The 10 nations that make up ASEAN agreed back in 1997 to establish the ASEAN Economic Community (AEC) and it was affirmed in Bali in 2003. The preliminary deadline for the creation of the ASEAN Economic Community (AEC) was 2020, however, it has now been brought forward to December 2015. The AEC has four primary goals:
- A single market and production base
- A highly competitive economic region
- A region of equitable economic development
- A region fully integrated into the global economy
The AEC has the potential to be a game changer for ASEAN countries and their economies that are already worth a combined US$2.3 trillion. In fact, although the AEC has yet to be launched, it is already showing progress with trade between ASEAN members growing from 17% in 1990 to 25% in 2011.
However, the AEC also requires the elimination of non tariff barriers and the liberalisation of services. If these barriers are indeed eliminated, the new competitive environment may be a challenge for those Malaysian small and medium sized industries that aren’t on top of their game.
SMEs are responsible for 98.6% of Malaysia’s economic output. As the economic engine room of the country, SMEs are enormously valuable but the AEC means many of those SMEs will have to compete on a level playing field with hungry, aggressive and innovative SMEs from Singapore, Thailand and Indonesia. To compete in the AEC environment, SMEs are going to have to start raising their game now and not after the implementation as it may well be too late by then.
Some industries such as ICT should find it easier to acclimatise to the AEC because ASEAN countries have been working closely to establish a strong presence in the region.
Other industries such as creative content production can use the AEC to its advantage by leveraging the 30% rebates offered by the government for content produced in Malaysia and develop strategic relationships with international firms outside of the AEC. This may also facilitate and increase in foreign investments in the creative industry.
SCORE has attracted global investors from China, Japan, Korea and Singapore and these companies offer major downstream opportunities for related SMEs. And, crucially for Sarawakian SMEs, these global conglomerates are eager to build business partnerships with the right SMEs in Sarawak.
Corporations and SMEs need each more than ever, especially in a location such as Sarawak with its small population scattered over a large area. SCORE provides an unprecedented opportunity for local SMEs to benefit from investment and development in the corridor.
The AEC will change the dynamics of doing business in ASEAN. SMEs in SCORE must look to building partnerships with larger companies now, before the onset of the AEC.