cause
brain drainage from Thailand, especially to Singapore, which has a decreasing working age population and
the fastest increase of elderly people in ASEAN. It is forecast that the proportion of elderly people in
Singapore will reach 30% in 2025 and 35% in 2050, up from the current 16%. This demographical change
will double their need to import workers.
The impact may not be confined to specific sectors. As pointed out above, differences in the remuneration
of accountants will affect every business, as they all require accounting services. Moreover, a shortage
of critical professionals like physicians and nurses will not only affect the health care business, but also
society as a whole, which could suffer from insufficient medical services.
12
Professional workforce tends to move to

Singapore and Malaysia
Accountant remuneration, purchasing power parity adjusted, 2010*
Unit: USD (PPP) per month
5,000
4,000
3,000
2,000
1,000
0
Singapore
Malaysia
Indonesia
Brunei
Thailand
Vietnam
Lao PDR
* From 2001 accountant salary inflated by headline inflation of each country

Source: SCB EIC analysis based on data from WEO, IMF; Cost of investing and doing business in ASEAN (2001 edition),
ASEAN; and Penn world table
One of the attempts to facilitate labor mobility within the AEC is to develop mutual recognition of
professional accreditation. ASEAN has already concluded Mutual Recognition Agreements (MRA) in 7 fields,
namely engineering, nursing, architecture, surveying, medicine, dentistry, and accountancy3. Professional
workers who are accredited as agreed in the MRAs will be recognized in all member countries, enabling
them to more easily work in any member country.
Despite mutual recognition, labor movement may not be so easy in practice. Many countries still
preserve rules and regulations that may prevent labor mobility from happening. For example, medical
personnel who wish to work in Thailand will have to obtain a license by passing an examination, some
parts of which are in Thai. There are also other obstacles such as differences in language, culture, and
social acceptance.
More details of each MRA could be found from Department of Trade Negotiations, Ministry of Commerce
13
BOX: The liberalization of trade in

services within the AEC
The ASEAN Framework Agreement on Services (AFAS) is implemented along the
same lines as the General Agreements on Trade in Services (GATS), which means
a rather slow process. Instead of employing a negative list approach, GATS uses the
positive list approach in negotiation, which leaves room for countries to prioritize
specific service sections for negotiation. Countries are also entitled to determine
their limitations in terms of minimum quantities and so forth, for each round of
negotiation. Moreover, countries are allowed to choose professions for negotiations
on liberalization of labor movement. The positive list slows down the liberalization
process as it requires many rounds of negotiation, while the negative list approach only
allows member countries to select their exceptions instead of their preferences.
The liberalization of trade in services among ASEAN countries will be GATS-Plus
(additional to that agreed in GATS). Trade in services is categorized into 4 modes
of service supply: (1) cross-border supply, (2) consumption abroad, (3) commercial
presence, and (4) temporary movement of natural persons. AFAS contains rounds of
negotiation where a package of services is to be further liberalized. There will be 11
packages in total, which will be concluded by 2015. The latest concluded package is
the eighth of the series.
Presently, some ASEAN country members of the WTO are likely to protect their services
sector. They have very few agreements on services businesses, especially, professional
services. Singapore, which has the greatest number of agreements on liberalizing
trade in services within GATS compared to other ASEAN countries, has only opened
7 out of 12 service sectors agreed by WTO members in the Uruguay Round, and has
almost no agreements on labor mobility. On the other hand, Vietnam, which has
recently joined the WTO, has significantly opened their trade in services. Vietnams
services sector will be less affected by integration towards the AEC.
14
Business opportunities
arise from the AEC
As businesses in Thailand will be affected, the higher ceiling of foreign shares held by ASEAN members
will provide opportunities for Thai businesses in other ASEAN countries.
Thai businesses will be presented with greater opportunity to increase their investment, especially in
Malaysia, the Philippines, and Indonesia. These countries have so far capped the percentage of foreign
share ownership at 30%, 40% and 49% respectively. The liberalization of trade in services under the AEC
will push the ceiling up to 70% and enhance opportunities for Thai businesses. Singapore, Vietnam, and
Cambodia are already largely open towards foreign investors (at least on paper!).
Thai investors will have greater opportunity for

investment in Malaysia, Indonesia, and Philippines
Average foreign share ownership limit in services businesses in ASEAN countries
70% in 2015
Example of other domestic regulation
Cambodia
100%
Vietnam
100%
Singapore
100%
Indonesia
49%
Thailand
49%
Philippines
Malaysia
40%
30%
One Cambodian director required in

health services
Economic needs test based on criteria
such as no. of existing service suppliers
Not allowed in certain retail operations
Not allowed in some retail operations

Must reserve at least 30% of shelf space
for goods produced by Bumiputera-owned
small and medium size industries
Source: SCB EIC analysis based on data from World Trade Organization (WTO) and Asian Development Bank (ADB)
However, the elevation of foreign investment ceilings may be difficult to enforce. In practice, there
are many other domestic rules and regulations to be complied with by foreign investors. These rules
and regulations will be obstacles or barriers that could impede an increase in foreign investment. The
most frequently raised example is the right of foreigners to own land, which remains prohibited in many
countries, including Thailand. Some countries have found a way out by allowing long-tern rent instead.
Moreover, there are other rules, for example, regarding minimum investment, modes of investment, the
composition of a companys board of directors (which must be local people), economic needs tests, joint
ventures, and technology transfer.
15
Businesses with high profit margins, to some extent, possess potential and could be a good start in
seeking interesting services businesses in ASEAN countries, especially after the agreement on trade in
services under the AEC framework enters into force. In terms of profit, it was found that Malaysia and
Singapore have many services businesses with a high EBITDA margin. According to statistics, Malaysia and
Singapore have the highest average EBITDA margins for 7 and 5 service fields, respectively, out of a total
of 21 fields for services sector companies4.
Business Opportunities in the AEC

are many services businesses with
high EBITDA margin in Malaysia and Singapore
9 There
Services businesses with highest EBITDA margin among ASEAN countries
Malaysia
Singapore
Thailand
Philippines
Indonesia
Vietnam
Advertising
Apparel retail
Healthcare
Educational services
Paper packaging
Hotels and resorts
Commercial printing
Computer and
electronic retail
Metal and glass

container
Leisure facilities
Distributors
Entertainment
Telecommunication
services
Department store
Restaurant
Environmental services
Internet softwares
and services
Food and staples retail
Publishing
IT Services
Marine
Source: SCB EIC analysis based on data from Bloomberg
16
This finding was a result of an analysis of limited data which covers only data of listed companies in stock exchange of each member countries collected from
Bloomberg. They are categorized into each services field according to Global Industry Classification Standard (GICS) by Morgan Stanley Capital International
(MSCI) and Standard & Poors (S&P).
10
EBITDA margin of
some services businesses
Publishing
21%
Malaysia
Indonesia
15%
Philippines
19%
Singapore
10%
7%
Thailand
Vietnam
Distributor Department
store
9%
n/a
9%
39%
19%
25%
4%
n/a
8%
5%
2%
n/a
n/a
4%
11%
5%
IT services
26%
n/a
10%
17%
8%
Computer Internet
retail
software
21%
25%
12%
7%
16%
19%
7%
8%
0%
21%
17%
Food and
staples
retail
22%
n/a
17%
9%
Commercial
printing
n/a
5%
7%
15%
21%
n/a
7%
Source: SCB EIC analysis based on data from Bloomberg
Potentially attractive services businesses in Singapore are those related to trade, such as retail apparel
shops, computer and electronics shops, distributors, and department stores. In Malaysia, IT services and
internet software services tend to make high profits. From the data collected for this analysis, we have
also found interesting trends; for example, in ASEAN, low-cost airlines have almost twice the EBITDA margin
than general commercial airlines; and there is only one human resources services company registered in
an ASEAN stock exchange, and its profit margin is as high as 40%.
17
Sector in Focus: What is the impact of
AEC on the hospital sector?

ASEAN countries attach great importance to the hospital sector as it is one of the four Priority
Integration Sectors. Thailand has an advantage given her international reputation and profitability in
services. Integration towards the AEC will open competition which, on the other hand, also presents a
greater opportunity for Thailand to exercise her existing advantages in seeking more benefits, but the
country will need to find the right opportunities.
The liberalization of the hospital sector under the AEC will significantly affect the sector in Malaysia,
the Philippines, Thailand, and Indonesia because of the elevation of the percentage of foreign shares
ownership of ASEAN nationality to 70%. The hospital sector in Singapore, Vietnam, and Cambodia will
experience a smaller impact as they do not limit foreign shareholding.
opens a window of opportunity for further investment in

healthcare services in Indonesia, Thailand, the Philippines and Malaysia
11 AEC
Current foreign share ownership limit of healthcare services in ASEAN countries
Singapore
100%
Vietnam
100%
Cambodia
100%
Indonesia
67%
Thailand
49%
Philippines
Malaysia
40%
30%
AEC = 70%
Source: SCB EIC analysis based on data from Jutamas and Fink (2007) 5
18
Jutamas Arunanondchai and Fink, Carsten (2007), Trade in Health Services in the ASEAN Region, World Bank Policy Research Working Paper 4147,
March 2007
The hospital sector in Thailand may not feel that much impact from a bigger proportion of foreign
shares because currently there is only an average of 15% foreign share ownership of hospitals in
Thailand. The greatest percentage is 40%, which is lower than the current limit. This could mean that
ASEAN investors had little interest in equity participation up to the limit. Therefore, an increase in the
ceiling may not necessarily result in more investment as the constraint or ceiling on investment is not a
binding one at present. Thus, the opening up to a greater proportion of foreign shares in the hospital
sector may not seriously affect the hospital sector in Thailand.
The more significant impact may come from greater competition for health care professionals. This
is due to the limited number of professional workers in the field of healthcare, especially physicians.
Only Singapore, the Philippines, and Brunei have physicians above the average of lower-middle income
countries. This will affect investment and lead to further social problems such as inequitable access to
medical services because hospitals will bear greater costs in attracting and employing medical personnel.
Medical service fees may increase as a result.
12
Inadequacy of healthcare professional

workforce in ASEAN
Lower-middle income countries
Country
Nursing and
midwifery personnel
Physician
Pharmaceutical
personnel
Unit: per 10,000 population
Singapore
15
Philippines
Brunei
Malaysia
44
12
61
11
61
Vietnam
Myanmar
18
6
1
1
8
10
3
<0.5
Thailand
Lao PDR
10
<0.5
<0.5
Cambodia
Indonesia
14
1
n/a
Source: SCB EIC analysis based on data from World Health Statistics 2010, World Health Organization (WHO)
19
In terms of business growth opportunities, demand for healthcare services in ASEAN look quite positive,
with an increase in the aging population as a major driving factor. The United Nations has forecasted that the
proportion of aging population (people above the age of 60), will jump from 11% in 2010 to 15% in 2025 and 22%
in 2050. Singapore will rank first among ASEAN, with a proportion of 30% in 2025 and 35% in 2050, increasing from
the current ratio of 16%. Thailand will come in second with an increase from the current 12% to 27% by 2050.
for healthcare services in

ASEAN is on an upward trend
13 Demand
Proportion of population aged over 60 in ASEAN countries
Unit: %
Singapore
Thailand
Vietnam
Indonesia
Malaysia
Philippines
Source: SCB EIC analysis based on data from United Nations
Business opportunities for hospitals in ASEAN, Indonesia, the Philippines, Lao PDR, Cambodia, and
Myanmar appear attractive compared with other countries. The ratios of the number of hospital beds
to population in these countries are below the average of lower-middle income countries. They also spend
less on healthcare compared with Malaysia, Singapore, and Thailand.
20
healthcare services are needed in Indonesia,

the Philippines, Lao PDR, Cambodia and Myanmar
14 More
Hospital bed in 2000-2009
Unit: per 10,000 population
753
22
Thailand
136
18
Malaysia
12
Lao PDR
Philippines
58
26
Brunei
Myanmar
1,148
28
Vietnam
Cambodia
Unit: USD at average exchange rate
32
Singapore
Indonesia
Per capita total expenditure

on health in 2007
307
27
Lower-middle
income countries = 18
42
n/a
6
36
7
Lower-middle
income countries = 80
63
Source: SCB EIC analysis based on data from World Health Statistics 2010, WHO
Despite greater opportunities in the hospital sector, businesses will face other barriers, such as domestic
rules and regulations. For example, in Indonesia, foreigners can only invest in hospitals with more than
200 beds and can only work as consultants. The Indonesia government intends to prevent money flowing
out of the country from Indonesian patients using health services abroad. In addition, every hospital
must provide 10% of their total services as third-class services to poor people, in order to enhance their
accessibility to services in quality hospitals. Nonetheless, the hospital sector in Indonesia remains tempting
because of an increase in the number of people in the middle and upper classes, as well as cheap labor.
During 1993-1999, the National Investment Coordinating Board authorized foreign investment in 12 projects
worth about USD 234 million. Most of the investors were Singaporean or Australian.
The Philippines has an advantage in possessing a large number of nurses who can communicate in
English and are qualified by US standards. The number of nurses from the Philippines working abroad
accounts for 25% of the total number of foreign nurses around the world. In the US alone, nurses from
the Philippines account for 83% of total foreign nurses. Their salaries are as high as USD 5,760 a month.
On the contrary, working in the Philippines will earn them only USD 175 a month. This could lead to
difficulty for hospitals in the Philippines as many nurses will flow out of the country.
21
Investment in healthcare services with a focus on cardiology could present a good opportunity in
ASEAN because heart disease, especially, ischaemic and hypertensive heart disease, are among the top
causes of death in ASEAN. Therefore, an investment in the hospital sector in ASEAN with a focus on
cardio centers would attract more attention and will see greater demand.
15
Expertise in cardiology could

render great opportunity
Top five causes of death of ASEAN population

Rank
Thailand
Singapore
Malaysia
Philippines
Indonesia
HIV/AIDS
Ischaemic
heart disease
Ischaemic
heart disease
Lower respiratory
infections
Ischaemic
heart disease
Ischaemic
heart disease
Lower respiratory
infections
Cerebrovascular
disease
Ischaemic
heart disease
Tuberculosis
Cerebrovascular
disease
Cerebrovascular
disease
Lower respiratory
infections
Tuberculosis
Cerebrovascular
disease
Diabetes
mellitus
Trachea, bronchus,
lung cancers
Chronic obstructive
pulmonary disease
Hypertensive
heart disease
Lower respiratory
infections
Road traffic
accidents
Colon and
rectum cancers
Hypertensive
heart disease
Perinatal
conditions
Perinatal
conditions
Source: SCB EIC analysis based on data from World Health Statistics 2010, WHO
In conclusion, the hospital sector in Thailand may not be seriously affected by an enlarged foreign shares
ownership limit for ASEAN nationals. Currently the average level of total foreign share ownership in
hospital business in Thailand is 15%. The largest percentage is 40%, which is lower than the current limit
set forth by law. But the sector could be affected by the inadequacy of needed health care workers
because most of the ASEAN countries, with the exception of Singapore, the Philippines, and Brunei,
have an insufficient number of healthcare workers. Nonetheless, Thailand can exercise her strength and
reputation in healthcare services to extend investment to Indonesia, the Philippines, Lao PDR, Cambodia,
and Myanmar, where there is a positive demand trend, while trying to focus on heart disease as it is at
the top of the mortality lists in ASEAN.
22
How should
businesses adapt?
Full leveraging of core competencies will be key in maximizing benefits from emerging opportunities
in the ASEAN market under AEC.
16
Full leveraging of core

competencies will be a key
4 potential ASEAN
3 trends in AEC
Concentration of production
Non-tradables to tradables
ASEAN expatriate class
market
Intra-region tourism
Biggest Muslim population
Growing middle-income
class
Aging population
Leverage core competency

Example
Healthcare services +
aging population =
real estate for retiree
Hotel management +
ASEAN tourists
Thai brand hotel management
Food processing
muslim
center of halal food
Source: SCB EIC analysis
Thai businesses must step out by using the ASEAN market as a starting point in strengthening
themselves before possible further market integration like ASEAN+3, where we will see even more
intense competition from businesses in China, Japan, and South Korea. We need to start by fully leveraging
and rolling out our core competencies or strengths as well as seeking out opportunities from trends
arising from the AEC and the salient features of the ASEAN market.
23
BOX: What about the sectors where we have

traditionally been strong?
The AEC will bring forth greater opportunities for advantageous and strong Thai
businesses such as the hospitality, automotive and auto-parts manufacturing, and
food processing sectors.
Hospitality and spa sector
The Thai hospitality sector earns more income from foreign tourists for Thailand in
comparison with other ASEAN countries. During the time when tourism was not
affected by the global economic crisis, Thailand made about USD 18 billion from foreign
tourists, 20% higher than second place Malaysia. Thailand also has advantages, as it
has many renowned tourist destinations. Thus, it is likely that Thailand will benefit
from the growing popularity of tourism in Asia. The World Tourism Organization
(UNWTO) forecasts that in the next 10 years, the proportion of tourists travelling
to Asia-Pacific will increase from the current 20% to 27%, while the proportion of
tourists travelling to Europe will drop from 52% to 46%.
ASEAN integration towards a single market will top-up opportunities for the
Thai hospitality sector to earn additional income. For example, the organizing of
package tours throughout ASEAN instead of only in Thailand by networking with
travel agencies in other ASEAN countries or establishing branches abroad. Thailands
reputation will help attract tourists to the country. On top of this, travel agencies
will have an opportunity to advertise and try to sell their package tours to other
ASEAN countries.
Manufacturing sector: food processing and automotive & auto-parts
Food processing and automotive & auto-parts manufacturing tend to receive
bigger benefits arising from comparative advantages in manufacturing and trading.
Thailand holds the largest proportion of exports, with a percentage of 77% in food
processing and 61% in automotive and auto-parts manufacturing. The automotive
and auto-parts industry will especially benefit from Thailand being a big production
base due to infrastructure, knowledge, and labor capacity. This will further push
Thailands benefits in a bigger market with more intense competition, and in future
automotive trends. An obvious example is the growing popularity of eco-cars, of
which investment worth 34 billion baht is planned in Thailand. Indonesia, which is
the second largest automobile manufacturer in ASEAN, is promoting investment in
eco-car manufacturing but has not yet had clear criteria and specification for such
eco-cars. This business in Thailand will have an excellent chance to benefit more
from the integration towards a single market. There is also increasing consumption
in ASEAN, especially in Indonesia and Lao PDR, where food consumption is increasing
as a result of the growing number of middle and high income populations. Demand
for durable goods, including cars, will also increase in parallel.
24
A single market and production base in AEC will likely foster at least three key trends worth
keeping an eye on: (1) the concentration of production to new bases with potential in terms of raw
materials and markets, like the evolution of pick-up truck manufacturing in Thailand, (2) the age of new
service products where non-tradables (services) become more tradable, e.g. organizing wedding events
in Thailand for foreign couples, and (3) the emergence of a new ASEAN expatriate class, resulting from
labor mobility in ASEAN, as exemplified by the increasing number of Singaporean executives in Lao PDR
and Cambodia.
Production will be increasingly concentrated to new bases with market advantages and natural
resources, and can benefit from production networks and regional logistics webs in ASEAN. This is
similar to the expansion of pick-up truck manufacturing in Thailand, which started with their popularity
among Thai people and continuously developed until Thailand became a regional pickup center, benefiting
related businesses. In addition, there may be a natural resource-based advantages. For instance, Indonesia
has ample marine resources, especially, tuna fish and shrimp, and is the biggest overseas fishery. Although
not specialized in food processing, Indonesia intensely promotes foreign direct investment, which attract
many international food processing companies6.
Non-tradables will increasingly become tradable in ASEAN. For example, patients can choose their
hospital in other countries; the retired can decide to live in a place with appropriate services; and
couples from overseas might come to Thailand to have a grand wedding ceremony at a cheaper price.
Thai tourism can build upon these new service products which, in turn, will bring greater competition in
tourism and will lead to the creation of new tourist attractions and recreation developments like Marina
Bay in Singapore. Wedding ceremonies and celebrations by foreign multimillionaires in Thailand, which
have made the news recently, furnish examples of new service products for which borders have been
expanded. Additionally, the hospitality and tourism sectors will benefit from wedding couples and guests
spending extra time in Thailand.
The promotion of and support for the Malaysia My Second Home Program (MM2H) is another example
of a new way of generating income from services for retired people, formerly confined to the domestic
market. The focus has now shifted to an aging foreign population with high purchasing power. This leads
to the development of related businesses, such as real estate and healthcare services. Another example
is Singapores big step beyond her land limitation. She overcomes the limit by investing in schools and
institutions in Thailand as well as developing curriculum in accordance with her standards to accommodate
both local students and Singaporean students in the future.
A new class has emerged from freer labor mobility in countries, especially those that lack skills and
need highly skilled labor. For example, companies investing and locating in Lao PDR, Cambodia, and
Vietnam need executives and managerial expertise from more developed countries like Singapore. This
has created a new class and market with higher purchasing power than locals, as we can see from the
customers of Thailands leading hospitals.
Indonesian law stipulates that 70% of marine creatures caught in Indonesian water must be uploaded at Indonesian ports for distribution or process in
the country. For foreigners, food processing business must be in a form of joint venture with Indonesian nationals. The maximum percentage of foreign
shares held is 80%.
25
While the AEC is facilitating the creation of a single market, businesses should hasten to tap these
new markets in order to establish market share. Emerging opportunities will come form at least
three areas.
1. Behavioral changes in ASEAN. Greater importance is given to childrens education. More time is
spent on vacation. People tend to spend for satisfaction and pleasure over utility. Obvious examples are
the competition in the field of education in Singapore that has policies underscoring human resource
development, and the increasing number of Lao students in Thailand. Regarding time spent on vacation,
intra-ASEAN travelling has grown at an average of 7% per annum during the last 8 years compared to
global travelling, which has only risen an average of 5% a year. In addition, the group of consumers who
are willing to pay for their satisfaction and pleasure has expanded, as we can see from the spawning
of expensive restaurants in many cities.
2. Demographic changes in ASEAN. The working population is on the decrease while the aging population
is increasing. The size of the middle-income class that has a modern lifestyle i.e. using mobile phones,
living in condominiums, and spending most of their time in shopping malls, is growing.
3. Country-specific factors. For example, in Singapore, agricultural fields account for only 3% of the total
land in the country and can only produce 3 kinds of goods which are (1) seafood (fish), (2) eggs and, (3)
vegetables accounting respectively for 4%, 23% and 7% of total consumption. Indonesia has the largest
Muslim population, who composes an important market for Halal food, while the Muslim population in
Malaysia has the third highest purchasing power among Muslim populations, following Saudi Arabia and
Turkey.
Full leveraging and rolling out of core competencies or strengths seems to be a good start to expanding
business in the ASEAN market in the age of the AEC, which will create a critical mass of consumers
in the region that all businesses can access. Each business needs to find its core competencies. For
instance, Thailand has reputation and strength in the area of healthcare services, including hospitals and
personnel. It will be a great opportunity to tap the retired population of ASEAN, of which the proportion
will increase from the current 9% to 12% in the next 10 years. Both Thailand and Malaysia are voted the
top 2 destinations out of 30 to spend post retirement years. We in turn begin to see the development
of real estate aiming at attracting this market both in Bangsaen, Hua Hin, Chiang Mai, and Phuket.
Brand building in Thailands hotel management is another example of expanding business from strengths
and advantages. It will also create more ASEAN brands, in addition to the Red Bull that is the only
ASEAN brand ranked in the world top 100 most valuable global brands 2010 according to Millward
Brown. Regional hotel management brands tend to have an advantage over international brands given
the increase in intra-ASEAN travel. It is forecasted that intra-ASEAN travel will increase at an average of
8% yearly for the next 20 years, while travel between ASEAN and other regions will increase by 6% on
average. Even though international hotel chain brands gain more recognition regarding uniform standards
and excellent customer databases, the increasing number of customers who are willing to pay will be a
good opportunity for Thai brands.
26
The expertise in the food processing sector and being a source of raw materials are advantages for moving
towards becoming a center for Halal food. There are 270 million Muslims in ASEAN. Moreover, the growth
rate of the global trade value of Halal food remains higher than the total food trade. In 2005-2009, the
trade value of Halal food increased by 18.2% annually, higher than total food trade value, which increased
by only 10.4%. Furthermore, the export of Halal food from Thailand is growing, and Thailand is now the
fifth largest exporter of Halal food globally and the first in ASEAN.
From now on, the main difficulties faced by businesses may not necessarily be in finding markets, because
the AEC will help create a critical mass of consumers for many businesses. From traditional service products,
there will be new products which become more tradable. For example, the wedding event organizing
business, which was formerly confined to the domestic market, will now attract foreign clients. The next
step for Thai businesses will be to penetrate markets and businesses in which we are competitive and
can fully leverage our core competencies to be the very first to enter the market and imprint Thai brands
at the ASEAN level to progress further in the global level in the future.
27
Contributors
Vithan Charoenphon
vithan.charoenphon@scb.co.th
(662) 544-2478
Vithan received his BA in economics with honors from Chulalongkorn

University and his MSc Economics from Thammasat University.
Prior to joining Siam Commercial Bank, Vithan has previously held positions
with Ministry of Finance (Fiscal Policy Research Institute) and the Stock
Exchange of Thailand.
Ekasit Kanchanapinyokul
ekasit.kanchanapinyokul@scb.co.th
(662) 544-3085
Metinee Jongsaliswang
Head of Research
metinee.jongsaliswang@scb.co.th
(622) 544-3259
Ekasit received his Bachelor of Economics with honors and MA in International

Economics and Finance (international program) from Chulalongkorn
University.
Metinee received her BA in accounting (international program) with Gold

Medal from Thammasat University and her MBA as Fulbright scholarship
recipient from Kellogg School of Management, Northwestern
University.
Prior to joining Siam Commercial Bank, Metinee has previously held
positions with McKinsey & Company, PricewaterhouseCoopers and the
Stock Exchange of Thailand.
28
SCB Economic Intelligence Center

Sethaput Suthiwart-Narueput
Bunyanuch Niltakoch
Chief Economist
sethaput.suthiwartnarueput@scb.co.th
(662)544-4996
Executive Assistant
bunyanuch.niltakoch@scb.co.th
(662)544-5644
Research
Metinee Jongsaliswang
Ekasit Kanchanapinyokul
metinee.jongsaliswang@scb.co.th
(662)544-3259
ekasit.kanchanapinyokul@scb.co.th
(662)544-3085
Pornthep Jubhandhu
Mantana Lertchaitawee
pornthep.jubandhu@scb.co.th
(662)544-3066
mantana.lertchaitawee@scb.co.th
(662)544-6760
Pranida Syamananda
pranida.syamananda@scb.co.th
(662)544-2705
Paradee Vivatanaprasert
paradee.vivatanaprasert@scb.co.th
(662)544-2475
Vithan Charoenphon
vithan.chareonphon@scb.co.th
(662)544-2478
Witchuda Chummee
witchuda.chummee@scb.co.th
(662)544-1644
Kampon Adireksombat
kampon.adireksombat@scb.co.th
(662)544-1463
Research Networking
Darakorn Pipatanakul
darakorn.pipatanakul@scb.co.th
(662)544-4006
Pinattha Aruntat
pinattha.aruntat@scb.co.th
(662)544-2953
Vipasara Arpaskundait
vipasara.arpaskundait@scb.co.th
(662)544-6566
Jiraporn Kritsadarak
Executive Assistant
jiraporn.kritsadarak@scb.co.th
(662)544-6759
Akarapat Charoenpanich
akarapat.charoenpanich@scb.co.th
(662)544-5602
Disclaimer : The information contained in this report has been obtained from sources believed to be reliable. However, neither we nor any of
our respective affiliates, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or
completeness of any of the information contained in this report, and we and each of such persons expressly disclaims any and all liability
relating to or resulting from the use of this report or such information by the receipt and persons in whatever manner.
Any opinions presented herein represent the subjective views of ours and our current estimated and judgments which are based on various
assumptions that may be subject to change without notice, and may not prove to be correct.
This report is for the recipients information only. It does not represent or constitutes an advice, offer, recommendation, or solicitation by us
and should not be relied as such. We or any of our associates may also have an interest in the companies mentioned herein.
29

Moving Forward With The AEC

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EIC | Economic Intelligence Center

Moving forward with the AEC

EIC Economic Intelligence Center

What is the AEC and what

changes will it bring?

Economic Community (AEC)

1.5 trillion USD

1.6 trillion USD

* International trade, FDI and international tourists include intra-region figures

EIC Economic Intelligence Center

Full implementation of the AEC Blueprint does not

ASEAN Economic Community

Single market and

Integration with the

Entry into force

EIC Economic Intelligence Center

Box: What will happen in 2015?

EIC Economic Intelligence Center

1. Becoming a single market

External tariff rate

- all member countries

- each member country

enforcing the same tariff

enforces its own rate

- Trade in services (share ownership)

- free flow of labors

- free flow of only

2. Other aspects of integration

- European Central Bank : ECB

- Supra-national authorities with

method without clear

central organizations such as:

authority over each

EIC Economic Intelligence Center

works left to be carried out

Common market Economic union

EIC Economic Intelligence Center

BOX: Illustrative example of tariff

fruits and vegetables business has to prepare

EIC Economic Intelligence Center

allow ASEAN investor to hold up to 70%

Priority Integration Sectors

Source: SCB EIC analysis based on data from ASEAN

EIC Economic Intelligence Center

Impact of the AEC on

Current foreign share ownership in services business in Thailand*

Hotel & resort

Food retail, packaging services, and hospitality

EIC Economic Intelligence Center

EIC Economic Intelligence Center

Professional workforce tends to move to

* From 2001 accountant salary inflated by headline inflation of each country

EIC Economic Intelligence Center

BOX: The liberalization of trade in

EIC Economic Intelligence Center

arise from the AEC

Thai investors will have greater opportunity for

Example of other domestic regulation

One Cambodian director required in

Not allowed in certain retail operations

Not allowed in some retail operations

EIC Economic Intelligence Center

Business Opportunities in the AEC