ASEAN

Competitiveness
20
Report 10

ASEAN Competitiveness Report 2010

Foreword by
Michael E. Porter
Professor
Harvard Business School

Marn-Heong Wong
Rakhi Shankar
Ruby Toh
Photography by Anthon Kiong

LEE KUAN YEW SCHOOL OF PUBLIC POLICY Christian Ketels

NATIONAL UNIVERSITY OF SINGAPORE
469C Bukit Timah Road, Oei Tiong Ham Building
Special Advisor
Singapore 259772

www.lkyspp.nus.edu.sg/ACI
ASEAN
Competitiveness
20
Report 10

Foreword by
Michael E. Porter
Professor
Harvard Business School

Marn-Heong Wong
Rakhi Shankar
Ruby Toh

Christian Ketels
Special Advisor

ASEAN COMPETITIVENESS REPORT

© Asia Competitiveness Institute 2011
ISBN: 978-981-08-8429-1
This work is subject to copyright. The work may be reproduced in whole or in part for study or training purposes, subject to
the inclusion of an acknowledgement of the source.

ASIA COMPETITIVENESS INSTITUTE

The Asia Competitiveness Institute (ACI) is a research centre in the Lee Kuan Yew School of Public Policy, National
University of Singapore. ACI aims to become a thought leader on competitiveness in Asia and in doing so influence regional
policy-making in this area with the ultimate objective of raising living standards through productivity-driven economic
growth. More information on ACI can be obtained from http://www.spp.nus.edu.sg/ACI/home.aspx
An appropriate citation for this Report is:
Wong, M-H., Shankar, R. and Toh, R., 2011. ASEAN Competitiveness Report 2010, Singapore: Asia Competitiveness
Institute.

ACKNOWLEDGEMENTS
This Report was prepared by a research team led by Dr Marn-Heong Wong, Assistant Professor at the Lee Kuan Yew School
of Public Policy (LKYSPP), National University of Singapore. Dr Christian Ketels, Special Advisor to the ACI and a member
of the Harvard Business School faculty at Professor Michael E. Porter’s Institute for Strategy and Competitiveness, provided
invaluable input on the analytical structure of the Report. The research input and support provided by Ng Kwan Kee and
Kiran Safwan Malik of the ACI and LKYSPP at various stages of the project is gratefully acknowledged. We would also like
to thank Anthon Kiong for providing the photo on the cover of the Report.
All views and opinions in this Report remain the sole responsibility of the authors.

ii ASIA COMPETITIVENESS INSTITUTE

ASEAN
Competitiveness
20
Report 10
FOREWORD
The Asia Competitiveness Institute (ACI) was created to provide policy-relevant analysis and recommendations on competitiveness in
Singapore and the ASEAN region, drawn on rich data and a comprehensive competitiveness framework. The ASEAN Competitiveness
Report, following studies on Singapore (2009) and Vietnam (2010), is another important milestone in realizing this vision. On behalf of
ACI’s International Advisory Panel, I would like to congratulate the ACI team for this important piece of work.

Covering a region of ten countries ranging from poor, landlocked Laos to rich, island city Singapore, the ASEAN Competitiveness Report
highlights the importance of regions, or groups of neighboring countries, to competitiveness and economic prosperity at the national
level. Regions are important because neighbors are a nation’s most natural trading and investment partners. The region provides accessible
markets for local firms, especially important for those with limited international experience. Economic development and prosperity
can be greatly enhanced by a healthy neighborhood. National productivity can be greatly enhanced through regional coordination of
economic policies. Neighbors almost inevitably affect a country’s reputation and image. Regional economic integration makes all nations
more attractive as locations for FDI, and helps countries to gain greater weight in international relations.

The ASEAN Competitiveness Report highlights the challenging position that ASEAN finds itself in in 2011. Following the traumatic
experience of the Asian financial crisis, the region is now faced with a large and increasingly powerful Chinese economy in the North
and a huge Indian economy in the West also making rapid progress. ASEAN has stabilized its position and proven to be quite resilient
in the face of the recent global crisis, despite its high dependency on exports. But the region will ultimately need to define its role and
competitive strengths at the crossroads of these two emerging economic giants.

The Report explores how regional collaboration across the heterogeneous set of ASEAN members can help individual countries to address
these challenges. ASEAN can share policy knowledge and spur improvement in areas like capital market infrastructure, human resource
development, rule of law, cluster development, and indigenous enterprise development. These are areas where many ASEAN members are
suffering from weaknesses but can benefit from some countries that are leaders. ASEAN can enable the strengthening of linkages among
related clusters across the region. In clusters such as information technology, there are elements of an “ASEAN production system,” i.e., a
set of related clusters in the region that cover different parts of the value chain. In macroeconomic policy, ASEAN has already made some
steps towards better policy cooperation through the Chiang Mai initiative covering multilateral currency swaps.

In the ASEAN Charter and the plans for an ASEAN Community, the region has outlined ambitious goals. The recommendations
contained in this Report are fully consistent with this vision, while offering specific steps for moving forward. However, the Report also
highlights the need for ASEAN to be strengthened as an institution in order to have sufficient weight and influence to move from vision
to action. Collective action, especially among a group of disparate countries, only occurs if there is strong political will and sufficient
institutional capacity to make change happen.

Our ambition at ACI is to provide government and private sector leaders with objective data and powerful analysis to enable more
informed policy decisions. Whether or not leaders agree with every conclusion or recommendation, my hope is that this first ASEAN
Competitiveness Report will achieve this purpose. This Report will become a central part of ACI’s portfolio of activities. We would
welcome the guidance, support, and collaboration of the private sector, universities, and government from throughout the region in
advancing this agenda.

Michael E. Porter
Bishop William Lawrence University Professor, Harvard Business School
Chair of the International Advisory Panel, Asia Competitiveness Institute

ASEAN COMPETITIVENESS REPORT iii

iv ASIA COMPETITIVENESS INSTITUTE
ASEAN
Competitiveness
20
Report 10
KEY MESSAGES
• ASEAN is facing profound changes in the global economic climate with the rise of China and India and weakened
economic prospects in major advanced countries. It is also entering a new phase in its cooperation as members move
towards building an ASEAN Community by 2015.
• ASEAN economies have weathered the global crisis well, but a longer-term competitiveness review highlights the need
and scope to substantially raise competitiveness across ASEAN economies and for ASEAN as a whole.
• ASEAN’s current prosperity or GDP per capita, which is the outcome of past competitiveness, is behind that of China
and much lower than that of world leaders. Its shares of world exports and inward foreign direct investment flows have
either fallen or stagnated over the last decade.
• ASEAN’s ranking on competitiveness fundamentals, as measured by a wide range of macroeconomic and microeconomic
factors, is 57 of 132 countries in 2010. This position has remained relatively unchanged over the last five years.
• While the priority issues that each country has to address to raise national competitiveness may differ, this Report has
shown that there is much ground for policy learning and action at the regional level.
• Collectively, it is imperative for ASEAN to achieve deeper integration in a timely manner to generate new sources of
growth and reduce its reliance on traditional export markets in major advanced economies. At the same time, ASEAN
should expand its cooperation with external partners, in particular China and India, to tap opportunities offered by their
rapid growth.
• ASEAN can extract greater gains from its integration efforts by adopting an integrated, multi-pronged ASEAN
Competitiveness Agenda that focuses on areas where collaboration creates direct benefits for participants.
• To create an attractive environment for local and foreign businesses, it is recommended that ASEAN builds on its
relative strengths to intensify cluster development, strengthen capital market infrastructure, nurture local enterprises
and step up macroeconomic policy dialogue. ASEAN also needs to urgently address its main weaknesses by promoting
administrative regulatory reforms, enhancing human resource development and strengthening the rule of law.
• For ASEAN to successfully move from vision to action, its institutional mechanisms and capacity have to be strengthened
to enable both the ASEAN Secretariat and member economies to effectively fulfill the tasks required. The political will
to adhere to the blueprints for action is also paramount.

ASEAN COMPETITIVENESS REPORT v


ABBREVIATIONS CEP
ASEAN-Australia-New
AANZFTA
Zealand Free Trade Area
Asia Competitiveness
ACI
Institute
ASEAN Comprehensive
ACIA
Investment Agreement
ADB Asian Development Bank
Comprehensive Economic
Partnership
Comprehensive Economic
CEPEA
Partnership for East Asia
Common Effective
CEPT
Preferential Tariff
Cambodia, Laos, Myanmar
CLMV
and Vietnam
Chiang Mai Initiative
CMIM
Multilateralization
CPF Central Provident Fund
DB Doing Business
EAFTA East Asian Free Trade Area

Asian Development Bank EAS East Asia Summit

ADBI
Institute
Economist Intelligence
ASEAN Economic EIU
AEC Unit
Community
EU European Union
ASEAN Economic
AEM
Ministers FDI Foreign Direct Investment
ASEAN Framework
AFAS FTA Free Trade Agreement
Agreement on Services
AFTA ASEAN Free Trade Area Global Competitiveness
GCI
Index
AIA ASEAN Investment Area Gender-related
GDI
ASEAN Infrastructure Development Index
AIF
Fund GDP Gross Domestic Product
ASEAN+3
AMRO Macroeconomic Research Gender Empowerment
GEM
Office Measure
Association of Southeast GNI Gross National Income
ASEAN
Asian Nations
Human Development
Indonesia, Malaysia, HDI
Index
ASEAN-6 Philippines, Singapore,
Information and
Thailand and Brunei
ICT Communications
ASEAN, China, Japan, Technology
ASEAN+3
South Korea
International Monetary
ASEAN, China, Japan, IMF
Fund
ASEAN+6 South Korea, India,
Australia, New Zealand IT Information Technology
ASEAN Business Advisory Logistics Performance
ASEAN-BAC LPI
Council Index
ASEAN Institute of North American Free
NAFTA
ASEAN-ISIS Strategic and International Trade Agreement
Studies
NSW National Single Window
ASW ASEAN Single Window
PPP Purchasing Power Parity
ASEAN Trade in Goods
ATIGA
Agreement R&D Research and Development
BOP Balance of Payments
ROO Rules of Origin
Compound Annual
CAGR Social Infrastructure and
Growth Rate SIPI
Political Institutions

vi ASIA COMPETITIVENESS INSTITUTE

 Small and Medium
SME
Enterprise
UN United Nations
United Nations
UNCTAD Conference on Trade and
Development
United Nations
UNDP
Development Program
United Nations
UNESCO Educational, Scientific and
Cultural Organization
World Institute for
Development Economics
UNU-WIDER
Research of the United
Nations University
US United States
US Patent and Trademark
USPTO
Office
WB World Bank
World Development
WDI
Indicators
WEF World Economic Forum
Worldwide Governance
WGI
Indicators
World Health
WHO
Organization
WTO World Trade Organization

ASEAN COMPETITIVENESS REPORT vii

Contents
Foreword ........................................................................................................................................................................................... iii
Key Messages ................................................................................................................................................................................... v
Abbreviations .................................................................................................................................................................................. vi
Executive Summary ....................................................................................................................................................................... xiv

Chapter 1: Introduction
ASEAN’s Competitiveness Challenges ........................................................................................................................................ 2
Conceptual Approach of the Report ............................................................................................................................................ 3
Report Outline ................................................................................................................................................................................. 4

Chapter 2: Context for Regional Cooperation

Macroeconomic Environment ....................................................................................................................................................... 8
ASEAN .......................................................................................................................................................................................... 8
Recent Macroeconomic Performance ........................................................................................................................................ 8
Macroeconomic Policies and Growth Prospects ....................................................................................................................... 12
The Global Context ...................................................................................................................................................................... 14
Global Economic Outlook .......................................................................................................................................................... 14
Global Rebalancing .................................................................................................................................................................... 15
ASEAN’s Trade and Investment Linkages ............................................................................................................................. 15
ASEAN Cooperation Model .......................................................................................................................................................... 16
Towards an ASEAN Economic Community .......................................................................................................................... 17
Trade and Investment Liberalization and Facilitation ................................................................................................. 18
Enhancing ASEAN Connectivity ................................................................................................................................. 19
ASEAN’s Engagement with Stakeholders .................................................................................................................... 20
ASEAN-plus Initiatives .................................................................................................................................................. 20
Trade and Investment Agreements ................................................................................................................................ 20
Financial Cooperation .................................................................................................................................................. 21
Institutional Framework for Collaboration ................................................................................................................... 22
Summary ............................................................................................................................................................................. 23

Chapter 3: Competitiveness Performance of ASEAN

Profile of the ASEAN Region ......................................................................................................................................................... 28
Competitiveness Performance ........................................................................................................................................................ 30
Standard of Living ............................................................................................................................,,,,,,,,,,,,,,............................. 30
Prosperity .................................................................................................................................................................................... 30
Distribution of Prosperity .......................................................................................................................................................... 31
Quality of Life ............................................................................................................................................................................ 32
The Elements of Prosperity ......................................................................................................................................................... 33
Labor Productivity .................................................................................................................................................................. 34
Labor Mobilization ................................................................................................................................................................ 34
Purchasing Power ....................................................................................................................................................................... 35

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Contents (continued)
Intermediate Economic Outcomes ............................................................................................................................................... 36
Exports ........................................................................................................................................................................................... 36
Exports by Clusters .................................................................................................................................................................... 37
Investments ................................................................................................................................................................................... 38
Domestic Gross Fixed Capital Investment .............................................................................................................................. 39
Inward Foreign Direct Investment .......................................................................................................................................... 40
Outward Foreign Direct Investment ....................................................................................................................................... 42
Innovation ..................................................................................................................................................................................... 43
Entrepreneurship .......................................................................................................................................................................... 44
Summary ........................................................................................................................................................................................... 45

Chapter 4: ASEAN Competitiveness Fundamentals

Regional Competitiveness ………………………..……………………………………………...................................................................... 50
Macroeconomic Competitiveness ............................................................................................................................................. 50
Microeconomic Competitiveness .............................................................................................................................................. 51
National Competitiveness across ASEAN Countries ............................................................................................................... 58
Brunei ............................................................................................................................................................................................. 58
Cambodia ...................................................................................................................................................................................... 59
Indonesia ........................................................................................................................................................................................ 60
Malaysia ......................................................................................................................................................................................... 61
Philippines ..................................................................................................................................................................................... 63
Singapore ....................................................................................................................................................................................... 64
Thailand ......................................................................................................................................................................................... 65
Vietnam ......................................................................................................................................................................................... 66
Analysis with Additional Competitiveness Indicators .............................................................................................................. 69
Summary ........................................................................................................................................................................................... 73

Chapter 5: Assessment and Policy Recommendations

Key Challenges in a Changing Global Context .......................................................................................................................... 78
ASEAN’s Competitiveness Performance ..................................................................................................................................... 78
ASEAN’s Competitiveness Fundamentals .................................................................................................................................. 80
Main Areas of Strengths and Weaknesses ................................................................................................................................ 80
Strengths ..................................................................................................................................................................................... 80
Weaknesses .................................................................................................................................................................................. 81
Prosperity and Competitiveness Fundamentals ...................................................................................................................... 82
ASEAN, China and India .......................................................................................................................................................... 82
Towards an ASEAN Competitiveness Agenda .......................................................................................................................... 83
Building on Strengths .................................................................................................................................................................. 84
Addressing Weaknesses ............................................................................................................................................................... 85
Strengthening Implementation ..................................................................................................................................................... 86
Conclusion ........................................................................................................................................................................................ 86

ASEAN COMPETITIVENESS REPORT ix

Boxes
Box 4.1 ASEAN-China-India ................................................................................................................................... 55
Box 4.2 Laos and Myanmar ....................................................................................................................................... 68
Box 4.3 Economic Freedom in ASEAN .................................................................................................................. 69
Box 4.4 Ease of Doing Business in ASEAN ............................................................................................................ 71
Box 4.5 Logistical Performance in ASEAN ............................................................................................................ 72

Figures
Figure A Competitiveness Profile of ASEAN Region 2010 ...................................................................................... xvii
Figure 1.1 Competitiveness Framework: Foundations of Prosperity ......................................................................... 3
Figure 2.1 Quarterly Real GDP Growth, ASEAN Countries ..................................................................................... 9
Figure 2.2 Annual Real GDP Growth, ASEAN Countries .......................................................................................... 9
Figure 2.3 Quarterly Merchandise Exports Growth, ASEAN Countries ................................................................. 10
Figure 2.4 Unemployment Rates, ASEAN Countries .................................................................................................. 10
Figure 2.5 Consumer Prices, ASEAN Countries .......................................................................................................... 11
Figure 2.6 Current Account Balances, ASEAN Countries ......................................................................................... 11
Figure 2.7 Exchange Rates, ASEAN Countries ............................................................................................................ 12
Figure 2.8 Policy Rates, ASEAN Countries ................................................................................................................... 13
Figure 2.9 Fiscal Balances, ASEAN Countries ............................................................................................................... 13
Figure 2.10 GDP Growth Forecasts, ASEAN Countries .............................................................................................. 14
Figure 2.11 GDP Growth Rates, Selected Countries/Regions ...................................................................................... 14
Figure 2.12 World Current Account Balances .................................................................................................................. 15
Figure 2.13 Share of ASEAN Exports to Selected Countries/Regions ....................................................................... 16
Figure 2.14 Share of ASEAN Imports from Selected Countries/Regions ................................................................. 16
Figure 2.15 Share of ASEAN FDI Inflows from Selected Countries/Regions .......................................................... 17
Figure 3.1 ASEAN Endowments: Natural Resources .................................................................................................. 28
Figure 3.2 ASEAN Heterogeneity: Ethnicity ................................................................................................................ 29
Figure 3.3 Trends in Prosperity Growth, ASEAN and Selected Countries .......................................................... 30
Figure 3.4 Prosperity Level and Growth, ASEAN and Selected Countries .......................................................... 30
Figure 3.5 GNI Per Capita in 2009, ASEAN Countries, China and India .......................................................... 31
Figure 3.6 Income Inequality, ASEAN Countries, China and India ..................................................................... 32
Figure 3.7 Poverty Rates, ASEAN Countries, China and India ............................................................................. 32
Figure 3.8 Human Development Index, ASEAN Countries, China and India ................................................... 33
Figure 3.9 Gender-related Indices, ASEAN Countries, China and India ............................................................ 33
Figure 3.10 Trends in Labor Productivity, ASEAN and Selected Countries ........................................................ 34
Figure 3.11 Labor Productivity Level and Growth, ASEAN and Selected Countries ......................................... 34
Figure 3.12 Labor Force Participation Rates, ASEAN and Selected Countries ..................................................... 35
Figure 3.13 Labor Force Participation Rates, ASEAN countries ............................................................................. 35
Figure 3.14 Price Comparisons, ASEAN and Selected Countries ............................................................................. 36
Figure 3.15 World Export Market Shares, ASEAN ..................................................................................................... 37
Figure 3.16 World Export Market Shares, ASEAN and Selected Countries ........................................................... 37
Figure 3.17 World Export Market Shares, ASEAN Countries .................................................................................. 38
Figure 3.18 Exports by Clusters, ASEAN Countries ................................................................................................... 38
Figure 3.19 Domestic Investment, ASEAN and Selected Countries ........................................................................ 39
Figure 3.20 Domestic Investment, ASEAN Countries ................................................................................................ 39
Figure 3.21 FDI Inward Stock, ASEAN and Selected Countries .............................................................................. 40
Figure 3.22 World Share in FDI Inflows, ASEAN and Selected Countries ............................................................. 40
Figure 3.23 Inward FDI Performance Index, ASEAN and Selected Countries ...................................................... 41

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Figures (continued)
Figure 3.24 Share of FDI Inflows in ASEAN by Country, Selected Years ............................................................... 41
Figure 3.25 FDI Outward Stock, ASEAN and Selected Countries .......................................................................... 42
Figure 3.26 World Share in FDI Outflows, ASEAN and Selected Countries ......................................................... 42
Figure 3.27 Outward FDI Performance Index, ASEAN and Selected Countries .................................................. 43
Figure 3.28 Share of Outward FDI Flows from ASEAN by Country, Selected Years ............................................ 43
Figure 3.29 Patent Filings with USPTO, ASEAN and Selected Countries ............................................................ 44
Figure 3.30 Number and Growth of Patent Filings with USPTO, ASEAN and Selected Countries ................. 45
Figure 3.31 Number and Growth of Registered Businesses, ASEAN and Selected Countries ............................ 45
Number and Growth of New Registered Businesses to Total Registered Businesses, ASEAN and
Figure 3.32
Selected Countries ........................................................................................................................................ 46
Figure 4.1 Competitiveness Profile of ASEAN Region 2010 ................................................................................... 51
Figure 4.2 Clusters in ASEAN ...................................................................................................................................... 53
Figure 4.3 Competitiveness of ASEAN-China-India ................................................................................................ 55
Figure 4.4 Competitiveness Profile of Brunei 2010 .................................................................................................... 58
Figure 4.5 Competitiveness Profile of Cambodia 2010 ............................................................................................. 60
Figure 4.6 Competitiveness Profile of Indonesia 2010 .............................................................................................. 61
Figure 4.7 Competitiveness Profile of Malaysia 2010 ................................................................................................ 62
Figure 4.8 Competitiveness Profile of Philippines 2010 ............................................................................................ 63
Figure 4.9 Competitiveness Profile of Singapore 2010 .............................................................................................. 64
Figure 4.10 Competitiveness Profile of Thailand 2010 ................................................................................................ 65
Figure 4.11 Competitiveness Profile of Vietnam 2009 ................................................................................................ 67
Figure 4.12 Economic Freedom in ASEAN Region ..................................................................................................... 70
Figure 4.13 Doing Business Index for ASEAN Region ............................................................................................... 71
Figure 4.14 Logistics Performance Index for ASEAN Region .................................................................................... 73
Figure 5.1 Microeconomic and Macroeconomic Competitiveness across ASEAN Countries .......................... 80
Figure 5.2 “Competitiveness Gap”: Difference in GDP Per Capita and New GCI Rankings ............................ 83
Figure 5.3 ASEAN Competitiveness Agenda ............................................................................................................. 84

Tables
Table A Top-Three Areas of Relative Strength within Each ASEAN Country ................................................... xviii
Table B Top-Three Areas of Relative Weakness within Each ASEAN Country ................................................. xviii
Table 2.1 CMIM Contribution Ratio ........................................................................................................................ 22
Table 3.1 Changes in Income Classification of ASEAN Countries, 1990-2009 ................................................ 31
Table 4.1 Company Sophistication in ASEAN ........................................................................................................ 52
Table 4.2 National Business Environment in ASEAN: Supporting and Related Industries ............................ 52
Table 4.3 National Business Environment in ASEAN: Context for Strategy and Rivalry ............................... 53
Table 4.4 National Business Environment in ASEAN: Demand Conditions .................................................... 54
Table 4.5 National Business Environment in ASEAN: Factor Input Conditions ............................................. 54
Table 4.6 Top-Five Relative Strengths of ASEAN-China-India ............................................................................ 56
Table 4.7 Top-Five Relative Weaknesses of ASEAN-China-India ........................................................................ 57
Table 4.8 Selected Comparative Competitiveness Indicators for Laos and Myanmar ....................................... 68
Table 4.9 Index of Economic Freedom, ASEAN Countries.................................................................................... 70
Table 4.10 Doing Business Index, ASEAN Countries ............................................................................................... 71
Table 4.11 Logistics Performance Index, ASEAN Countries ................................................................................... 73
Table 5.1 Top-Three Areas of Relative Strength, ASEAN and Member Countries .............................................. 81
Table 5.2 Top-Three Areas of Relative Weakness, ASEAN and Member Countries ............................................ 81

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10

Executive
Summary

ASEAN COMPETITIVENESS REPORT xiii


EXECUTIVE
SUMMARY
The Association of Southeast Asian Nations (ASEAN) is
facing profound changes in the global economic climate as
well as undergoing a new phase in its development towards
deeper integration. The global economic environment post-
2008 crisis is characterized by weakened economic prospects
in major advanced countries and the growing economic
might of China and India.
From five countries coming together to form an association
in 1967 primarily to promote peace and stability in the
Southeast Asian region, ASEAN has morphed 43 years later
into a ten-member organization with a legal personality with
the signing of the ASEAN Charter in 2007. Despite the
diversity that remains among members in levels of economic
development, culture, ethnicity and language, ASEAN has
ambitious plans to form an ASEAN Community that is
politically cohesive, economically integrated and socially
responsible by 2015.
What do these economic and institutional changes imply
for ASEAN’s medium-term competitiveness? What can
ASEAN members do collectively and individually to
address key challenges?
The ASEAN Competitiveness Report 2010 is the inaugural
assessment of the region’s competitiveness by the Asia
Competitiveness Institute (ACI) at the Lee Kuan Yew
School of Public Policy, National University of Singapore.
The Report casts into perspective the dynamics of economic
conditions and institutional developments as well as
the longer-term economic performance of ASEAN and
examines the fundamental competitiveness of the region.
The competitiveness analysis is organized based on the
conceptual framework developed by Professor Michael
Porter of the Harvard Business School and Chairman of
ACI’s International Advisory Panel. In recognition of both
the varying circumstances across ASEAN economies and
ASEAN’s resolve to seek unity in diversity, the analysis is
conducted at two levels – overall ASEAN and by individual
ASEAN country. The Report seeks to explore ASEAN’s
global competitiveness position if it were a single economic
entity. It also reviews the competitiveness of each member
country to identify areas of strengths and weaknesses that
prevail across more of the ASEAN countries that are well
suited for policy sharing and common policy action at
the regional level. The Report aims to offer suggestions
on the direction of policies that can be given emphasis in
the ASEAN process. It is also hoped that analysis at the
individual country level will assist policy makers in the
identification of areas for priority national action.
xiv ASIA COMPETITIVENESS INSTITUTE
Key Challenges for ASEAN
With an ever-shifting competitiveness landscape, it is a
constant challenge for any economy or region to rethink
and formulate policy responses to new circumstances and
continually improve its competitiveness. The set of key
questions facing ASEAN currently is both at the national
and regional levels.
ASEAN’s prosperity, measured in terms of GDP per
capita, runs the full range from high-income to low-income
categories. Since 1997, when the region was hit by the Asian
financial crisis, seven of its members in the low- and middle-
income groups have failed to move up the next rung of the
income ladder. The exception was Vietnam, which moved
from low to lower-middle-income status in 2009. What
are the policy approaches that can help member countries
substantially improve their prosperity and avoid becoming
entrenched in a particular stage of development?
In the midst of the 2008-2009 global economic crisis, the
ASEAN region suffered the largest plunge in growth not
seen since the Asian financial crisis, as demand from major
developed economies plummeted. This underscored the
vulnerability of the export-led growth model pursued by
many ASEAN economies. With growth prospects in the
major markets of the United States and Europe likely to
remain uncertain, what growth strategy should ASEAN
pursue in the post-crisis global economy?
ASEAN has constructed a detailed roadmap towards an
integrated economy by 2015 as a means to enhance its
competitiveness and generate new impetus for growth.
However, the move to deepen and broaden regional
integration is not a smooth ride. The theme for ASEAN in
2010, ‘Towards the ASEAN Community: From Vision to
Action’, pinpoints the crux of the problem with ASEAN
integration efforts. The vision is bold, but implementation
falls short. Does ASEAN need a new approach to identify
and engage on policy issues in which regional collaboration
can have a unique impact? Is the institutional structure and
capacity of ASEAN in line with the tasks it is charged to
tackle?
Conceptual Approach
The competitiveness analysis in this Report adopts the
competitiveness framework developed by Michael Porter.
The attractiveness of the Porter framework lies in its
malleability to the analysis of any situation by capturing the
role of various factors on competitiveness without the need
for a priori assumptions. Porter’s approach is particularly
useful when faced with a diversity of impact factors with
varying importance in determining competitiveness, as in
the case of ASEAN.
Competitiveness determines the productivity with which
a country or region uses its land, labor, capital and other
resources. Productivity sets the standard of living through
returns on factors of production (wages, rent, etc.) that
a country can sustain. To attain competitiveness and
prosperity, it is not the type of industries that a country
or region chooses to compete in but how productively it
competes in those industries.
Competitiveness factors can be grouped under
macroeconomic or microeconomic competitiveness.
Macroeconomic competitiveness delineates the overall
context in which firms operate and create the potential for
high productivity. Although these factors do not directly
affect the productivity of firms, they are critical in providing
support for firm efforts to raise productivity. These factors
include the quality of social infrastructure, political
institutions and macroeconomic policy. Microeconomic
competitiveness identifies operating practices and strategies
of firms as well as business inputs, infrastructure, institutions
and policies that constitute the environment in which
firms compete. All these factors have a direct impact on
productivity.
Using this broad framework, the Report makes extensive
use of a set of New Global Competitiveness Indices (‘New
GCIs’) aggregated at different levels using a methodology
developed by Professor Porter and his research team,
primarily from raw data collected by the World Economic
Forum in its annual Executive Opinion Survey. The
indicators are computed and evaluated at both the regional
and national levels. The use of a common competitiveness
framework and set of parameters for both the regional- and
national-level analysis will facilitate consistent interpretation
and meaningful cross-national comparison of the indicators.
Summary of Findings
Context for Regional Cooperation
The ASEAN region has rebounded from the 2008 global
economic crisis that had affected economies unevenly.
Prompt macroeconomic policy responses, low public debt,
resilient domestic demand and a rebound in exports have
contributed to the turnaround. Resource-rich ASEAN
countries have also benefited from high commodity prices.
The global economic recovery process has been characterized
by a duality in the post-crisis growth paths of ASEAN and
the rest of developing Asia and major advanced economies.
The Asian economies, particularly, China and India, are
outperforming major advanced economies in economic
growth, and this is precipitating changes in the structure of
the global economy that would require ASEAN to adjust
its own economic structure to enable it to maximize its
competitiveness and find complementarities with other
high-growth economies in the region. There is a need to
reduce export dependence, especially to the developed
economies, and develop intra-regional and domestic
demand, as a global rebalancing of current accounts is set
in motion.
The outlook for ASEAN economies is positive, although
growth is expected to moderate in 2011 from the sharp
rebound in 2010. Factors that may dent ASEAN’s growth
prospects include the risk of economic instability as capital
inflows to the region surge, as well as soaring food and oil
prices in the world.
ASEAN cooperation has made steady progress with a goal
to create an ASEAN Community by 2015 that will be built
on the three pillars of an ASEAN Economic Community
(AEC), ASEAN Political-Security Community and
ASEAN Socio-Cultural Community. The goal to form an
AEC is executed through the AEC Blueprint, which is a
comprehensive action plan with clear timelines and targets,
and progress in implementation is tracked through an AEC
Scorecard. Implementation has fallen behind schedule, as
almost 20 percent of deliverables under the AEC Blueprint
for 2008-2009 still have not been achieved by October
2010. Measures that have not been implemented mainly
involve the ratification of important economic agreements
by individual members. The imperatives of deeper regional
integration may bring into question the informal and
consensual ASEAN Way of working adopted by ASEAN
and require greater powers under the Charter to monitor
and ensure compliance.
ASEAN has also been expanding its linkages with external
partners, with a widening network of free trade agreements,
which have been concluded with China, Japan, Korea,
Australia and New Zealand, and India to-date. ASEAN is
concurrently considering proposals for an East Asian Free
Trade Area for ASEAN+3 countries and a Comprehensive
Economic Partnership for East Asia involving ASEAN+6
countries. ASEAN also cooperates with the Plus Three
partners of China, Japan and South Korea on a number
of financial initiatives, the most significant of which is the
Chiang Mai Initiative Multilateralization in 2010, which
is the multilateralization of a currency swap arrangement
established to address short-term liquidity problems among
participants and strengthen regional financial stability.
Competitiveness Performance of ASEAN
ASEAN has several naturally-endowed advantages in
building prosperity. It has a relatively large combined market
of 592 million people with a combined GDP of US$1.49
trillion in 2009 at current market prices. The region is
strategically located at the crossroads of world shipping and
air routes within an economically vibrant Asian region, and
has abundant natural resources. On the flipside, there are
a few fundamental conditions that can potentially disrupt
ASEAN’s development. The region is relatively prone to
natural disasters such as earthquakes, typhoons and the
spread of infectious diseases that result in loss of lives and
livelihoods and damage to infrastructural facilities. ASEAN
is very heterogeneous in cultures and traditions. These are
fault lines that may give rise to potential conflicts.
On ASEAN’s economic performance, which reflects the
outcomes of its past competitiveness, there is considerable
variation across member countries. However, the picture
that emerges for ASEAN overall is one of a region that has
ASEAN COMPETITIVENESS REPORT xv
not performed as well post-1997 Asian financial crisis than
in the period before the crisis. ASEAN’s prosperity, which is
measured by GDP per capita, has been rising at an annual 2.3
percent over the last decade, only slightly above the world
average rate. This is in contrast to its prosperity growth that
was rising much faster than the world average before the
Asian crisis. ASEAN’s GDP per capita in 2009 was $4,739
in constant international dollars adjusted for purchasing
power. This was 11 percent that of the United States and 76
percent that of China. ASEAN’s prosperity level was also
below the world average by half the amount. This points to
ample scope for ASEAN to advance the region’s prosperity.
ASEAN’s prosperity is also not evenly spread. Income
inequality as measured by the Gini coefficient is relatively
high, with five of eight ASEAN countries where data are
available posting a Gini coefficient above 0.4. The region
also has large pockets of poverty, with four ASEAN
countries having about a fifth or more of their population
living below the income poverty line. Measures of human
development and gender-related development show huge
variations across ASEAN countries.
ASEAN’s labor productivity, which is one of the underlying
factors contributing to prosperity, was relatively low at
US$11,114 in 2009. This was less than one-fifth the level
of the US, the productivity leader, and between 25 to 30
percent the productivity of Japan and the EU. ASEAN’s
labor productivity has not been rising as fast as China’s over
the last decade and China has caught up with ASEAN on
labor productivity.
ASEAN has not recovered its global position in export and
inward Foreign Direct Investment (FDI) shares achieved
before the Asian financial crisis. ASEAN’s share of world
exports of goods and services has remained around the
6 percent mark over the last ten years, compared with a
doubling of its world export share in the ten years before the
Asian crisis. It has been overtaken by China in world export
market share since 2005. ASEAN’s world export market
share has increased to 6.2 percent in 2009 from 5.9 percent
in 2007 and 2008. However, whether this is the start of a
sustained increase remains to be seen. Similarly, ASEAN’s
share of world FDI inflows in the last ten years has been
below its share before the 1997 crisis. China has overtaken it
since 1993. In 2008, ASEAN’s share fell to 2.7 percent but
this increased to 3.6 percent in 2009. China’s share of world
FDI inflow in 2009 was 8.5 percent.
ASEAN is relatively weak on innovation outcomes. The
number of ASEAN’s patents filed in the US was just 0.4
percent of total patents filed in 2009, far behind the US
(49.5 percent), Japan (19.8 percent) and EU (13.1 percent).
ASEAN’s share is similar to India’s but lower than China’s
1.2 percent. In terms of growth rate of patent filing in the
US on a per capita basis, ASEAN falls significantly behind
China and India over the 1997-2009 period.
There is significant room to grow entrepreneurship in
ASEAN. Entrepreneurship in ASEAN is not as strong as
xvi ASIA COMPETITIVENESS INSTITUTE
in advanced economies. With the exception of Singapore,
business density in ASEAN economies is relatively low.
Overall, ASEAN’s business density was 2,505 businesses per
million economically active population in 2005 compared
with 28,423 in the EU, 23,350 in Japan and 22,035 in the
US. The entry rate of new businesses in ASEAN in 2005 was
11.4 percent, with Singapore having the highest entry rate.
This compared with 13.1, 10.3 and 4.4 percent in the US,
EU and Japan respectively.
ASEAN has a dearth of large locally-owned companies.
None of ASEAN’s homegrown companies was placed within
the top 100 on the Forbes 2010 Global 2000 list, which
ranked companies in 62 countries in terms of size based on
an equal weighting of sales, profits, assets and market value.
In total, 63 homegrown companies from ASEAN were in
the Forbes Global 2000 list, with the highest ranked at 196.
This was 3.2 percent of the total and compared with 113
(5.7 percent) and 56 (2.8 percent) companies from China
and India respectively. Of the 200 top-performing small and
midsize companies in the Asia Pacific on Forbes’ 2010 “Best
Under a Billion” list with sales between US$5 million and
US$1 billion, 16 percent or 32 of them were homegrown
companies from ASEAN economies. This compared with
32 percent of companies from China and 19.5 percent of
companies from India.
ASEAN Competitiveness Fundamentals
Based on New GCI data for a constant sample of 132
countries, ASEAN’s overall competitiveness position is
57th (or in the 57th percentile) in 2010. ASEAN’s ranking
is computed as the GDP-weighted ranking of eight ASEAN
countries for which data are available and excludes Laos and
Myanmar. ASEAN’s GDP per capita in 2009, the latest year
available, is 79th place. The significant gap between current
prosperity and overall competitiveness might point to the
potential of current competitiveness fundamentals in raising
future prosperity.
Assessed over a ten-year period, the region’s competitiveness
as measured by the New GCI has improved from being nine
places below the global average in 2001 to 13 places above
the global average in 2010. This largely reflected progress
in the first half of the 2000s, as ASEAN’s competitiveness
ranking has hovered around the 57th to 60th percentile
mark over the last five years. Throughout the years, ASEAN’s
advantage has been more in microeconomic competitiveness
fundamentals than macroeconomic competitiveness factors.
ASEAN’s global competitiveness in 2010 is three places
behind its rank in 2009. This slight deterioration is largely
due to a six-rank drop in microeconomic competitiveness to
49th place. Macroeconomic competiveness is little changed
at 64th place. At the more disaggregated levels, it is shown
that ASEAN has worsened competitiveness rankings across
most sub-categories and sub-areas to different extents, except
for macroeconomic policy, where ASEAN’s competitiveness
has clearly improved between 2009 and 2010 (Figure A).
 FIGURE A: GDP pc (79)
Competitiveness Micro (49) New GCI (57) Macro (64)
Profile of ASEAN
Region 2010 National Business Social Infrastructure
Macroeconomic Policy
Company Operations and Pol. Institutions
Environment (49) and Strategy (45) (55)
(66)
Strategy (44)
Related and Supporting Political Institutions
Industries (37) Org. Practices (57)
(48)

Internationali-
Demand Conditions zation (45) Quintile Rankings
(56) Rule of Law (72)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (53) Development (72)
4
5

Source: Authors’ analysis Factor Input Conditions Change in Rank (09-10)

(59)
based on unpublished Improve ≥ 10%
data in Delgado et al. Admin (75) Logistic (64)
Improve + 1 rank to <10%
(2010); raw data from + 1 or - 1 rank
World Economic Forum, Capital (42) Comm. (68) Innov. (52) Worsen + 1 rank to <10%
Executive Opinion Survey Worsen ≥ 10%
2009, 2010.

Comparing across competitiveness categories within
ASEAN in 2010, the region’s foremost competitive strength
lies in its supporting and related industries and clusters, with
strong cluster policy, cluster development and collaboration
and local availability of process machinery. Its capital market
infrastructure is also relatively strong, particularly in the
ease of financing through local equity market, ease of access
to loans and venture capital availability. Another area of
particular strength for ASEAN is company strategy and
operational effectiveness.
ASEAN is least competitive in its administrative
infrastructure, where urgent attention has to be paid to
reducing the time and number of procedures required
to start a new business and in improving the efficiency of
customs procedures. The other areas of particular weakness
are in the macroeconomic competitiveness sub-category of
social infrastructure and political institutions. ASEAN’s
human development is weak and more effort is needed to
lower the incidences of tuberculosis and malaria and raise
secondary education enrollment rate. The rule of law within
ASEAN also requires strengthening, especially in factors
related to the control of corruption and the lowering of
business costs of crime and violence.
Compared with China and India, ASEAN is ranked behind
China by 18 positions on the New GCI 2010, while it
is ahead of India by 13 places. ASEAN’s negative gap
with China has persisted over the last few years, while its
significant positive gap with India has arisen in 2010 mainly
as a result of deterioration in India’s competitiveness position
from 2009. ASEAN is weaker than China on both micro
and macro competitiveness fundamentals, in particular the
latter. It has a competitive edge over India in both micro and
macro competitiveness fundamentals, although the gap in
microeconomic competitiveness is relatively small.
Across the eight ASEAN countries where New GCI data
are available, there is a broad range of competitiveness,
with Singapore among the top ten countries in the sample
and Cambodia in the bottom 25 percent. Tables A and B,
which place the top three areas of relative strength and top
three areas of relative weakness within each country side by
side, point to areas that each ASEAN economy could focus
attention on to boost national competitiveness, either in
consolidating strengths or addressing weaknesses. The tables
also highlight that there are several areas of relative strength
or relative weakness that are common across a few countries,
where the sharing of experiences and action at the collective
level would be especially beneficial.
Supporting and related industries and clusters is an area of
relative strength in five ASEAN countries, while capital
market infrastructure and macroeconomic policy are areas of
relative strength in three ASEAN countries. Administrative
infrastructure and human development are areas of relative
weakness in four ASEAN countries, while rule of law and
communications infrastructure are weaknesses in three
ASEAN countries.
An analysis of the competitiveness of Laos and Myanmar
based on limited key indicators suggest that both countries
share similar areas of relative weakness with other
ASEAN countries in human development, rule of law and
communications infrastructure. Both countries fare better
on macroeconomic policy.
Analysis using alternative datasets covering ASEAN’s
performance on economic freedom, ease of doing business
and logistical efficiency support the assessment using New
GCI data that corruption and administrative regulations are
major areas of weakness for ASEAN. There is indication that
ASEAN’s restrictions on investments might be higher than
the assessment in New GCI. On the other hand, alternative
indicators give a more positive depiction of infrastructure
quality and customs efficiency in ASEAN compared with
the New GCI.

ASEAN COMPETITIVENESS REPORT xvii

 table A: Singapore Brunei Malaysia Thailand Indonesia Philippines Vietnam Cambodia
Top-Three Areas Administrative Macroeconomic Supporting Macroeconomic Supporting Organization Supporting Context for
of Relative Infrastructure Policy & Related
Industries &
Policy & Related
Industries &
-al Practices & Related
Industries &
Strategy &
Rivalry
Strength within Clusters Clusters Clusters

Each ASEAN Context for Rule of Law Capital Internationali - Strategy & Macroeconomic Capital Political
Country Strategy &
Rivalry
Market
Infrastructure
zation of Firms Operational
Effectiveness
Policy Market
Infrastructure
Institutions

Source: Authors’ analysis

Logistical Human Organization Supporting Capital Supporting Political Logistical
based on unpublished Infrastructure Development & Related Market & Related Institutions Infrastructure
-al Practices
data in Delgado et al. Industries & Infrastructure Industries &
(2010); raw data from Clusters Clusters
World Economic Forum,
Executive Opinion Survey
2009, 2010.

Assessment and Policy Recommendations
Analyzed as a single economic entity, ASEAN’s
competitiveness, whether measured by economic outcomes
that reflect its past competitiveness or by its positions
on fundamental factors that portend its medium-term
competitiveness, has not been impressive in recent years.
From being a part of Asia’s miracle in the early 1990s,
ASEAN in the 2000s has been overshadowed by China and
India.
Regional prosperity rests on individual countries being
competitive and prosperous. This Report has identified
areas of strengths for ASEAN economies that should be
further consolidated as well as areas of weaknesses that
have to be improved. Given the region’s eclectic mix, the
priority issues that each country has to address in raising
national competitiveness may be quite different. While
there are country-specific issues that must be addressed at
the national level, the analysis has also shown that there is
much ground for policy learning and action at the regional
level. Commitments by each country to implement
agreed collective actions will also help to boost national
competitiveness.
ASEAN has in the last few years intensified its efforts
towards implementing a wide-ranging collective agenda
to achieve deeper integration as a means to raising the
region’s competitiveness. It has set a goal to form an AEC
by 2015, to reap scale economies in production and to
enhance its attractiveness as a consumer market. However,
the implementation of measures towards an AEC, which
started in 2008, is behind schedule. This raises the question
of whether ASEAN can step up to the challenges posed by
the external environment and by itself. To make a leap in its
competitiveness, ASEAN not only has to carry out existing
tasks more effectively but also define new approaches and
new tasks.
In the post-crisis environment, ASEAN should reduce its
reliance on the Western-oriented export-led model as the
main driver of its economic growth. ASEAN needs to move
towards a new growth model that is driven by intra-ASEAN
and intra-Asia demand, as well as domestic demand. The
deepening of ASEAN integration to establish a single
market and production base will stimulate intra-regional
trade, investments and production and generate new sources
of growth. At the same time, the high-growth, big economies
of China and India also present a source of new demand
even as they pose competition for ASEAN with regard to
export markets and resources. As ASEAN strives to build a

table b: Singapore Brunei Malaysia Thailand Indonesia Philippines Vietnam Cambodia

Top-Three ! Supporting !Administrative !Human ! Political !Administrative !Administrative !Macroeconomic !Communications
Areas of & Related
Industries &
Infrastructure Development Institutions Infrastructure Infrastructure Policy Infrastructure

Relative Clusters

Weakness ! Internationali- !Internationali - !Rule of Law ! Rule of Law !

Communications !Logistical !Administrative !Human
within Each zation of Firms zation of Firms Infrastructure Infrastructure Infrastructure Development

ASEAN Country
Source: Authors’ ! Strategy & !Supporting !
Communications ! Human !Human !Political !Logistical !Rule of Law
Operational & Related Infrastructure Development Development Institutions Infrastructure
analysis based on Effectiveness Industries &
unpublished data in Clusters
Delgado et al. (2010);
raw data from World
Economic Forum,
Executive Opinion
Survey 2009, 2010.

xviii ASIA COMPETITIVENESS INSTITUTE

more integrated and competitive region, it is important that
growth is achieved through environmentally sustainable
and equitable ways and also in parallel with the expansion
and deepening of its economic ties with the rest of Asia and
beyond.
Towards an ASEAN Competitiveness Agenda
In the past, ASEAN integration efforts have tended to focus
on trade and investment liberalization. Such negotiations
over reciprocal market access are typically politically
difficult and the extent of market opening achieved is often
less than satisfactory. ASEAN could extract greater gains
from regional cooperation by placing more emphasis on
activities that yield significant cross-border externalities and
direct mutual benefits. Given the region’s diversity where
a weakness in one country may be a strength in another,
ASEAN also provides an important platform for policy
learning and the sharing of best practices across a wide range
of areas.
This Report, by analyzing a multitude of competitiveness
factors that span the economic, political and social
dimensions, serves to highlight the importance of building
competitiveness through an integrated, multi-pronged
ASEAN Competitiveness Agenda. Such a Competitiveness
Agenda would focus on areas where collaboration creates
direct benefits for participants. Several elements of a
Competitiveness Agenda that would build on strengths
and address weaknesses in ASEAN’s competitiveness
fundamentals are illustrated below.
Building on Strengths
Cluster Development
ASEAN’s diversity in endowments and economic
development means that it possesses resources and
capabilities that practically span the whole production
process. Supporting and related industries and clusters has
been identified as an area of relative strength for ASEAN,
and ASEAN has strong clusters in a number of industries
such as information technology, oil and gas products,
agricultural products, metal mining and manufacturing,
transport and logistics, and business services. ASEAN
countries could do more to leverage their mutual strengths
and competitive advantages and engage in collaboration
to create or strengthen integrated regional value chains of
clusters. ASEAN could explore a more coordinated regional
approach to the development of clusters.
ASEAN has recently unveiled its Master Plan on ASEAN
Connectivity, which included the enhancement of physical
connectivity as a key element. However, since developing
physical infrastructure is both capital and time intensive,
the prioritization of infrastructure development to
facilitate cluster development could be explored. ASEAN
can also move beyond the Southeast Asian region to tap
into synergies with its bigger neighbors, China and India,
on cluster development to integrate the economies more
closely.
Capital Market Infrastructure
Capital market infrastructure is a relative strength in a
number of ASEAN countries and regional collaboration to
integrate the capital market infrastructure within ASEAN as
well as with the world would help to build on this strength as
well as encourage FDI inflows and promote local enterprise.
An improved regional capital market infrastructure would
also help to mobilize the high savings in the region.
The proposed ASEAN Exchange Linkage, in which the
stock exchanges of Malaysia, Singapore and Thailand are
proposed to be linked in the second half of 2011 with the
Philippines’ stock exchange expected to join the common
electronic platform in the first half of 2012, is a welcome
initiative in this direction.
Local Enterprise Development
Another area of relative strength for ASEAN is company
operations and strategy. This may reflect mainly the
practices of foreign multinational enterprises, which have
a substantial presence in ASEAN economies, as there are
relatively few top-performing locally-owned companies.
Presently, ASEAN has a dearth of large, homegrown firms
with no publicly-traded companies among the top 100 in
Forbes’ Global 2000 list, although the region’s small and
medium enterprises are better represented in Forbes Asia
Pacific’s “Best Under a Billion” list. ASEAN could intensify
its efforts to nurture local enterprises, including promoting
the transfer of management knowledge from foreign to
local companies and also facilitating the regionalization
and globalization of local companies. A well-implemented
Strategic Plan of Action for ASEAN SME Development
2010-2015 will contribute to this objective.
Macroeconomic Policy
Macroeconomic policy is an area where a few ASEAN
countries are particularly strong in while others are
relatively weak in and thus can be a prime area for policy
learning among members. ASEAN’s macroeconomic policy
responses to the 2008 global crisis have involved national
strategies, with no coordinated effort at the regional level.
Policy coordination would have been extremely difficult
given the vast difference in situations in each country.
However, the crisis did strengthen regional financial
cooperation through expediting implementation of the
multilateral currency swap arrangement, Chiang Mai
Initiative Multilateralization agreement, by ASEAN and its
dialogue partners: China, Japan and Korea (ASEAN+3) to
address short-term liquidity difficulties of members. Over
the long term, as economies become more interdependent,
macroeconomic policy coordination would become
increasingly important in ensuring that policy instruments
work effectively in promoting economic stability. A step
towards greater coordination would be through an enhanced
ASEAN+3 Economic Review and Policy Dialogue process.
ASEAN COMPETITIVENESS REPORT xix
Addressing Weaknesses
Administrative Infrastructure
ASEAN’s least competitive area is its administrative
infrastructure. Many of the ASEAN countries are
particularly weak in their administrative infrastructure due
to the time and procedures required to start businesses as
well as burdensome customs procedures. Urgent action is
required for ASEAN countries to work towards clearly-
defined targets in reducing administrative red tape. Such
regulatory reforms will also enhance ASEAN’s attractiveness
as a business investment destination.
An important initiative that will reduce administrative
requirements in trade is ASEAN’s plan for an ASEAN
Single Window for customs clearance that integrates ten
National Single Windows of individual member countries.
The ASEAN-6 countries (Brunei, Indonesia, Malaysia,
Philippines, Singapore and Thailand) have activated their
National Single Windows after a two-year delay from the
initial schedule, while CLMV countries (Cambodia, Laos,
Myanmar and Vietnam) have until 2012 to do so. The
ASEAN countries have signed in the second half of 2010 the
Memorandum of Understanding on the Implementation of
the ASEAN Single Window Pilot Project and the Protocol
on Electronic Customs Facilitation (Single Window) to
test the infrastructure and procedures. Efforts should be
directed to expediting the establishment of the ASEAN
Single Window.
Human Resource Development
ASEAN has very weak competitiveness in basic health
and education. Its labor productivity is also relatively low.
Although ASEAN has ongoing cooperation in many aspects
of human resource development mainly under the social
and economic pillars building an ASEAN Community, it
could engage in a more urgent and concerted endeavor to
raise its human capacity and upgrade the skills of its labor in
recognition of its greater weakness in this area.
ASEAN could strengthen basic health through the control
of infectious diseases in partnership with the World Health
Organization and other development agencies and dialogue
partners. There is also scope to strengthen the coordination
of education and skills development initiatives across
various ASEAN bodies, for instance, through the Education
and Science and Technology Ministers working together
to develop science and technology human resources and
promote collaborative research and development in the
region.
Rule of Law
Many of the ASEAN countries received unfavorable
assessments for rule of law, particularly on the indicators
of corruption and crime. While strengthening the rule of
law remains very much the domain of national processes,
ASEAN members could engage in information sharing and
also contribute to the establishment of certain norms such as
transparency in its interactions and policy implementation.
xx ASIA COMPETITIVENESS INSTITUTE
Strengthening Implementation
ASEAN does not lack well-defined goals and plans.
Its weakness lies in its inability to deliver on provisions
in its agreements. ASEAN has to ensure the timely
implementation of agreements and decisions within a rule-
based framework to maintain its credibility. This requires
the strengthening of both institutional mechanisms and
capacities and political will.
For forty years, ASEAN has established a norm in its
interactions that is based on the ASEAN Way, which
emphasizes consultation, consensus and non-interference in
internal affairs. This informal and consensual approach has
succeeded in maintaining peace and stability in the region,
but it might also be a bane to ASEAN achieving greater
success in its regional integration efforts.
The ASEAN Charter has established a legal and institutional
framework for making ASEAN more rules-based, but the
organization’s effectiveness in coordinating and executing
policies is not going to improve vastly overnight. Various
mechanisms to enhance compliance are in place but they
have been largely ineffectual. For instance, members have
traditionally preferred to resolve their economic disputes
through political channels rather than in a more rules-based
manner through the 2004 Enhanced Dispute Settlement
Mechanism. The AEC Scorecard in its current form requires
improvements to strengthen its monitoring function, and
the public version of the Scorecard should contain more
detailed information by individual country to increase the
transparency of the compliance review process.
Given the diversity in stages of development and policy
priorities across ASEAN countries, ASEAN should
strengthen its provisions for and the use of flexible
participation arrangements so that members could move at
a different pace. The Charter provides for an ASEAN Minus
X formula but this is the only formula that is endorsed, and
it can only be adopted if there is consensus to do so. ASEAN
can also consider adopting another formula - 2 Plus X - that
had previously been utilized, and to develop more pilot
projects involving participation by countries that are ready,
so as to progress initiatives.
As the Charter carries no reference at all to sanctions should
compliance fail, it leaves to the leaders to decide what
action to adopt should there be any breach of principles
and objectives. Acknowledgement of the limitations of the
Charter necessarily moderates expectations of the ASEAN
cooperation process, at least in terms of timeline.
The successful implementation of ASEAN’s Roadmap
for an ASEAN Community by 2015 also hinges on the
ASEAN Secretariat as well as member countries having
adequate capacity and tool kits to effectively fulfill the tasks
required. Although the Secretariat’s resources and research
capabilities have been boosted and less developed members
are assisted with capacity building programmes, more needs
to be done to upgrade ASEAN’s ability to act institutionally.
Conclusion Ultimately, the extent of benefits that ASEAN will reap
from deeper regional integration will depend on how
The assessment of the competitiveness of ASEAN as a whole willing member countries are in adhering to the blueprints
and its member countries has been conducted against the for action. Each member nation needs to have a clear
backdrop of profound changes in the global economic strategic focus on the integration agenda while minimizing
landscape following the 2008 global crisis. ideological socio-political differences in order for ASEAN
Over the last decade, ASEAN’s economic performance has to move from vision to action.
been stable. However, it has not taken big strides unlike in
the period before the 1997 Asian financial crisis. ASEAN’s
position on competitiveness fundamentals as measured by a
wide range of macroeconomic and microeconomic factors
is above the world average, but its ranking has remained
relatively unchanged over the last five years.
While individual ASEAN countries vary widely in their
competiveness and each country would need to chart its own
national agenda for improving competitiveness, the analysis
has also revealed areas of common competitive strengths and
weaknesses among the member countries. This provides the
basis for the development of an ASEAN Competitiveness
Agenda with a focus on building on strengths and addressing
weaknesses across a range of economic, social and political
areas to generate synergistic benefits for the region. ASEAN
has already undertaken a broad range of initiatives towards
forming an ASEAN Economic Community, but the
assessment in this Report serves to further inform a more
nuanced approach to boosting regional competitiveness
that moves away from a traditional focus on trade and
investment liberalization.
Suggested elements of an ASEAN Competitiveness
Agenda would involve a greater emphasis on building
strengths through coordinated cluster development, an
integrated capital market infrastructure, the nurturing
of local enterprises and enhanced macroeconomic policy
coordination. Weaknesses for intensified improvement
include raising quality in the areas of administrative
infrastructure, healthcare and education and rule of law.
The effective execution of plans of action is crucial in
delivering results for ASEAN. The imperatives of deeper
regional integration may bring into question the ASEAN
Way of working and require greater powers under the
Charter to monitor and ensure compliance. More also needs
to be done to upgrade the capacity of the ASEAN Secretariat
and member countries to fulfil their responsibilities.
Regardless of current limitations in ASEAN’s institutional
framework and mechanisms, ASEAN’s cooperation has
moved onto a higher plane and the regional integration
process is progressing. As implementation towards an AEC
has started only since 2008, any payoffs from measures
already implemented are not as yet evident in the data
analyzed in this Report, and it will be worthwhile to conduct
similar competitiveness analyses on a regular basis to see if
ASEAN’s integration efforts have translated into enhanced
competitiveness performance.

ASEAN COMPETITIVENESS REPORT xxi

xxii ASIA COMPETITIVENESS INSTITUTE
 20
ASEAN
Competitiveness
Report

10
Chapter 1

Introduction

ASEAN COMPETITIVENESS REPORT 1


INTRODUCTION
The Association of Southeast Asian Nations (ASEAN)
has evolved remarkably since its inception in 1967.
Geopolitically, the group has expanded from five member
nations comprising Indonesia, Malaysia, Philippines,
Singapore and Thailand to include Brunei (1984), Vietnam
(1995), Lao PDR (1997), Myanmar (1997) and Cambodia
(1999). From a fragmented group that was ridden with
political and ideological conflicts and imbued with narrow
nationalistic objectives, ASEAN has emerged as a recognized
voice in the global economic and political arena. The region
is now the fourth-largest trading entity in the world with a
combined population of 592 million and GDP of US$1.49
trillion in 2009 at current market prices.
Economic realities have changed dramatically in the past
15 years with the onset of the Asian financial crisis in 1997,
the rise of China and India economically and the flare-up of
the global financial crisis in late 2008. The post-crisis global
economic landscape is characterized by weakened economic
prospects in major advanced economies and a heralded shift
in global economic power to Asia.
ASEAN has set a goal to integrate its members’ economies
further and faster as a way to enhance the region’s
competitiveness. At the 2003 Summit in Bali, ASEAN
Leaders agreed to establish an ASEAN Economic
Community (AEC) by 2020. This is one of three pillars that
will build an ASEAN Community, the other two being an
ASEAN Political-Security Community and an ASEAN
Socio-Cultural Community. In 2007, the deadline to realize
an AEC was brought forward to 2015, and a comprehensive
action plan, the AEC Blueprint, was adopted.
The legal framework for ASEAN norms, rules and values is
instituted in the ASEAN Charter that was signed in 2007
and came into force the following year. By setting clear
targets to be achieved by ASEAN members for the ASEAN
Community, the Charter serves as a basis for accountability
and compliance. In 2009, ASEAN further adopted the
ASEAN Political-Security Community and ASEAN Socio-
Cultural Community Blueprints to achieve an ASEAN
Community by 2015.
Despite the considerable diversity that remains among
member countries, which are at varying levels of economic
development and with dissimilar cultures, ethnicities and
languages, ASEAN has demonstrated a resolve to negotiate
these differences to be one community. In recognition of
both ASEAN’s heterogeneity and its ambition to seek unity
in diversity, the analysis in this Report is conducted at two
levels – overall ASEAN and by individual ASEAN country.
A comprehensive review of ASEAN’s competitive position
will better enable policy makers to assess the challenges
2 ASIA COMPETITIVENESS INSTITUTE
the region faces in a world economy that is becoming
increasingly complex and interdependent.
This Report aims to track a myriad of indicators of ASEAN’s
competitiveness over time for the region as a whole as well as
for individual member states in an international perspective.
It is hoped that this Report adds value to the discourse on
ASEAN competitiveness and helps to furnish policy makers
with data, analysis and a conceptual framework to evaluate
ASEAN’s competitive position and adopt the relevant
policy priorities at both the national and regional levels to
steer the region towards its vision of increasing prosperity.
ASEAN’s Competitiveness Challenges
ASEAN is facing a new era in its development. With a
changing global economic environment defining new
challenges and the ASEAN Charter outlining new
ambitions, a fresh look at the data is needed to examine the
key challenges confronting ASEAN in the longer term. The
set of key questions facing ASEAN is both at the national
and regional levels.
ASEAN’s prosperity, measured in terms of GDP per capita,
runs the full range from high income (Brunei and Singapore)
to low income (Cambodia, Laos and Myanmar). Rapid
prosperity growth before the Asian financial crisis propelled
two ASEAN economies - Malaysia and Indonesia - up the
income ladder. Over the past decade, with the exception of
Vietnam, which moved from low to low-middle-income
status in 2009, none of the other ASEAN countries has
substantially improved prosperity. A key challenge is for
each ASEAN country to address the issues that boost
competitiveness and propel it further up the ladder of
economic development.
The ASEAN region has weathered the 2008 global financial
crisis well, despite being hard-hit initially due to the
intensification of member economies’ export-led growth
strategies in the 2000s. ASEAN, along with the rest of Asia,
has recovered at a faster and stronger pace than the major
advanced economies. Since late 2009, trade has normalized,
industrial production has recovered and capital inflows
have resumed. Quick countercyclical rescue measures by
ASEAN’s policy makers have helped to reduce the impact
of the global financial crisis and minimize downside risks
to economic growth. Given the turnaround of the ASEAN
economies, most countries have reduced or withdrawn
stimulus measures. The challenge for ASEAN is to maintain
growth momentum in a post-crisis world environment
and to move towards a new growth model that rebalances
growth away from traditional markets in the West towards
newer and more sustainable growth that is driven by intra-
regional and domestic demand.
Deeper regional economic integration is recognized as a
potent answer to ASEAN’s challenges of having to generate
new impetus for growth and enhance competitiveness.
Through closer cooperation, ASEAN countries can leverage
on a wide diversity of its resources and development
 Figure 1.1
Macroeconomic Competitiveness Microeconomic Competitiveness
Competitiveness
Framework:
Foundations of Social Infrastructure and Macroeconomic Company Operations National Business Cluster
Prosperity Political Institutions Policy and Strategy Environment Development

Basic Political Factor Supporting

Context for and
Rule of Monetary Fiscal Related Demand
Human Institu- (input) Strategy and Industries Conditions
Capacity tions Law Policy Policy Conditions Rivalry and Clusters

Strategy and Organizational Internationalization Logistical Communications Administrative Capital Market Innovation
Operational Practices of Firms Infrastructure Infrastructure Infrastructure Infrastructure Infrastructure
Effectiveness

Endowments

Source: Adapted from Porter, M.E.,

Delgado, M., Ketels, C. and Stern, S. Natural Geographical Size
(2008). “Moving to a New Global Resources Location
Competitiveness Index”, in The Global
Competitiveness Report 2008-09, World
Economic Forum.
Prosperity

by accelerating the migration of value chain within the
region, thereby enhancing the region’s capacity for intra-
regional production, investment and trade. However, the
move towards greater regional integration is not without
difficulties. The theme for ASEAN in 2010, ‘Towards the
ASEAN Community: From Vision to Action’, pinpoints
the crux of the problem with ASEAN integration efforts.
The vision is bold, but implementation falls short. Ensuring
timely implementation of agreements and decisions within
a rules-based framework and strengthened institutional
mechanisms is another challenge that ASEAN has to tackle.
Conceptual Approach of the Report
The analysis in this Report adopts the competitiveness
framework developed by Michael E. Porter, Bishop William
Lawrence University Professor, Harvard Business School
and Chairman, ACI International Advisory Panel. The
attractiveness of the Porter framework lies in its malleability
to the analysis of any situation by capturing the role of
various factors on competitiveness without the need for a
priori assumptions. Porter’s approach is particularly useful
when faced with a diversity of impact factors with varying
importance in determining competitiveness, as in the case
of ASEAN.
Competitiveness determines the productivity with which
a country or region uses its land, labor, capital and other
resources. Productivity sets the standard of living through
returns on factors of production (wages, rent, etc.)
that a country can sustain. What is important to attain
competitiveness and prosperity is not the type of industries
that a country or region chooses to compete in but how
productively it competes in those industries.
Competitiveness factors can be grouped under
macroeconomic or microeconomic competitiveness.
Macroeconomic competitiveness delineates the overall
context in which firms operate and create the potential for
high productivity. Although these factors do not directly
affect the productivity of firms, they are critical in providing
support for firm efforts to raise productivity. These factors
include the quality of social infrastructure, political
institutions and macroeconomic policy. Microeconomic
competitiveness identifies operating practices and
strategies of firms as well as business inputs, infrastructure,
institutions and policies that constitute the environment in
which firms compete. All these factors have a direct impact
on productivity. Endowment affects prosperity directly
through natural resources, geographical location and the
size of the home market. Figure 1.1 depicts the schematic
diagram of the competitiveness framework and foundations
of prosperity.

ASEAN COMPETITIVENESS REPORT 3

In the macroeconomic area of competitiveness are
social infrastructure and political institutions (SIPI) and
macroeconomic policy. SIPI is a proxy for the overall stage
of economic development. More developed SIPI enable
firms to compete on efficiency and innovation while weak
SIPI make it necessary for firms to compete on resources or
cheap labor. SIPI indicators include basic human capacity
(basic health and education), political institutions (decision
making and efficiency of policy executives) and rule of law
(corruption and efficiency of legal process). Macroeconomic
policy comprises monetary and fiscal policy.
In the microeconomic area of competitiveness are company
operations and strategy, business environment and the state
of cluster (agglomeration) development. Data limitations
in the independent measurement of cluster variations,
however, necessitate the exclusion of the third category in
the measurement of microeconomic competitiveness.
Firm productivity is affected by its strategies and operational
practices, which are measured by the sophistication with
which the firm competes, its corporate governance structure
and the sophistication of company operations and strategy
across countries.
Firm productivity is also influenced by the quality of its
business environment. The factors that affect business
environment quality are depicted by four interrelated
dimensions or Porter’s diamond. The diamond comprises
the quality of factor (input) conditions, the context of
rules in which firms compete, the quality of local demand
conditions and the presence of related supporting industries
(represented by well-developed clusters). Factor conditions
are established by a set of infrastructural conditions faced by
a firm, namely, logistical, administrative, communications,
capital markets and innovation. For example, physical
infrastructure, efficient access to capital, quantity and quality
of human resources, and innovation capacity (science and
technology) are important factor conditions that determine
a firm’s productivity.
Using this broad framework, the Report makes extensive
use of a set of New Global Competitiveness Indices (‘New
GCIs’) aggregated at different levels using a methodology
developed by Professor Porter and his research team (Porter
et al. 2008), primarily from raw data collected by the World
Economic Forum in its annual Executive Opinion Survey.
The indicators are computed and evaluated at both the
regional and national levels.
The use of a common competitiveness framework and set of
parameters for both the regional- and national-level analysis
will facilitate consistent interpretation and meaningful cross-
national comparison of the indicators. This approach would
enable an examination of the strengths and weaknesses of
ASEAN as a whole and of individual members, and assist
in the identification of areas for priority national action as
well as for policy sharing and common policy action at the
regional level to improve competitiveness.
4 ASIA COMPETITIVENESS INSTITUTE
The structure of this Report is adapted from Ketels (2009),
and the analysis is organized according to the following
groups of indicators:
• Economic performance that determines the quality of
life of individuals as a consequence of fundamentals
in the economy. These indicators include prosperity,
equality and measures of economic development.
• Intermediate economic outcomes that contribute to
competitiveness but may not be the ultimate goal of
economic policies. Indicators include trade, investment,
innovation and entrepreneurship.
• Macroeconomic and microeconomic competitiveness
that determine the medium-term trends of the
preceding economic outcomes identified. Indicators
include institutions, macroeconomic policy, business
environment, dynamism of clusters and company
sophistication.
Report Outline
The rest of the Report is organized in four chapters.
Chapter 2 presents the macroeconomic and institutional
contexts for regional cooperation. The first part discusses
the recent macroeconomic performance of individual
ASEAN countries as well as the changing global economic
context post-global crisis. The second part reviews the state
of regional cooperation among member countries and
between ASEAN and its external partners, with a focus
on economic initiatives. It also assesses the institutional
framework for cooperation.
Chapter 3 provides a profile of the region and analyzes
trends in the competitiveness performance of ASEAN and
individual member countries over the last two decades. The
ultimate goal of competitiveness, namely, an increase in
prosperity or the standard of living of people in the region is
assessed using the income measure of GDP per capita as well
as measures of the distribution of prosperity and quality of
life that relate to poverty reduction, income inequality and
human capacity development. A second section examines
the main elements of prosperity growth: labor productivity,
labor mobilization and purchasing power. The last section
assesses the region’s intermediate economic outcomes
through indicators such as exports, domestic and foreign
investment, innovation and entrepreneurship. ASEAN’s
competitiveness performance will be benchmarked against
that of the major developed economies of the US, EU and
Japan, as well as compared with the performance of China
and India.
Competitiveness fundamentals that drive the longer-term
competitiveness performance of ASEAN and its member
countries are evaluated in Chapter 4. Factors in the two
building blocks that lay the foundations for competitiveness
as identified in Porter’s framework, namely, macroeconomic
competitiveness and microeconomic competitiveness, are
analyzed. The first part of the chapter assesses the ASEAN
region as a whole on these parameters to identify the
relative strengths and weaknesses of ASEAN. This is then
put into perspective with respect to China and India. The
purpose of this analysis is to provide an understanding of
the competitiveness fundamentals of the region, which can
then serve to formulate an agenda for regional collaboration.
The second part reviews the competitiveness fundamentals
of individual member countries to identify specific areas
that need to be addressed at the national level. Additional
analysis is conducted using indices that are compiled from
other data sources in the aspects of economic freedom, ease
of doing business and logistical efficiency as a limited means
to validating the findings using New GCI data.
Chapter 5 gives an overall assessment and puts forth policy
recommendations based on the evaluation done in the
preceding chapters.

Chapter References
ASEAN (2010). ASEANstats, http://www.aseansec.org/22122.htm
Ketels, Christian H.M. (2009). State of the Region Report 2009: Boosting the Top of Europe.
Porter, Michael E., Mercedes Delgado, Christian Ketels and Scott Stern (2008). “Moving to a New Global Competitiveness
Index”, in The Global Competitiveness Report 2008-2009, World Economic Forum.

ASEAN COMPETITIVENESS REPORT 5

6 ASIA COMPETITIVENESS INSTITUTE
 20
ASEAN
Competitiveness
Report

10
Chapter 2

Context for
Regional
Cooperation

ASEAN COMPETITIVENESS REPORT 7


CONTEXT FOR REGIONAL
COOPERATION
Regional cooperation does not happen in a vacuum. It
develops and responds to changing world economic and
political circumstances and national imperatives.
This chapter comprises two main sections. The first describes
the macroeconomic environment within ASEAN and the
changing global economic context of ASEAN cooperation.
The ASEAN region has rebounded from the 2008 global
economic crisis that had affected economies unevenly. Post-
crisis, the Asian economies, particularly China and India,
are outperforming major advanced economies in economic
growth, and this is precipitating changes in the structure of
the global economy that has consequences for the ASEAN
region due to the interdependent nature of ASEAN’s
growth model.
The second section of this chapter discusses developments
in ASEAN and ASEAN-plus cooperation, with a focus
on economic initiatives, and assesses if ASEAN’s current
cooperation model is adequate for the region to rise
collectively to the challenges of a new economic landscape.
Macroeconomic Environment
ASEAN
Recent Macroeconomic Performance
ASEAN has registered fairly strong growth along with the
rest of Asia in 2010, buoyed by robustness in the economies of
China and India. Although the ASEAN region experienced
its largest slowdown in annual growth in 2009 of just 1.2
percent since the Asian financial crisis of 1997-98, quarterly
growth figures have shown that affected economies started
to register positive growth from the fourth quarter of 2009.
Various factors have underpinned the economic turnaround
in ASEAN, among which are prompt macroeconomic
policy responses, low public debt and resilient domestic
demand. Strengthened capital adequacy ratios of banks in
ASEAN following the Asian financial crisis also helped to
minimize the region’s direct exposure to subprime assets
(only about 0.09 percent) resulting in comparatively less
pressure on its balance sheets compared with the rest of the
world at the onset of the 2008 crisis.
GDP Growth
Available data show that ASEAN economies have recorded
strong growth in 2010, particularly in the first half of the
year (Figures 2.1 & 2.2). Although the higher growth rates
were partly due to the lower base in 2009 and the stimulus
measures implemented by governments, they were also
driven by a rebound in global trade and a broad-based
8 ASIA COMPETITIVENESS INSTITUTE
increase in domestic demand.
ASEAN countries were affected to different extents by
the global crisis in 2008 and 2009, with the impact more
severe on the real economy rather than on the financial
sector. Those with greater export orientation were affected
more severely. There were also country-specific factors that
impacted on macroeconomic performance.
Singapore, as the most open economy, was the hardest
hit, but it also recovered most rapidly among the ASEAN
countries. Singapore emerged from recession in the third
quarter of 2009, and registered exceptional growth in the
first half of 2010 before its rate of expansion moderated
in the second half. The economy was buoyed by a surge
in electronics and biomedical manufacturing output and
robust growth in finance, tourism and trade-related services
amid strong external demand. Its GDP growth for the whole
of 2010 reached 14.5 percent, recovering from a contraction
of 0.8 percent in 2009.
Malaysia, the Philippines and Thailand, which variously
registered a sharp contraction or slow expansion in the
first three quarters of 2009, posted positive growth from
the fourth quarter of 2009. Malaysia’s GDP grew strongly
in the first half of 2010 before slowing in the second half
as exports cooled amid a weaker global economy and an
appreciating local currency. Output in the last two quarters
was bolstered by an increase in domestic private final
consumption expenditure and investment on the demand
side and expansion in the manufacturing and services sectors
on the supply side, to give Malaysia a full-year growth of 7.2
percent from negative 1.7 percent in 2009.
The Philippines posted strong growth throughout 2010 to
record an annual GDP growth rate of 7.3 percent, which
was the highest in 34 years. This was significantly up
from 1.1 percent in 2009 and was driven by a rebound in
international trade and increased government expenditure
ahead of the elections in May, as well as buoyant consumer
spending for the whole year. Fixed capital investment also
contributed significantly to output growth, registering
its highest growth rate since 2000, particularly in durable
equipment.
Thailand’s economy expanded strongly in the first quarter
of 2010, but slowed in the second quarter, as the country’s
political turmoil during April to May dented growth but by
less than expected. An impressive revival in domestic demand
contributed nearly all the GDP growth in the first half of
2010. The country slipped into a technical recession with
two consecutive quarters of contraction through September
with slower exports undermined by an appreciating baht
and global economic uncertainties, but quarter-on-quarter
growth returned to positive territory in the fourth quarter
on the back of solid exports and private consumption.
Full-year growth stood at 7.8 percent, rebounding from a
contraction of 2.2 percent in 2009.
 FIGURE 2.1: Indonesia
08Q1
6.2
08Q2
6.3
08Q3
6.2
08Q4
5.3
09Q1
4.5
09Q2
4.1
09Q3 09Q4 10Q1 10Q2 10Q3 10Q4
4.2 5.4 5.7 6.2 5.8 6.9
Quarterly 25
Malaysia
Philippines
7.6
3.9
6.5
3.7
4.9
4.6
0.1
2.8
-6.2
0.5
-3.9
1.2
-1.2
0.2
4.4 10.1
2.1 7.8
8.9
8.2
5.3
6.5
4.8
7.1
% change, year on year
Real GDP Singapore
Thailand
7.8
6.4
2.6
5.2
-0.2
2.9
-2.4
-4.2
-9.0
-7.1
-1.8
-4.9
1.6
-2.7
3.8 17.4 19.5 10.5 12.0
5.9 12.0 9.2 6.7 3.8
Growth, 20

ASEAN 15
Countries
10

0
07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4
Source: EIU; 10Q4 -5
figures are updated
from national sources. -10

-15

The less open economy of Indonesia saw GDP growth
weakening only slightly between the third quarter of 2008
and the third quarter of 2009, as high commodity prices and
resilient domestic demand bolstered growth. GDP growth
stayed in positive territory and strengthened from the
fourth quarter of 2009 to reach 6.9 percent year-on-year in
the fourth quarter of 2010, which was Indonesia’s strongest
pace of growth in six years. Full-year growth was 6.1 percent
in 2010, up from 4.5 percent in 2009, driven by solid private
consumption, an increase in investments and accelerated
exports led by commodities.
Vietnam’s GDP expanded by 6.8 percent for the whole
of 2010, up from 5.3 percent in 2009. Its GDP growth
in the fourth quarter of 7.4 percent from a year earlier
was the highest reached since February 2008. Vietnam’s
strong economic performance in 2010 was supported
by the improved global economy as well as residual effect
of the massive government stimulus spending in 2009.
Manufacturing output rose substantially while the services
sector, in particular the hotels and restaurants sub-sector,
also expanded at a more rapid pace.
For the rest of the ASEAN countries where periodic 2010
GDP growth data are unavailable, Cambodia posted an
annual GDP decline of 1.5 percent in 2009 but is estimated
to have expanded by 4.1 percent in 2010. The country’s
garment exports and tourist arrivals, which were hit by
the global crisis, have recovered in the first half of 2010
and the government has sought to develop other sources
of economic growth, particularly in the agricultural sector.
Laos was relatively unaffected by the global downturn and
maintained solid growth of 7.6 percent in 2009 on the
back of significant increases in mineral production and
expansionary government policies. Its GDP growth in
2010 is estimated to be a robust 8.0 percent, supported by
higher-than-expected minerals output, new hydropower
generation, strong performance in the manufacturing sector
and continued growth in earnings from the garment and
tourism sectors.
Brunei is estimated to register modest growth of 1.0 percent
in 2010, after two years of contraction from a decline in the
economy’s dominant production of oil and gas. Its growth is
premised on a small increase in oil and gas production amid
improving global energy demand and higher oil prices, the
start of production and exports of methanol at the end of May
2010 and ongoing construction activities to build a port and
a power line from Sarawak to Brunei. Myanmar registered an
estimated growth of 1.8 percent in 2009 compared with 1.1
percent a year earlier when the economy suffered substantial
losses from Cyclone Nargis. 2010 growth is expected to be
3.1 percent, lifted by foreign investment in the hydrocarbon
sector, a modest recovery in agriculture, and an increase in
election-related public expenditure.

figure 2.2: 20 % change, year-on-year

2007 2008 2009 2010
Annual Real 15 Brunei 0.2 -1.9 -1.8 1.0
GDP Growth, Cambodia 10.2 5.0 -1.5 4.1
10 Indonesia 6.3 6.0 4.5 6.1
ASEAN Laos
Malaysia
7.8
6.5
7.2
4.7
7.6
-1.7
8.0
7.2
Countries 5 Myanmar
Philippines
3.4
7.1
1.1
3.7
1.8
1.1
3.1
7.3
Singapore 8.8 1.5 -0.8 14.5
0 Thailand 4.9 2.5 -2.2 7.8
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Vietnam 8.5 6.2 5.3 6.8
-5

-10
Source: EIU; 2010
figures for Indonesia, -15
Malaysia, Philippines,
Singapore, Thailand and
Vietnam are updated
from national sources.

ASEAN COMPETITIVENESS REPORT 9

 FIGURE 2.3: 140
% change, year on year
Quarterly 120

Merchandise 100

Exports Growth, 80
ASEAN Countries 60

40

20

0
07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3
-20

-40

-60
Source: EIU. Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

Export Growth Unemployment

The export growth of ASEAN countries affected by the
global crisis rebounded strongly from the last quarter of
2009. From double-digit contractions in exports over the
first three quarters of 2009, most of the countries registered
double-digit export increases in the first half of 2010 of
between 34 and 55 percent before moderating in the third
quarter (Figure 2.3). The dip in export growth in Vietnam in
first quarter 2010 was due to more than $1 billion earned in
the first quarter of the previous year from re-exporting gold
and also due to reduction in exports of crude oil and coal,
Vietnam’s key export products. Vietnam’s exports increased
by 35.3 percent in the third quarter.
The robust export performance of ASEAN countries was
in line with the broader global trade recovery in 2010,
which has been described by the World Trade Organization
(WTO) as the fastest-ever annual expansion recorded in
global commerce in a data series going back to 1950. In
September 2010, the WTO revised its forecast for world
trade growth in 2010 from 10 to 13.5 percent. While the
exports for developed economies are expected to grow by
11.5 percent, the rest of the world is expected to register an
export growth of 16.5 percent.
With healthier economic conditions from late 2009, worries
over escalating unemployment have diminished. Singapore’s
average unemployment rate in 2009 was 3.0 percent, up
from 2.25 percent in 2008. Unemployment reached a five-
year high of 3.3 percent in the third quarter of 2009, but fell
to 2.3 percent in fourth quarter 2009, and has been around
2.2 percent in 2010 (Figure 2.4).
Malaysia and the Philippines saw slight increases in
unemployment in 2009, with the highest quarterly rates
of 4.0 and 7.7 percent respectively in first quarter 2009.
Malaysia’s unemployment rate declined to 3.2 percent by
the third quarter of 2010. The Philippines’ unemployment
rate moderated towards the end of 2009 but climbed to
8.0 percent in the second quarter of 2010, before falling to
6.9 percent in the third quarter. Compared with the other
ASEAN countries, Thailand’s unemployment rate has been
relatively low, at 1.5 percent in 2009 and 1.4 percent in
2008. Vietnam’s unemployment rate has remained relatively
stable at 4.6 percent in 2009 from 4.7 percent in 2008.
Indonesia, which has the highest unemployment rate
between 2006 and 2009 among the ASEAN countries

FIGURE 2.4: 12 Average, %

Unemployment
10
Rates, ASEAN
Countries 8

0
Note: ‘e’ refers to EIU e
estimates. 2006 2007 2008 2009 2010

Indonesia Malaysia Myanmar Philippines

Source: EIU.
Singapore Thailand Vietnam

10 ASIA COMPETITIVENESS INSTITUTE

 45
figure 2.5: % change, year-on-year

Consumer 40

Prices, 35
ASEAN
30
Countries
25

20

15

10

0
07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3
-5

-10
Source: EIU. Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

where data are available, saw its unemployment rate dip to over the first nine months of 2010. In the case of Vietnam,
7.41 percent in February 2010 from 8.1 percent in February inflation moderated from a peak of 27.7 percent in third
2009. quarter 2008 to a low of 2.6 percent in third quarter 2009,
finishing the year with an inflation rate of 7.0 percent, the
Inflation lowest rate achieved in six years. However, inflation has been
Inflationary pressures that had become a major concern for climbing as the economy improves and commodity prices
ASEAN economies in the first half of 2008, started to ease rise. Vietnam has been posting the highest inflation rate
in the third quarter of 2008 with the onset of the economic in the region in 2010. Inflation was more restrained in the
downturn. Although inflation rates in 2010 have remained third quarter with policy tightening and a good rice harvest,
below the pre-crisis peaks, they are again fanning concerns but prices spiked in the last quarter, increasing 11.75 percent
as rates have been climbing, stoked by economic recovery, in December from a year earlier on the back of economic
higher food and fuel prices and a surge in capital inflows to expansion, higher food costs and a weaker currency.
the region (Figure 2.5).
Current Account Balance
Two countries in particular – Cambodia and Vietnam - saw Most of the ASEAN countries have been running current
dramatic price movements over the past few years. Cambodia account surpluses over the years, although to different
registered consumer price deflation in the second and third extents. The current account balance of a majority of
quarters of 2009, in contrast to consumer price increases ASEAN countries deteriorated in 2008 but improved in
of over 30 percent in the second quarter of 2008. Prices 2009 (Figure 2.6).
rose 7 percent in the first quarter of 2010 but moderated
in subsequent quarters to register an increase of 4.2 percent

Figure 2.6: 80
% of GDP
Current 70
Account 60
Balances, 48
50 46
ASEAN 39
37
Countries 40

30 27

Notes: 1. Figures 19 18 19
20 16 18 16
for Brunei (2008), 12
Cambodia (2008, 10 8 6 8
3 2 5 5 5 5 5
2009), Laos (2009) 2 2 1 3 3 2
0 0 1
and Myanmar (2007, 0
2008, 2009) are EIU -0.4
estimates. ‘e’ refers to -10 -6 -7 -5
EIU estimates for all -10 -8 -8.5 -10
-12
countries in 2010. -20
1 1 1 1
Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam
Source: EIU.
2007 2008 2009 2010 e

ASEAN COMPETITIVENESS REPORT 11

 Figure 2.7: 120 US$ per local currency unit
(Jan 2008=100)
Exchange Rates, 115
ASEAN Countries 110
105
100
95
90
85
80
75
Note: The Brunei dollar is
pegged to the Singapore 70
dollar at a 1:1 ratio. 08Q1 08Q2 08Q3
Source: EIU. Cambodia
Philippines
Brunei runs the largest current account surplus among
ASEAN countries, due largely to exports of oil and gas and
also to income inflows from assets held abroad. Vietnam has
been running a current account deficit arising mainly from
its huge trade deficit with China even as it maintains a trade
surplus with most of its other trading partners.
Exchange Rates
Nominal exchange rates in most ASEAN countries
depreciated in late 2008 and early 2009, in concert
with the deterioration of current account balances. In
general, ASEAN currencies were cushioned against major
disruptions in the foreign exchange market due to the
region’s low exposure to subprime assets and high foreign
exchange reserves.
The currencies of most ASEAN countries have been
appreciating since the second half of 2009 and into 2010. By
the third quarter of 2010, the Indonesian rupiah, Malaysian
ringgit, Singapore dollar and Thai baht have exceeded their
pre-crisis levels in the first half of 2008, while the Philippine
peso has yet to recover its value (Figure 2.7).
An exception is the Vietnamese dong, which has been
depreciating since early 2008 and has continued on a
downtrend. The Vietnamese authorities devalued the dong
thrice between November 2009 and August 2010 by about
11 percent against the US dollar. The devaluations were
necessitated by the widening spread between the black
market exchange rate and the reference rate of Vietnam’s
central bank, which was due to the high trade deficits and
inflation and the shifting preference for US dollars and gold
over local-currency assets.
A continuing trend of appreciation of major ASEAN
currencies against the US dollar would contribute to
correcting the global current account imbalances that
exist between the developed and developing countries,
although the effect may be moderated by reduced export
competitiveness if other currencies in the region do not also
appreciate.
12 ASIA COMPETITIVENESS INSTITUTE
08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3
Indonesia Laos Malaysia Myanmar
Singapore Thailand Vietnam
Macroeconomic Policies and Growth Prospects
One of the factors contributing to ASEAN’s relatively
robust recovery is the prompt countercyclical measures
that were implemented by ASEAN’s policy makers with
the onset of the global crisis, to reduce its impact and
minimize downside risks to economic growth. As ASEAN
economies turn around, the governments have scaled down
or lifted their stimulus policies. The challenge for ASEAN
is to maintain growth momentum after fiscal and monetary
stimulus are withdrawn and to develop sustainable sources
of growth.
Macroeconomic Policies
ASEAN’s policy response to the crisis has involved national
strategies with an absence of coordination at the regional
level. In countries such as Malaysia and Singapore, policy
measures have been targeted and comprehensive, rather
than piecemeal as in Laos and Myanmar.
ASEAN’s monetary authorities had shifted towards a more
expansionary policy with the onset of the global crisis,
as concerns over soaring inflation in the first half of 2008
dissipated to be replaced by concerns over sagging demand.
Between November 2008 and August 2009, central banks
in Indonesia, Philippines, Thailand, Malaysia and Vietnam
made several reductions in the policy interest rates. Besides
rate changes, some of the ASEAN countries also introduced
other policy measures to increase the flow of credit. In
Indonesia, Malaysia, Philippines and Vietnam, reserve
requirements on deposits were reduced to free up capital
and boost lending.
As shown in Figure 2.8, the central banks have begun a
rollback of their expansionary monetary policies with policy
rate rises at various points in time since the second half of
2009. Vietnam, which had faced surging inflation rates in
the first half of 2008, raised its prime rate to 8 percent in
December 2009 to rein in credit growth, as inflationary
pressures built again on the back of robust economic
growth. The prime rate was further raised to 9 percent in
 FIGURE 2.8: 16

Policy Rates, 14
Vietnam

ASEAN Countries
12

Policy interest rates (percent)

10
Indonesia

8
Philippines
Note: Policy interest rates 6
are Bank of Indonesia rate
(Indonesia), overnight policy Thailand
rate (Malaysia), one-day repo 4
rate (Thailand), overnight Malaysia
lending rate or repo rate 2
(Philippines) and prime rate
(Vietnam). 0
Source: Central bank J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N
websites.
2008 2009 2010

November 2010. Malaysia raised its policy interest rate three As with monetary stimulus, countries have also begun to
times between March and end-August 2010, while Thailand withdraw their fiscal stimulus. In Indonesia, government
raised its policy rate twice in July and August 2010. consumption spending fell in the first half of 2010 as the
country began to unwind its fiscal stimulus and also because
Fiscal stimulus policies have also been critical in of delays in budget disbursements. In Vietnam, most of the
encouraging economic recovery, particularly since most fiscal stimulus expired at the end of 2009.
ASEAN countries do not have automatic stabilizers such
as unemployment insurance. In response to the global Growth Prospects
crisis, ASEAN governments (excluding Brunei) ran budget The outlook for ASEAN economies is positive. Following
deficits averaging 4.5 percent of GDP in 2009 in contrast V-shaped rebounds in 2010, the growth rates of most of the
to pre-crisis levels of 2.1 percent in 2007 and 2.3 percent in ASEAN economies are forecast to be in the range of 4.5 to
2008. The fiscal balance of each ASEAN country is given in 7.0 percent in 2011 and 2012, based on the simple averages of
Figure 2.9. forecasts by the Economist Intelligence Unit, International
Monetary Fund and the World Bank (Figure 2.10). Vietnam
The stimulus packages have comprised a mix of public and Laos, both of which had registered growth rates of
spending and tax cuts, with the balance tilted towards higher above 5 percent even during the crisis, are expected to be
spending. An exception has been Indonesia, where tax cuts among the fastest-growing ASEAN countries over the next
have made up a large component. In line with the region’s two years. Brunei on the other hand, is expected to expand
pro-growth stance, a number of countries have emphasized at the slowest rate of just above 1 percent.
infrastructure investments in the stimulus packages, which
will benefit growth well beyond the short run.

FIGURE 2.9: 40 % of GDP

Fiscal Balances, 31.6

ASEAN Countries 30 27.9

22.5

20

10
3.1
1.4
0 -0.2
-0.7 -0.6 -0.9 -1.0 -1.1
-1.6 -3.0
-2.9 -2.9 -2.8 -2.8 -3.3 -3.2
-3.5 -4.5
-2.3
-4.8 -3.9 -4.4 -5.4
-6.3 -7.0
-10 -7.3
-9.0

Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam
-20
2007 2008 2009
Source: EIU.

ASEAN COMPETITIVENESS REPORT 13

 FIGURE 2.10: 16
% change, year-on-year
GDP Growth 14
Forecasts, ASEAN E
2011f
I W E
2012f
I W
Countries 12
Brunei 1.4 1.0 - 1.2 1.2 -
10 Cambodia 5.1 6.8 6.0 6.3 6.5 6.5
Indonesia 6.0 6.2 6.2 6.4 6.5 6.5

Notes: The figures for 2011 8 Laos 7.7 7.5 7.5 7.9 7.3 7.5
and 2012 in the chart refers Malaysia 4.3 5.3 4.8 4.8 5.2 5.7
to the simple average of 6 Myanmar 4.0 5.0 - 4.4 5.0 -
growth forecasts from EIU Philippines 5.3 4.5 5.0 5.4 4.5 5.4
(E), IMF (I) and World Bank 4 Singapore 4.1 4.5 5.0 5.0 4.4 6.0
(W) for each country. The
table provides the forecasts Thailand 4.3 4.0 3.2 5.0 4.3 4.2
2 Vietnam 6.8 6.8 6.5 7.1 7.0 7.0
from each source. “–”
indicates data not available.
0
Sources: EIU, IMF and World 2007 2008 2009 2010 2011f 2012f
Bank. -2

-4

A risk that may derail ASEAN economies’ growth is the
surge in capital inflows to emerging markets in Asia in search
of higher returns amidst low interest rates in developed
economies. Hot money has driven up prices in the property,
stock and bond markets and has raised concern over the
buildup and eventual bursting of asset price bubbles. The
pressure on ASEAN currencies to appreciate has also
prompted countries such as Thailand to stem capital inflows
by imposing a 15 percent withholding tax on interest and
capital gains earned by foreign investors on domestic bonds.
Other countries have not implemented capital controls
but are monitoring capital inflows and considering how
best to regulate and direct such inflows to ensure financial
stability. The quantitative easing by the US has prompted
the IMF to issue a warning of currency wars sparking trade
wars. Another risk is the buildup of inflationary pressures
from rising world food and oil prices. This is in particular
a challenge to developing countries, as the need to contain
social unrests from rising prices through the provision of
subsidies or the lowering of import tariffs would pose a
strain on their fiscal sustainability.
Unlike the 1997 Asian crisis, ASEAN economies in the
2008 crisis suffered from a lack of global aggregate demand.
Hence, the long-run impact of the 2008 crisis depends
not only on corrective measures implemented by ASEAN
countries but also on policies adopted by countries ASEAN
trades with. The sustainability of growth of ASEAN thus
also depends on how well the ASEAN countries can adjust
to the changing global economy.
The Global Context
Global Economic Outlook
The global economic recovery process has been characterized
by a duality in the post-crisis growth paths of ASEAN and
the rest of developing Asia, and major advanced economies.
ASEAN overall recorded a slight growth of 1.2 percent in
2009 and robust growth of around 6.6 percent in 2010.
China and India maintained strong growth in 2009 and are
estimated to have further expanded by 10.0 percent and 8.8
percent in 2010 respectively. ASEAN is forecast to expand
by more than 5 percent a year in 2011 and 2012 (based on

Figure 2.11: 20 % change, year-on-year

GDP Growth
15
Rates, Selected
Countries/
10
Regions 6.3 6.6
5.2 5.6
5 3.6
1.2
Note: The figures for 2011 0
and 2012 refer to the 2007 2008 2009 2010 2011f 2012f
simple average of growth
forecasts from EIU (E), IMF -5
(I) and World Bank (W) for
each country or region.
-10
Sources: EIU, IMF and
World Bank. ASEAN China India EU Japan US World

14 ASIA COMPETITIVENESS INSTITUTE

 Figure 2.12: 2.50 % of world GDP
World Current 2.00
Account
1.50
Balances
1.00
0.50
0.00
2006 2007 2008
Note: ‘e’ refers to IMF -0.50
staff estimates.
-1.00
Source: IMF, World
Economic Outlook
Database, October -1.50
2010.
-2.00
ASEAN China India
a simple average of forecasts by the EIU, IMF and World
Bank), while China and India are forecast to continue
with their strong performance (Figure 2.11). On the other
hand, the developed economies of the US, EU and Japan
experienced contractions in 2009, and their recovery has
been in the main weak and halting. Economic growth in
the major developed countries is likely to remain subdued
over the next few years, as the damage to the financial sector
and the household balance sheets, sovereign debt woes and
lower maneuverability for implementing stimulus policy
measures are likely to have long-lasting effects.
Global Rebalancing
Widening global current account imbalances, which had
been an underlying cause of the 2008 global economic
turmoil, narrowed during the crisis as world trade plunged
and commodity prices fell. The current account deficit of
the US in 2009, at 0.7 percent of world GDP, was less than
half its level in 2006. Of the surplus-running countries, the
oil-exporting countries in the Middle East in particular
saw a marked reduction in surplus in 2009 to 0.09 percent
of world GDP. China’s surplus also fell, but remained a
considerable 0.5 percent of world GDP. ASEAN’s current
account surplus, which has been relatively modest, dropped
to 0.1 percent of world GDP in 2009 from 0.18 percent
before the crisis.
With global economic recovery, the current account
imbalances are projected to grow again, but are expected
to remain lower than before the crisis (Figure 2.12). As the
economies with sizeable current account deficits, particularly
the US, scale back on spending and imports with expected
lower income growth, global rebalancing would require
the surplus countries, in particular China, to develop new
sources of demand.
The current account surpluses sustained by ASEAN and
the rest of developing Asia over the last decade have been
the outcomes of these countries’ successful outward-
looking export-oriented growth strategies. In the coming
years, developing Asia would need to look beyond exports
2009 2010e 2011e 2012e 2013e 2014e
EU Japan United States Middle East Rest of the world
to developed markets in the West towards greater intra-
regional trade and greater domestic consumption and
investment. In this regard, it is necessary for governments
to provide better social safety nets so that there would be
less need for precautionary savings. Improvements in overall
living standards as the economies develop would also spur
greater consumer demand and help to shift resources toward
production for local as well as regional consumers.
ASEAN’s Trade and Investment Linkages
The region’s trade and investment linkages have been
predominantly with countries outside ASEAN, although
there have been changes in the relative importance of
external partners over time. This underscores the scope for
expanding intra-ASEAN trade and investments while at the
same time also emphasizes the need for ASEAN to remain
open.
ASEAN’s trade is mainly in goods (83 percent in 2009)
rather than in services. The shares of ASEAN’s merchandise
exports to and imports from the US, EU and Japan have been
decreasing. From 2002 to 2009, the share of exports to these
three destinations has fallen from a combined 42 percent to
31 percent and the share of imports from 42 percent to 32
percent (Figures 2.13 & 2.14). On the other hand, ASEAN’s
shares of exports to and imports from China and India
have been increasing. In the case of China, the shares have
doubled between 2002 and 2009. The changing pattern of
ASEAN’s trade can be attributed partly to developments in
production networks for manufactured goods in East Asia,
where ASEAN countries supplied components for final
assembly in China and then export to developed market
destinations. In 2009, 34 percent of ASEAN’s exports to
China were in parts and components1. Thus, while trade
between ASEAN and China has expanded significantly, a
considerable share is still tied to final demand from the West.
ASEAN COMPETITIVENESS REPORT 15
 FIGURE 2.13: %
Share of 16.0 14.6 11.6 5.1 2.2 22.6 27.9
2002
ASEAN Exports
TO Selected
COUNTRIES/REGIONS 2004

2006

2008

Source: ASEAN Merchandise 2009 10.1 11.5 9.6 10.1 3.3 24.6 30.8
Trade Statistics Database;
authors’ analysis.
US EU Japan China India ASEAN Rest of the world

In the post-crisis period, ASEAN’s trade ties with China and
India are expected to continue to strengthen even as export
demand from developed country markets remains weak. The
pressure on China to reduce its current account surplus and
increase spending would provide an opportunity for growing
exports from ASEAN. India’s “Look East” policy, which has
seen a resurgence since the 1990s, should also help ASEAN
to gain access to India’s market in the long term. ASEAN’s
comprehensive economic cooperation agreements with
China and India (covered later in this chapter) would also
contribute to closer economic linkages.
Intra-ASEAN trade has increased in the 2000s, particularly
from 2002 onwards although the percentage point increases
in intra-ASEAN shares of ASEAN’s total exports and
imports have been moderate and have not been sustained
from year to year. Intra-ASEAN share of exports (imports)
was 22.6 (22.2) in 2002 and averaged 25.5 (24.7) percent
between 2003 and 2009. These shares are relatively low
compared with the regional blocs of the EU and NAFTA,
where the share of intra-regional trade was 65.6 percent and
39.3 percent in 2009 respectively. However, if intra-ASEAN
trade share is compared with ASEAN’s share of global world
trade, which is around 6 percent, then intra-ASEAN trade
is four times higher than would be the case if ASEAN
countries were randomly distributed countries.
To an even greater extent than trade flows, the bulk - over
80 percent - of ASEAN’s foreign direct investment inflows
are from outside ASEAN rather than from other ASEAN
members (Figure 2.15). The largest share of FDI inflows to
ASEAN is from the EU, which accounted for 25 percent of
total inflows between 2003 and 2008. This is followed by
Japan (15 percent) and the US at a distant third (8 percent).
China’s FDI flows have exceeded 1 percent from 2004, and
accounted for 2 percent of FDI inflows between 2004 and
2008. Intra-ASEAN share of FDI inflows averaged 13.5
percent between 2003 and 2008.
ASEAN Cooperation Model
The context for cooperation among countries in the
Southeast Asian region has changed dramatically since
ASEAN’s inception in 1967. From an initial imperative
to address political and security concerns, the spotlight in
the 1990s turned to economic cooperation. A significant
milestone was the agreement in 1992 to establish an ASEAN
Free Trade Area (AFTA) in 15 years.

FIGURE 2.14: %

Share of ASEAN 2002 13.2 12.4 16.1 7.0 1.1 22.2 28.0
Imports FROM
Selected
2004
COUNTRIES/REGIONS

2006

2008

Source: ASEAN Merchandise 2009 9.3 10.8 11.4 13.3 1.7 24.3 29.1
Trade Statistics Database;
authors’ analysis.
US EU Japan China India ASEAN Rest of the world

16 ASIA COMPETITIVENESS INSTITUTE

 FIGURE 2.15: %
Share of ASEAN 2002 -1.2 21.0
FDI Inflows
from Selected
COUNTRIES/REGIONS 2004
2006
2008 5.6 20.6
Source: ASEAN Foreign
Direct Investment Statistics US EU
Database; authors’ analysis.
ASEAN Leaders further articulated their resolve to forge
closer economic integration through the ASEAN Vision
2020 in December 1997, which aspired to transform
ASEAN into a stable, prosperous and highly competitive
region with equitable economic development, and reduced
poverty and socio-economic disparities. The ASEAN
Vision was set against the severe fallouts from the 1997
Asian financial crisis and an increasingly competitive global
marketplace. Huge regional trading blocs were formed in
Europe and North America, and the emerging economies
of China and India were posing stronger competition,
particularly the former. ASEAN had lost its competitive
edge in terms of labor costs and foreign direct investments
to China. Investors were largely deterred by subscale,
fragmented markets in ASEAN and unnecessary costs
resulting from differing product standards across the region.
To regain competitiveness, ASEAN needed to make a
concerted move towards greater economic integration and
at the same time raise workers’ productivity and cut costs
across the production value chain.
At the 2003 Summit in Bali, ASEAN Leaders declared an
ASEAN Economic Community (AEC) to be the goal of
regional economic integration by 2020. The AEC would be
one of three pillars that would build an ASEAN Community
in 2020, the other two being an ASEAN Political-Security
Community and an ASEAN Socio-Cultural Community.
The AEC would establish ASEAN as a single market and
production base characterized by free flow of goods, services,
investment, skilled labor and freer flow of capital.
In 2007, ASEAN Leaders accelerated the creation of an
AEC to 2015 and adopted a comprehensive action plan, the
AEC Blueprint, which had clear timelines and targets. They
also signed the ASEAN Charter at the Singapore Summit
in November to establish ASEAN as a rules-based entity
with a legal personality that is separate from its member
states. The Charter was ratified by all member countries and
entered into force in December 2008.
17.0 0.5 21.4 41.6
12.7 2.5 0.7 18.3 39.6
Japan China India ASEAN Rest of the world
In 2009, ASEAN further adopted the ASEAN Political-
Security Community and ASEAN Socio-Cultural
Community Blueprints towards a shared responsibility for
regional security and global integration and to enhance
cooperation in human development and narrow the
development gap between members. The theme in 2009 was
‘ASEAN Charter for ASEAN Peoples’ and the target was to
achieve an ASEAN Community by 2015.
Towards an ASEAN Economic Community
The AEC as envisaged would comprise four key interrelated
and mutually reinforcing characteristics: (i) a single market
and production base, (ii) a competitive economic region, (iii)
equitable economic development and (iv) integration into
the global economy. The AEC Blueprint sets clear targets,
actions and timelines for the implementation of various
measures from 2008 to 2015. To track progress towards
the AEC 2015, a scorecard mechanism was developed to
monitor and assess implementation.
The plan for an AEC builds on earlier ASEAN initiatives
to establish closer cooperation in trade and investment.
These building blocks include the ASEAN Free Trade
Area (AFTA) (1992), ASEAN Investment Area (AIA)
(1998), and the ASEAN Framework Agreement on
Services (AFAS) (1995). Through further liberalization and
facilitation measures, ASEAN aims to realize a single market
and production base in 2015. Accelerated liberalization and
integration is identified for 12 goods and services sectors.
These are: agro-based products, automotives, electronics,
fisheries, rubber-based products, textiles and apparels,
wood-based products, healthcare, e-ASEAN, tourism and
logistics services.
The case for an AEC is evident from several viewpoints.
An integrated economic community enjoys economies of
scale, lower production and transaction costs, enhanced
intra- and extra-regional trade and overall welfare gains.
With freer movement for goods, labor and capital among
member countries, there would be more efficient allocation
ASEAN COMPETITIVENESS REPORT 17
of factors of production resulting in higher productivity.
Labor mobility may also lead to less disparity in wages
across member countries and create more opportunities
for workers within the region to find jobs. Trade expansion
within the region is also a means to foster higher growth in
less developed economies in ASEAN and help them to catch
up with the more developed economies in the region and
reduce the magnitude of poverty in the region. Moreover,
an integrated economic and trade bloc with no market and
trade barriers and harmonized regulations is more attractive
to investors than one that is fragmented. The agglomeration
of Southeast Asian nations has a magnified voice, influence
and leverage in global economic affairs. Through domestic
economic reforms and strengthened political cohesion, the
AEC reaps greater common interests for the region while
presenting each member with a larger stake in the region’s
progress and prosperity.
While economic integration would bring undeniable
benefits to the region in the longer term, there are short-
term transition costs. Greater external competition may
cause some industries that previously enjoyed domestic
market protection and subsidies to struggle for survival
resulting in business failures and unemployment. Economies
with weaker and less transparent economic systems and less
advanced institutional, infrastructural and communications
systems would need longer execution timelines for
integration plans. The road to an AEC would be bumpy, and
ASEAN members have to manage the integration process to
ease adjustment pains and also to ensure that resistance from
entrenched domestic interests does not impede progress.
The 2008 global crisis has raised concerns that the regional
integration process would be derailed as governments
accorded priority to national interests and resorted to
protectionist measures to keep local industries afloat and
preserve jobs. ASEAN leaders and ministers have been
conscious of protectionist threats not only from member
countries but also from elsewhere in the world, especially in
advanced economies such as the US, since the crisis flared
up, and they have consistently taken an anti-protectionism
stance in official ASEAN statements and speeches.
However, the anti-protectionism line has not been as clear
at the individual country level. For instance, Malaysia
launched a Buy Malaysian Campaign in January 2009, and
Indonesia introduced a buy local policy in March 2009
for the country’s four million civil servants. In May 2010,
Indonesia indicated that it was prepared to open up only
five of around 30 key airports to ASEAN member carriers
by 2015, despite provision under the AEC for an ASEAN
Single Aviation Market by 2015.
Notwithstanding selected individual country measures,
ASEAN overall has not stopped implementing measures
towards an AEC over the last three years. However, it is
also behind schedule. According to the first AEC Scorecard
compiled by the ASEAN Secretariat and published
in April 2010, 73.6 percent of measures scheduled for
implementation between January 2008 and December
18 ASIA COMPETITIVENESS INSTITUTE
2009 were implemented by ASEAN member states.
Measures that were not implemented mainly involved the
ratification of important economic agreements by individual
members. Members were urged in that document to step
up implementation, ‘to avoid a backlog of unimplemented
commitments with the onset of more new commitments
and measures … in the years to come.’ In October 2010, the
AEC Council noted that almost 20 percent of deliverables
under the AEC Blueprint for 2008-2009 still had not been
achieved. It was reported that Brunei, Malaysia, Myanmar,
Singapore and Vietnam were among those with the highest
compliance.
Trade and Investment Liberalization and Facilitation
In the area of realizing a single market and production base
through trade and investment liberalization and facilitation,
ASEAN has made the greatest stride in tariff reduction.
From 1 January 2010, ASEAN-6 (Brunei, Indonesia,
Malaysia, Philippines, Singapore and Thailand) countries
have eliminated all tariffs among members for products in
the Inclusion List of the Common Effective Preferential
Tariff (CEPT) Scheme for AFTA. Only 0.9 percent of
tariff lines remained for products on the Sensitive, Highly
Sensitive and General Exclusion Lists. The CLMV countries
will eliminate tariffs on all products in the Inclusion List by
2015.
ASEAN has also taken significant steps to revise and simplify
the Rules of Origin (ROO), which sets the conditions for
goods manufactured or produced in ASEAN countries to
enjoy preferential tariff concessions when exported to other
ASEAN destinations. The next step in the streamlining
of ROO procedures is for all member states to implement
an ASEAN Self Certification Scheme by 2012. On 1
November 2010, three participating members – Brunei,
Malaysia and Singapore – commenced a pilot project to
kick-start the self-certification system, under which certified
exporters can declare, on a commercial invoice, that their
products have satisfied the ASEAN origin criteria and can
claim preferential treatment and tariff concessions under the
AFTA. This saves documentation delays and costs.
Although tariff barriers have been substantially lowered and
ROO simplified, considerable work remains for ASEAN in
the elimination of non-tariff barriers and trade facilitation.
A Trade Facilitation Framework has been adopted by
ASEAN, with a Work Programme until 2015 to address
systematically non-tariff issues such as customs, trade
procedures, standards and conformance and sanitary and
phytosanitary measures.
A key initiative in trade facilitation is the plan for an ASEAN
Single Window (ASW), to expedite customs clearance of
goods across the region. A single window provides one entry
point for traders to lodge information with government to
fulfill all import- or export-related regulatory requirements.
The ASEAN Single Window is an environment where ten
National Single Windows (NSWs) of individual member
countries operate and integrate. It is expected to make
shipment of goods faster by about 40 percent. Although
the AEC Blueprint has set 2008 as the latest year for
ASEAN-6 countries to operationalize their NSWs, it was
only in August 2010 that ASEAN Economic Ministers
noted at their meeting that these countries had activated
their NSWs. The CLMV countries have until 2012 to set up
their respective NSWs and they are undertaking preparatory
work to do so. It remains a challenge to work towards
timely full implementation of the ASEAN Single Window.
ASEAN countries have signed in the second half of 2010 the
Memorandum of Understanding on the Implementation of
the ASEAN Single Window Pilot Project and the Protocol
on Electronic Customs Facilitation (Single Window) to test
the infrastructure and procedures.
Various provisions related to tariff reduction and facilitation
of trade in goods have been consolidated into a single
legal instrument: the ASEAN Trade in Goods Agreement
(ATIGA) to make it more user-friendly and reduce the
transaction time and costs of doing business. The ATIGA
was signed in February 2009, but there was a delay in the
ratification of the Agreement by all ASEAN member states
due to a dispute between Thailand and the Philippines on
rice tariffs. The dispute was resolved when the Philippines
was allowed to keep its 40 percent tariff on rice imports
from ASEAN up to 2014 and reduce it to 35 percent only
on 1 January 2015. In return, Thailand, considered a major
supplier of rice to the Philippines, would secure a special-
access arrangement for rice shipments of 367,000 metric tons
annually. The ATIGA entered into force in May 2010, and
tariff liberalization commitments would be implemented
retroactively from 1 January 2010.
In the area of services liberalization, ASEAN has concluded
the seventh package of services commitments under the
ASEAN Framework Agreement on Services (AFAS),
where members pledged commitment to allow higher
foreign equity ownership in various sectors, such as in
business services, education, distribution and maritime
transport services. ASEAN also has additional packages
of commitments on financial services and air transport. In
October 2010, ASEAN Economic Ministers signed the
Protocol to Implement the Eighth Package of Commitments
for the liberalization of 15 new sub-sectors. The AFAS aims
to liberalize 128 service sub-sectors and the latest package
brings up the commitments to cover 80 sub-sectors so
far. The commitments under the AFAS go beyond the
requirements of the WTO.
In investment, ASEAN has consolidated its 1998
Framework Agreement on the ASEAN Investment Area
and the 1987 ASEAN Investment Guarantee Agreement
into the ASEAN Comprehensive Investment Agreement
(ACIA). The ACIA is aimed at benefiting both ASEAN
and ASEAN-based foreign investors, through provisions
for investment liberalization, protection and investment
promotion and facilitation. The Agreement was signed in
February 2009. According to the AEC Scorecard, some
countries had yet to ratify the ACIA and finalize the
reservation list. There were also reports that some countries
had proposed many sectors for protected investment, which
could impede timely implementation of ACIA.
Regulatory reforms are integral to trade and investment
facilitation. Of these, it has been suggested that
administrative reforms are easier to accomplish and will
have substantial positive impact on the AEC. To this end,
ASEAN Economic Ministers have agreed to an ASEAN
Regulatory Reform Dialogue at the senior economic
officials’ level in early 2011 to address some of the regulatory
issues pertaining to trade facilitation, services liberalization
and investment facilitation.
Enhancing ASEAN Connectivity
The Master Plan on ASEAN Connectivity has been adopted
by the ASEAN Leaders at the 17th ASEAN Summit in
Hanoi in October 2010. It seeks to enhance physical,
institutional and people-to-people connectivity between
members to reduce the development gap and enhance
competitiveness by improving production and distribution
networks in the region.
Physical connectivity is a challenge for the region,
which calls for the upgrading of existing infrastructure,
construction of new infrastructure and new logistics
facilities and harmonization of regulatory framework.
Seven strategies have been drawn up to establish seamless
regional connectivity through a multimodal transport
system, enhanced Information and Communications
Technology (ICT) infrastructure and a regional energy
security framework. Prioritized projects include completion
of the ASEAN Highway Network, completion of the
Singapore Kunming Rail Link missing links, establishment
of an ASEAN Broadband Corridor, and furthering the
development of the ASEAN Power Grid Network through
the implementation of interconnection projects between
Peninsular Malaysia and Sumatra, Indonesia, and West
Kalimantan and Sarawak.
The infrastructure needs of ASEAN and Asia in general
are great. The Asian Development Bank (ADB) and Asian
Development Bank Institute (ADBI) estimate that Asian
countries would need to invest US$8 trillion in national
infrastructure and US$290 billion in regional infrastructure
from 2010 to 2020 to achieve pan-Asian connectivity. A
variety of internal and external financing sources are needed
to address the different financing and technical assistance
needs across ASEAN economies. Besides traditional
modes of financing from multilateral development banks,
bilateral development partners and national governments,
innovative infrastructure financing mechanisms are also
integral to the Connectivity plan. Connectivity could be
financed by innovative mobilization of the region’s large
aggregate private savings and foreign exchange reserves with
involvement of the private sector particularly in the form of
public-private partnerships.
ASEAN COMPETITIVENESS REPORT 19
One financing mechanism being developed is the ASEAN
Infrastructure Fund (AIF), which was initiated by ASEAN
Finance Ministers in May 2010 on the sidelines of the Asian
Development Bank’s annual meeting. The Fund targets to
have an initial capital of US$800 million with contributions
from ASEAN members and the Plus Three countries of
China, Japan and South Korea. The ADB has been requested
to support the establishment of the AIF. ASEAN could also
tap on other evolving sources of infrastructure financing
such as the ADB’s Asian Infrastructure Fund and the
China-ASEAN Investment Cooperation Fund announced
by China in April 2009, which plans for a total fund of
US$10 billion and has raised US$1 billion by April 2010.
To encourage the active participation from all stakeholders,
a seminar was held in December 2010 in Vietnam to unveil
the Master Plan on ASEAN Connectivity to the public.
Closer connectivity would also bring its share of problems
such as transnational crimes, illegal immigration,
environmental degradation and pollution among other
cross-border issues and mechanisms to address these are also
part of the Master Plan on ASEAN Connectivity.
If the required investment in transport, telecommunications
and energy infrastructure were made during 2010-2020,
developing Asia could enjoy real income gains of about
US$13 trillion during that period and beyond (ADB and
ADBI 2009). In the context of the need for Asia to rebalance
growth post-global crisis, massive infrastructure investments
will serve to mobilize the region’s savings and boost regional
demand at the same time that they lay the foundations for
long-term growth.
ASEAN’s Engagement with Stakeholders
While the ASEAN Charter recognizes the need to engage
other stakeholders in order to achieve its vision of an ASEAN
Community by 2015 and be a people-oriented organization,
the approach to engagement varies across ASEAN countries
from those that are more open to engaging with diverse
stakeholders and those that prefer a more managed form of
engagement. However, ASEAN has made some progress in
its efforts to engage with stakeholders by making it a part of
the ASEAN Charter.
A list of entities has been identified in an annex of the
Charter for engagement. The entities include the ASEAN
Inter-Parliamentary Assembly, various ASEAN business
organizations, think tanks and academic institutions which
are part of the ASEAN-ISIS Network, ASEAN civil society
organizations and a few others such as the Working Group
for an ASEAN Human Rights Mechanism.
While engagement with civil society is more relevant
for achievement of ASEAN’s people-centric ASEAN
Community as a whole, engagement with the business
community is specifically important for achieving an
ASEAN Economic Community by 2015. The need to
communicate with and to involve stakeholders in the process
is mentioned in the AEC Blueprint.
20 ASIA COMPETITIVENESS INSTITUTE
The main business organization that ASEAN consults for
private sector feedback is the ASEAN Business Advisory
Council (ASEAN-BAC). The ASEAN-BAC was formed
in 2003 and up to three business leaders from each of the
ASEAN countries can be nominated to the Council. The
ASEAN-BAC holds regular meetings across ASEAN and
participates in ASEAN and national level forums. The
ASEAN-BAC holds an ASEAN Business and Investment
Summit annually on the sidelines of the ASEAN Summit.
Since 2009, ASEAN Economic Ministers (AEM) have
started to hold Public-Private Sector Policy Dialogues with
representatives not only from ASEAN-BAC but also from
among the 12 sectors that have been identified for priority
integration towards an AEC. The AEM has so far held
dialogues with representatives from the textiles, automotive
and logistics sectors.
In October 2010, the ASEAN Economic Community
Council announced that an SME Advisory Board, consisting
of the Heads of ASEAN SME Agencies and private sectors
representatives, will be established to provide a forum for
networking as well as for deliberating and providing inputs
on SME-related regional flagship projects and policy
matters to the Ministers.
ASEAN-plus Initiatives
One of the four key pillars of the ASEAN Economic
Community is integration into the global economy through
free trade agreements (FTAs) and comprehensive economic
partnership (CEP) agreements with ASEAN’s dialogue and
major trading partners, where ASEAN seeks to maintain
“ASEAN Centrality”. ASEAN also cooperates with the Plus
Three partners of China, Japan and Korea on a number of
financial initiatives.
Trade and Investment Agreements
In addition to intra-ASEAN trade and investment
cooperation, ASEAN has been developing a network of
extra-regional economic agreements covering trade in goods,
services and investments, which has gained momentum
over the last decade starting with China’s proposal for an
ASEAN-China Free Trade Area in November 2001. To-
date, ASEAN has concluded agreements with China, Japan,
Korea, Australia and New Zealand, and India.
In 2002, ASEAN and China signed a Framework
Agreement for Comprehensive Economic Cooperation for
the establishment of the ASEAN-China Free Trade Area.
Under this framework, the Agreement on Trade in Goods
was signed in 2004, the Agreement on Trade in Services
was signed in 2007 and the ASEAN-China Investment
Agreement in 2009. The ASEAN-China FTA was fully
implemented in January 2010 for ASEAN-6 (Brunei,
Indonesia, Malaysia, Philippines, Singapore and Thailand)
and China to create the world’s third-largest free trade
area, after the EU and NAFTA. The CLMV countries will
complete tariff eliminations on most goods by 2015.
The ASEAN-Japan Comprehensive Economic Partnership
Agreement entered into force in December 2008, with
provisions for tariff eliminations by ASEAN-6 and
Japan within ten years and negotiations for services and
investment to commence one year from entry into force
of the Agreement. In 2005, ASEAN and Korea signed
the Framework Agreement on Comprehensive Economic
Cooperation, and subsequently, signed four more
agreements that form the legal instruments for establishing
the ASEAN-Korea Free Trade Area. The ASEAN-Korea
Free Trade Area was realized in January 2010 with tariffs
eliminated by ASEAN-6 and Korea on more than 90
percent of products.
A comprehensive agreement for an ASEAN-Australia-New
Zealand Free Trade Area (AANZFTA) was signed in 2009
and came into force in January 2010. This is ASEAN’s first
multi-country FTA and the AANZFTA is considered the
most comprehensive FTA agreement ever signed by ASEAN
and its dialogue partners. The Agreement covers trade in
goods and services, electronic commerce, movement of
natural persons, investment, economic cooperation, dispute
settlement mechanism and specific provisions on customs
procedures, sanitary and phytosanitary measures, standards
and technical regulations, intellectual property rights and
competition.
ASEAN and India signed a Framework Agreement on
Comprehensive Economic Cooperation in 2003. Under
this framework, the ASEAN-India Agreement on Trade in
Goods was signed in 2009 and entered in force in January
2010. As of 1 October 2010, India, Singapore, Malaysia,
Thailand, Vietnam, Brunei and Indonesia have implemented
the Agreement. ASEAN and India are currently working
towards the early conclusion of the ASEAN-India Trade in
Services and Investment Agreements.
ASEAN Plus Three initiatives, involving the ASEAN
countries, China, Japan and Korea have been in progress
since December 1997 when the Asian financial crisis
underlined the need for greater regional cooperation.
ASEAN+3 cooperation is now being pursued in 20 areas.
The East Asia Summit (EAS), first held in 2005, arose
from a decision of the ASEAN+3 Summit Meeting in
November 2004. Since then, the East Asia Summit has been
convened annually and includes the ten ASEAN countries,
China, Japan, Korea, India, Australia and New Zealand
(ASEAN+6). The Leaders of Russia and the United States
have been invited to participate in the EAS starting from
2011.
ASEAN is concurrently considering the proposal for an East
Asian Free Trade Area (EAFTA) for ASEAN+3 countries
put forth by China and the proposal for a Comprehensive
Economic Partnership for East Asia (CEPEA) involving
ASEAN+6 countries as suggested by Japan. Two studies
have been conducted by separate teams of experts on these
two proposals for further East Asian integration. Four
ASEAN Plus Working Groups have been tasked to look
into the recommendations in the studies on the EAFTA and
CEPEA in parallel. Two of these Working Groups, on Rules
of Origin and Tariff Nomenclature, were ready to engage
ASEAN FTA partners in September 2010, while the two
Working Groups on Customs Procedures and Economic
Cooperation were still in the process of discussions.
Financial Cooperation
A centerpiece of ASEAN financial cooperation is a currency
swap arrangement established jointly with the Plus Three
economies of China, Japan and South Korea to address short-
term liquidity problems among participants and strengthen
regional financial stability. The Chiang Mai Initiative, which
was a bilateral swap network launched in 2000 in response to
the 1997 Asian financial crisis, was multilateralized in 2010.
The Chiang Mai Initiative Multilateralization (CMIM),
which came into effect on 24 March 2010, has a total size
of US$120 billion, with 80 percent contributed by the Plus
Three countries and 20 percent by ASEAN members. The
detailed breakdown in contribution is given in Table 2.1. The
size of the reserves pool was initially planned for a minimum
of US$80 billion in May 2008, but was enlarged to US$120
billion in February 2009, in the wake of the global financial
turmoil.
Under the CMIM, a key element is the establishment
of an independent regional surveillance unit. The unit,
to be located in Singapore, is called the ASEAN+3
Macroeconomic Research Office (AMRO). It will monitor
and analyze regional economies with the aims of detecting
risks early, implementing remedial actions and contributing
to effective decision-making by the CMIM. To further
enhance surveillance, ASEAN+3 Finance Ministers
also agreed to improve the Economic Review and Policy
Dialogue process.
Another element of ASEAN+3 financial cooperation is
the Asian Bond Markets Initiative, which aims to promote
local currency-denominated bond markets and enhance
macroeconomic and financial stability. To support the
issuance of corporate bonds in the region, a Credit Guarantee
and Investment Facility was established in May 2010 as a
trust fund of ADB with an initial capital of US$700 million.
In addition to the above-mentioned initiatives, the stock
exchanges of Malaysia, Singapore and Thailand are slated to
be linked in an ASEAN Exchange Linkage that is expected
to go live in the second half of 2011. The Philippines’
stock exchange is expected to join the common electronic
platform in the first half of 2012. This endeavor is expected
to provide regional companies with a platform for exposure
to global investors. There are plans to initially offer collective
investment schemes to non-retail investors by the first half
of 2012 and then graduate to complex products by 2013.
ASEAN COMPETITIVENESS REPORT 21
 Countries
table 2.1:
CMIM China
Contribution Japan
Ratio South Korea
Brunei
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Source: ASEAN (2010). The Philippines
Joint Ministerial Statement of
the 13th ASEAN+3 Finance Singapore
Ministers’ Meeting, Press
Release, May 2, 2010. Thailand
Vietnam
Institutional Framework for Collaboration
While deeper regional integration would enhance ASEAN’s
competitiveness and pave the way for higher rates of growth
and wealth creation, the vision of an ASEAN Economic
Community cannot be achieved without a concerted effort
by ASEAN members towards realizing AEC targets in a
timely manner. The extent to which ASEAN will succeed
in this undertaking depends on several factors, foremost of
which are the political will of member countries as well as
the strength of the institutional structure and enforcement
mechanism.
For forty years since its inception, ASEAN has adopted
the ASEAN Way to decision making, which emphasizes
consultation, consensus and non-interference in internal
affairs. This is an approach that relies on informality and
personal relationships and reinforces state sovereignty.
ASEAN’s cooperative mechanism of mutual non-
interference is supported by an organizational structure
that is both decentralized and geographically dispersed. The
institutional framework emphasizes maximum participation
and control by members and operates on the principle
of equal sharing of administrative burden, with rotating
stewardship among intergovernmental bodies. Historically,
this framework has facilitated political consultation and
consensus-building in a hostile security environment and
contributed to the prevention of conflict in the region.
ASEAN had few legally binding agreements in its earlier
years and it was only with the organization’s growing
emphasis on economic cooperation from the 1990s that
an active period of institutional development followed.
The ASEAN Charter, which was signed in November
2007 and entered into force in December 2008, marked
a key step in ASEAN’s institutionalization, by providing
the organization with a constitutional foundation for the
building of an ASEAN Community.
The Charter formalizes the ASEAN Summit, which
comprises ASEAN Heads of State or Government, as
22 ASIA COMPETITIVENESS INSTITUTE
Contribution (US$ billion)
38.40
38.40
19.20
0.03
0.12
4.552
0.03
4.552
0.06
4.552
4.552
4.552
1.00
the supreme policy-making body of ASEAN. Summit
meetings are held twice annually and may be convened as
special meetings whenever necessary. This system of regular
meetings helps to promote consultations, cooperation,
confidence, goodwill and participation among members.
Three ASEAN Community Councils are established,
which comprise councils related to the three pillars of the
ASEAN Community, namely, ASEAN Political-Security
Community Council, ASEAN Economic Community
Council and ASEAN Socio-Cultural Community Council.
Each Council has under its purview the relevant ASEAN
Sectoral Ministerial Bodies. An ASEAN Coordinating
Council, comprising ASEAN Foreign Ministers, is tasked
to assist ASEAN Leaders in preparing for the Summits
and coordinate with the ASEAN Community Councils
to enhance policy coherence, efficiency and cooperation
among them. A Committee of Permanent Representatives
to ASEAN is set up to support the work of the ASEAN
Community Councils and ASEAN Sectoral Ministerial
Bodies, liaise with the ASEAN Secretariat and facilitate
ASEAN cooperation with external partners. The Committee
is made up of a Permanent Representative with the rank of
Ambassador from each member state, who resides in Jakarta.
The Secretary-General of ASEAN and the ASEAN
Secretariat have an enhanced role in facilitating and
monitoring progress in the implementation of ASEAN
agreements and decisions. The Secretary-General is
appointed by the ASEAN Summit for a non-renewable
term of office of five years from among nationals of ASEAN
member states based on alphabetical rotation. He is assisted
by four Deputy Secretaries-General, two of whom are
nominated and the other two from open recruitment.
While the Charter has established structures and
strengthened institutions and mechanisms, it is not without
deficiencies. Critics point to the Charter’s enshrinement of
the principles of non-interference in the internal affairs of
member states and decision making based on consultation
and consensus as an indication that ASEAN’s effectiveness
in implementing agreements might not differ much from its
unimpressive past record. They took issue with the Charter
allowing a formula for flexible participation to accelerate
the implementation of economic commitments only when
there is a consensus to do so and its apparent endorsement
only of the ASEAN Minus X formula over another formula
– 2 Plus X - that had also previously been utilized.
The Charter carries no reference to sanctions should
compliance fail and leaves the ASEAN Summit to decide
on cases relating to a serious breach of the Charter or
non-compliance. This reluctance to specify explicitly
penalties for non-compliance signals that ASEAN is not
ready to demonstrate the greatest resolve in enforcing
compliance. Acknowledgement of the limitations of the
Charter necessarily moderates expectations of the ASEAN
cooperation process, at least in terms of timeline.
To ensure the successful implementation of the AEC
Blueprint, the ASEAN Secretariat has been tasked with
expanded responsibilities to review and monitor the
progress of the AEC and disseminate the information to
member countries. Besides the AEC Scorecard, a set of
statistical indicators such as an integrated tariff and trade
data system is being maintained to monitor and assess the
progress of implementation of the various programmes
and measures for the AEC. The regular dissemination of
accurate information to ASEAN Leaders helps to ensure
that any difficulties or bottlenecks in the compliance to the
AEC Blueprint can be quickly addressed. To support the
expanded role of the ASEAN Secretariat, its research and
planning capabilities and resources have been strengthened
in recent years.
Within member countries, research capabilities and
human capital development are being strengthened, while
newer members are assisted in establishing the appropriate
capacity building programmes. Technical studies or training
programmes are conducted on specific issues. Milestones
and targets of the AEC Blueprint, translated into national
objectives, have been incorporated into the national
development plans of individual countries. In this regard,
participation from the private sector, dialogue or trading
partners and multilateral development agencies such as the
ADB and World Bank is particularly important, especially
for regional infrastructure projects.
Summary
The ASEAN countries weathered the recent global crisis
fairly well due to the safeguards adopted during the
Asian financial crisis, which insulated them from a shock
to the financial sector although the real sector suffered
some setbacks particularly in the more export-oriented
economies. Expansionary monetary and fiscal policies as
well as a rebound in exports contributed to the recovery.
The resource rich ASEAN countries also benefited from the
high commodity prices.
The outlook for ASEAN economies is positive, although
growth is expected to moderate in 2011 from the sharp
rebound in 2010. Factors that may dent ASEAN’s growth
prospects include the risk of economic instability as capital
inflows to the region surge as well as soaring food and oil
prices in the world.
The changing structure of the global economy with the
economic center of gravity shifting from the developed
economies of the US, EU and Japan to China and India
would require ASEAN to adjust its own economic structure
to enable it to maximize its competitiveness and find
complementarities with the high-growth economies in
the region. There is a need to reduce export dependence,
especially to the developed economies, as a global rebalancing
of current accounts is set in motion. The ASEAN countries
thus need to strengthen regional trade in final goods and
domestic demand.
ASEAN cooperation has made steady progress with a goal
to create an ASEAN Community by 2015 that comprises
the three pillars of a political-security community, economic
community and socio-cultural community. On the economic
front, clear targets and timelines have been set out in the
AEC Blueprint but more needs to be done to ensure timely
and full implementation of commitments. The imperatives
of deeper regional integration may bring into question the
ASEAN Way of working and require greater powers under
the Charter to monitor and ensure compliance.
ASEAN has also deepened its ties with external partners,
particularly economies in Asia, through closer trade,
investment and financial cooperation, which include the
implementation of comprehensive economic partnership
agreements and multilateral currency swap arrangements.
This places ASEAN in a good position to benefit from
opportunities in a growing Asia. Continuing efforts to
expand and deepen external economic relations with an
approach that maintains ASEAN centrality are equally vital
to giving ASEAN a stronger united voice in regional and
multilateral forums and fostering its competitiveness in the
global supply chain and global markets.
ASEAN COMPETITIVENESS REPORT 23
Endnotes
Authors’ calculations using data from UN Comtrade database.
1

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____________ (2010b). Master Plan on ASEAN Connectivity, October 2010.
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24 ASIA COMPETITIVENESS INSTITUTE

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Banks”, Bloomberg News, November 19, 2010.

ASEAN COMPETITIVENESS REPORT 25

26 ASIA COMPETITIVENESS INSTITUTE
 20
ASEAN
Competitiveness
Report

10
Chapter 3

Competitiveness
Performance of
ASEAN

ASEAN COMPETITIVENESS REPORT 27


COMPETITIVENESS
PERFORMANCE OF
ASEAN
How well has the competitiveness of ASEAN and its
member countries translated into economic outcomes? This
chapter provides a profile of the region and assesses trends in
the region’s competitiveness performance over the last two
decades.
First, the region’s economic performance is reviewed using
indicators that measure prosperity and the distribution
of benefits from prosperity, such as GDP per capita, Gini
coefficient, poverty level and human development index.
Second, prosperity accounting is performed through three
measures: labor productivity, labor mobilization and
purchasing power.
The last section assesses the region’s intermediate economic
outcomes through indicators such as exports, domestic and
foreign investment, innovation and entrepreneurship.
ASEAN’s competitiveness performance will be benchmarked
against that of the major developed economies of the US,
EU and Japan, as well as compared with the performance of
China and India.
Profile of the ASEAN Region
ASEAN is home to 592 million people with a combined
GDP of US$1.49 trillion in 2009 at current market prices.
Put in perspective, ASEAN’s population is half that of
China or India (the world’s two most populous nations) and
its GDP is about one-fifth that of the US (the world’s largest
economy). ASEAN’s labor force excluding Cambodia, Laos
and Myanmar was a sizeable 244 million in 2008 and it has
been growing at an average rate of 1.7 percent per annum
since 2000. The labor force is predominantly youthful given
that 28 percent of the population are below 15 years of age
and only 5.7 percent are in the post-retirement age group of
above 65 years.
ASEAN is strategically located in Asia at the crossroads of
world shipping and air routes within an economically vibrant
region that is bounded by India in the west, China, Japan
and Korea in the northeast and Australia and New Zealand
in the south. As much as 60 percent of the world’s maritime
trade passes through ASEAN waters. This locational
advantage is set to increase as Asia grows in economic might
through the rise of China and India. ASEAN enjoys close
partnerships with countries in the region.
With a land area of 4.4 million sq km, ASEAN is rich in
a diversity of unique natural resource endowments (Figure
3.1). Eight of the ASEAN member countries (Brunei,
Cambodia, Indonesia, Malaysia, Myanmar, the Philippines,
Thailand and Vietnam) have oil and gas resources with
Brunei, Malaysia and Indonesia ranking among the world’s
top six liquefied natural gas producers. The region is also
well-endowed with minerals, accounting for a substantial
share of world trade in tin, copper and nickel (58 percent of
world export in refined tin and 16 percent of world export
in unrefined copper). A quarter of the world’s forests are in
ASEAN, covering some 45 percent of the region’s land area.
Rich in biodiversity, the forests contribute significantly to
ASEAN’s timber and tourism trade but heavy deforestation
has severely affected the region’s forest resources, with as
much as a third of the forests in Cambodia, Vietnam and

figure 3.1:
ASEAN Endowments: Oil and gas, Timber,
Petroleum, Phosphates,
Natural Resources Timber, Tin Timber, Hydropower, Coal,
Anmony, Gemstones, Gypsum, Manganese,
Zinc, Copper, Iron ore, Tin, Gold, Bauxite,
Tungsten, Lead, Manganese, Gemstones Chromate,
Coal, Marble, Phosphates, Oil and gas,
Limestone, MYANMAR Hydropower Forests, Timber, Petroleum, Nickel,
Precious stones, LAOS Hydropower Cobalt, Silver, Gold, Salt, Copper
Natural gas,
Hydropower PHILIPPINES
THAILAND
Tin, Rubber, VIETNAM
Natural gas,
CAMBODIA
Tungsten, Tantalum,
Petroleum,
Timber, Lead, Fish, Petroleum, Tin,
Natural gas,
Gypsum, Lignite, Natural gas, Nickel,
Timber
Fluorite, BRUNEI Timber, Bauxite,
Hydropower Copper, Ferle soils,
MALAYSIA
Coal, Gold, Silver
Tin, Petroleum
SINGAPORE
Timber, Copper,
Iron ore,
Natural gas, Bauxite
INDONESIA
Source: Central Fish,
Intelligence Agency Deepwater ports
(2009). The World
Factbook 2009.

28 ASIA COMPETITIVENESS INSTITUTE

 figure 3.2:
ASEAN
Heterogeneity: Burman 68%
Shan 9%
Khmer 90%
Viet 2%
Lao
Khmou 11%
55% Kinh (Viet)
Tay
86%
2%
Ethnicity Karen 7% Chinese 1% Hmong 8% Thai 2% Tagalog 28%
Rakhine 4% Other 4% Other 26% Muong 2% Cebuano 13%
Chinese 3% (Over 100 Other 8% Hocano 9%
Indian 2% MYANMAR minor groups) Bisaya/Bibisaya 8%
Mon 2% LAOS
Hiligaynon Honggo 8%
Other 5% PHILIPPINES Boikol 6%
Thai 75% THAILAND Waray 3%
VIETNAM
Chinese 14% Other 25%
CAMBODIA
Other 11% Malay 66%
Javanese 41%
Malay 50% Chinese 11%
Sundanese 15%
Chinese 23% Indigenous 3%
BRUNEI Madurese 3%
Indigenous 11% Other 4%
MALAYSIA Minangkabau 3%
Indian 7% Betawi 2%
Other 8% SINGAPORE Bugis 2%
Chinese 77% Banjar 2%
Malay 14% Other 30%
Indian 8% INDONESIA
Source: Central Other 1%
Intelligence Agency
(2009). The World
Factbook 2009.

Laos being depleted over the last 20 years. With a combined
coastal area of about 2.7 million sq km, ASEAN is also an
important source for a quarter of the world’s fish supply.
While the relatively large combined market, strategic
geographic location and abundant natural resources in
ASEAN are important positive attributes for building
prosperity, a few fundamental conditions within the region
pose serious risks of disrupting its development. Natural
disasters have become more frequent and severe, and the
region is expected to be increasingly vulnerable to disasters
in the face of climate change. Disasters such as earthquakes,
typhoons, landslides and infectious tropical diseases cause
significant losses of lives and livelihoods besides damaging
infrastructural facilities.
For example, the earthquake measuring 7.9 on the Richter
Scale in West Sumatra, Indonesia in 2009 killed over 1,100
people, injured another 3,000 and damaged more than
249,800 structures with an estimated economic loss of
US$2.2 billion. There are major public health threats in
ASEAN arising from communicable diseases like dengue
(ASEAN accounts for 52 percent of the world’s dengue
risk) and HIV/AIDS (more than 1.5 million people suffer
from HIV/AIDS in ASEAN and over 1.5 percent of the
adult population in Cambodia, Myanmar and Thailand
are affected by the disease). Extraordinary major disasters
in ASEAN include the 2004 tsunami that killed almost
250,000 people in ASEAN with 97 percent of the victims
in Indonesia alone. In addition, there are other risks such as
piracy and terrorism that are emerging as serious threats to
some parts of the region.
Despite the historical territorial and political conflicts
between border nations, the establishment of ASEAN has
helped to promote peace and stability in the region through
its renunciation of the use or threat of force as a mode of
managing relations between states. No ASEAN member
has gone to war with each other since the inception of the
grouping although there are occasional bilateral disputes,
and the region has been declared a nuclear weapons-free
zone by formal treaty.
ASEAN countries share the same geographical zone but
they are very heterogeneous in many aspects, resulting in a
diverse potpourri of rich cultures and traditions on the one
hand and wide social-economic inequalities on the other.
In terms of population, Indonesia is the largest country
with 228 million people, which is 40 percent of ASEAN’s
population. Vietnam is the second most populous country
with 86 million people. The country with the smallest
population size, Brunei, has 0.4 million people. By reason
of the size of its economy, Indonesia alone accounts for
about 34 percent of ASEAN’s total GDP and is followed by
Thailand (20 percent) and Malaysia (14 percent). Laos is the
smallest economy with a GDP share of 0.5 percent. There is
also a large diversity of ethnic groups in ASEAN speaking
17 percent of the world’s languages (Figure 3.2). Depending
on the relations of national governments with regards to
minority ethnic groups, there may be potential sources of
conflict arising from differences in ethnic interests, including
differences in culture, religion and economic success.

ASEAN COMPETITIVENESS REPORT 29

 Figure 3.3: 15 Annual growth in GDP per capita (%)
Trends in
Prosperity 10
Growth, ASEAN
and Selected
Countries 5

0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Notes: GDP figures are -5

in PPP terms at constant
2005 international dollar.
ASEAN data exclude
Myanmar. -10

Source: World Bank ASEAN China India EU Japan US World

(2010a); authors’
analysis. -15

Competitiveness Performance
Standard of Living
Prosperity
The competitiveness of a country or region determines the
economic outcomes it achieves. One successful economic
outcome is an increase in prosperity of the country or
region. The central measure of prosperity used in this Report
is Gross Domestic Product (GDP) per capita adjusted for
purchasing power parity. This measure is a key determinant
of the actual standard of living of a country or region.
GDP per capita is determined by both population and
output. ASEAN’s population increased at a compound
annual growth rate (CAGR) of 1.7 percent in the pre-Asian
financial crisis period from 1990-1997 and 1.4 percent
CAGR post-Asian crisis from 1997-2009. These rates were
higher than that of the world average (1.5 percent and 1.2
percent respectively). Over the same two periods, ASEAN’s
GDP growth rates were 7.1 percent and 3.7 percent CAGR
respectively (which compared with 2.7 percent and 3.4
percent CAGR for the world). Consequently, ASEAN’s
prosperity, which was rising faster than the world average
between 1990 and 1997 at a yearly rate of 5.3 percent, has
decelerated over the last decade to an annual 2.3 percent,
which was only slightly above the world average of 2.1
percent (Figure 3.3). In contrast, China’s prosperity growth
remained vigorous at an annual 10.2 percent and 9.1
percent pre- and post-1997, while India’s prosperity growth
improved from 3.4 percent to 5.4 percent over the two
periods.
ASEAN’s GDP per capita in 2009 stood at $4,739 (PPP
at 2005 international dollars). This was about one-tenth
that of the United States and half that of the world average

figure 3.4: 50,000 GDP per capita, 2009 (2005 PPP$)

Prosperity Level 45,000 US

and Growth, ASEAN
40,000
and Selected
Countries 35,000
Japan
30,000 EU
25,000

Notes: GDP figures are 20,000

in PPP terms at constant
2005 international 15,000
dollar. Population and
GDP growth rate at World
10,000 China
compound annual growth
rate (CAGR). ASEAN ASEAN5
5,000 ASEAN India
data exclude Brunei and CLMV
Myanmar.

Source: World Bank 0 1 2 3 4 5 6 7 8 9 10

(2010a); authors’
analysis. Growth of prosperity, 1997-2009 (CAGR %)

30 ASIA COMPETITIVENESS INSTITUTE

 figure 3.5: US$ current prices
(Atlas method)
GNI Per Capita 45,000 High Upper Lower Low
in 2009, ASEAN 40,000
Income Middle
Income
Middle
Income
Income
37220
Countries,
35,000
China and India
30,000
27050
25,000

20,000

Notes: Income 15,000

classification based on
World Bank. Brunei data 10,000 7230
refers to 2006. Myanmar 3760
data is estimated. 5,000 2940 2230 1790 1040 1010 880 650 600
0
Source: World Bank
Singapore Brunei Malaysia Thailand China Indonesia Philippines India Vietnam Laos Cambodia Myanmar
(2010a).

(Figure 3.4). Since 2006, China’s GDP per capita has been
higher than ASEAN’s, by 31 percent in 2009. Among the
comparator countries, ASEAN’s GDP per capita was only
higher than that of India, by 60 percent in 2009. ASEAN’s
current prosperity relative to comparator countries points to
the need for the region as a whole to exert greater effort to
substantially raise the standard of living of its people.
According to World Bank classification, ASEAN’s
prosperity based on Gross National Income (GNI) per
capita (Atlas method, US$ at current prices) runs the full
range from high income (Brunei and Singapore) to low
income (Cambodia, Laos and Myanmar) (Figure 3.5).
During the period of rapid prosperity growth in 1990-
1997, two ASEAN economies were pushed up the income
ladder. Malaysia progressed from lower middle income to
upper middle income in 1992. Indonesia rose from low
income to lower middle income in 1993 but slid back to low
income in 1998 with the Asian crisis before recovering to
lower middle income status in 2003. Vietnam progressed
from low income to lower middle income in 2009. With
the exception of Singapore and Brunei that are in the high
income category, the other ASEAN countries have largely
stagnated in prosperity over the past decade (Table 3.1).
During this period, China progressed from low income to
lower middle income in 1997 while India rose to the same
level in 2007.
Distribution of Prosperity
The distribution of prosperity generated may be uneven
with large differences in the standard of living within the
same country or region. To find out how ASEAN is doing
on this front, indicators of income inequality and poverty
levels are examined below.
Inequality
Income inequality in ASEAN appears to be relatively high,
with five of eight ASEAN countries having a Gini coefficient
above 0.4. Singapore has the highest level of income
inequality, followed by the Philippines and Thailand (Figure

table 3.1: GNI Per Capita (Atlas method, current US$) 1990 1992 1993 1998 2003 2009
Changes Low income (L) <= 610 <= 675 <= 695 <= 760 <= 765 <= 995
in Income Lower middle income (LM) 611-2,465 676-2,695 696-2,785 761-3,030 766-3,035 996-3,945
Classification Upper middle income (UM) 2,466-7,620 2,696-8,355 2,786-8,625 3,031-9,360 3,036-9,385 3,946-12,195
of ASEAN High income (H) > 7,620 > 8,355 > 8,625 > 9,360 > 9,385 > 12,195
Countries, Brunei H H H H H H
1990-2009 Singapore H H H H H H
Malaysia LM UM UM UM UM UM
Indonesia LM L LM L LM LM
Philippines LM LM LM LM LM LM
Thailand LM LM LM LM LM LM

Note: Countries classified Cambodia LM L L L L L

by World Bank wef 1 July Laos L L L L L L
each year.
Myanmar L L L L L L
Source: World Bank Vietnam L L L L L LM
(2010a).

ASEAN COMPETITIVENESS REPORT 31

 0.50 Gini coefficient 0.469
figure 3.6: 0.445
0.464
0.417 0.420
Income Inequality, 0.40 0.368
0.394 0.403 0.409

ASEAN Countries, 0.344 0.346

China and India 0.30

Notes: Gini coefficient ranges from

0 (lowest) to 1 (highest inequality). 0.20
All data refer to year 2004 except for
the following: Indonesia: 2005, Laos
0.10
and Thailand: 2002, Philippines:
2003. According to the latest data
available, the Gini coefficient is 0.00
0.480 for Singapore in 2010, down Vietnam Laos India Indonesia Malaysia ASEAN Cambodia Thailand Philippines Singapore China
from a peak of 0.489 in 2007.

Sources: UNU-WIDER World Income

Inequality Database (2010) and
Singapore Department of Statistics
(2011).

3.6). The key reasons often cited for rising income inequality
are technological change providing higher returns to
talented individuals and more open markets creating greater
opportunities for entrepreneurs to leverage their capabilities
across larger markets. Inequality is lower in ASEAN than
China but higher compared with India.
Poverty
Poverty shows the extent to which growth generated
has failed to reach all echelons of a country’s or region’s
population. A common indicator of poverty is the
percentage of population below the income poverty line
of US$1.25 per day. Four ASEAN countries have about a
fifth or more of their population living below the income
poverty line, which is higher than China’s 15.9 percent
share. Cambodia (40.2 percent) and Laos (44 percent)
have a much higher proportion of abject poor than the
other ASEAN countries for which data are available; this
proportion is comparable to India’s. Thailand (0.4 percent)
and Malaysia (0.5 percent) have among the lowest level of
poverty in ASEAN (Singapore does not have an official
poverty line) (Figure 3.7).
Quality of Life
Beyond an income measure, it is as important that a
country’s or region’s competitiveness is determined by the
broader concept of “quality of life”. The UNDP Human
Development Index (HDI) provides the most established
attempt to measure such a quality. Based on sub-indices on
life expectancy, education and GDP, the latest HDI shows
that ASEAN as a whole ranks above India but below China
on human development and quality of life. Four ASEAN
countries have better levels of human development than
China, while eight ASEAN countries rank above India.
Among the ASEAN countries, there is a large gap in HDI
with Singapore being the most developed and Myanmar the
least (Figure 3.8).
Gender
An average measure of prosperity across an economy can
conceal huge differences of access and participation within
the society. The Gender-related Development Index (GDI)

figure 3.7: 50 Popula
on below poverty line (%)

44.0
Poverty Rates, 40.2
41.6
40
ASEAN Countries,
China and India
30

21.5 22.6
Notes: Data are for latest 20
available year from 15.9
2000-2007. No data
for Singapore, Brunei, 10
Indonesia, and Myanmar.
The poverty rates are
0.4 0.5
calculated based on the
0
international poverty line
set by the World Bank of Thailand Malaysia China Vietnam Philippines Cambodia India Laos
US$1.25 per day.

Sources: United Nations

Development Programme
(2009) and World Bank
PovcalNet (2010b).

32 ASIA COMPETITIVENESS INSTITUTE

 1.0
figure 3.8: 0.944 0.920
0.9
Human 0.829
0.783 0.772
0.8 0.751 0.748
Development 0.734 0.725
0.7
Index, ASEAN 0.619 0.612 0.593 0.586
0.6
Countries, China 0.5
and India 0.4
0.3
Note: Data is for 2007. The 0.2
HDI combines indicators of
0.1
life expectancy, educational
attainment and income. 0.0
Singapore Brunei Malaysia Thailand China Philippines ASEAN Indonesia Vietnam Laos India Cambodia Myanmar
Source: United Nations
Development Programme
(2009).

and Gender Empowerment Measure (GEM) are two
measures of gender disparity. GDI looks at the achievement
of women. It computes male and female indices separately,
which are then combined in a way that penalizes differences
in achievement between men and women. GEM looks at
the opportunities for women to participate in the economy
and society rather than their capabilities.
Brunei has the highest GDI of the ASEAN countries (there
is no data for Singapore), followed by Malaysia and Thailand
(Figure 3.9). Laos and Cambodia are much weaker than the
rest of ASEAN. Singapore has the highest GEM (there is no
data for Brunei), followed by Philippines and Vietnam. The
majority of ASEAN countries have lower gender disparities
than India, but less than half of the ASEAN countries
perform better than China on this count.
The Elements of Prosperity
In an accounting sense, prosperity is the result of three
factors: labor productivity (output generated per hour), labor
mobilization (work hours per capita population during the
year) and price levels (amount of consumption goods that
can be bought for one unit of income). Labor productivity
reflects how well the region utilizes its resources to produce
output. It is driven by employee skills, capital stock and total
factor productivity, which are the many factors that influence
how well inputs are used. Labor mobilization is attributable
to a combination of factors. The demographic profile of the
population determines the share of people of working age.
The labor participation rate then tracks whether people of
working age are actually economically active. Together with
another indicator, the unemployment rate, one will be able
to tell whether a lower labor participation rate indicates
incidents of individuals choosing to abstain from entering
the labor force. Price levels are less often used as an indicator
of economic performance but can have a major impact on
prosperity differences across countries. They are important
signs of potential problems in local competition or efficiency
of the local economy compared to the export sector.

figure 3.9: 1.0

0.91
Gender-Related Indices, 0.9
0.82
0.79 0.78 0.77
ASEAN Countries, China 0.8 0.75 0.73 0.72
and India 0.7
0.61 0.59 0.59
0.6 0.54 0.56 0.55
0.51 0.53
Notes: No data on GDI and GEM
for Myanmar. No data on GDI 0.5
0.41 0.43
for Singapore. No data on GEM 0.4
for Brunei, Laos and India. GDI
includes life expectancy at birth, 0.3
adult literacy rate, combined gross
0.2
enrollment ratio in education,
and estimated earned income. 0.1
GEM includes seats in parliament
held by women, share of female 0.0
professional and technical workers, Brunei Singapore Malaysia Thailand China Philippines Indonesia Vietnam Laos India Cambodia
share of female legislators, senior
Gender-Related Development Index (GDI) Gender Empowerment Measure (GEM)
officials and managers, and ratio of
estimated female to male earned
income.

Source: United Nations

Development Programme (2009).

ASEAN COMPETITIVENESS REPORT 33

 figure 3.10: 70,000 GDP per person employed (1990 US$, PPP)
Trends in Labor 60,000
Productivity,
ASEAN and 50,000
Selected
40,000
Countries
30,000

20,000
Note: ASEAN refers to all
ASEAN countries except 10,000
Brunei and Laos.
0
Source: The Conference
Board and Groningen 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Growth and Development
Centre (2010). ASEAN EU China India Japan US

Labor Productivity US$11,322, has slightly exceeded that of ASEAN. Relative

Labor productivity in ASEAN is relatively low, as is the
case with most developing countries. ASEAN’s labor
productivity, as measured by GDP per person employed
(in 1990 international dollars) was US$11,114 in 2009.
This was 17 percent of the level of the world productivity
leader, the US, and between 25 and 30 percent of the labor
productivity in Japan and EU (Figure 3.10).
Compared with China and India, ASEAN has registered
higher labor productivity over the years. However, the
productivity gap between ASEAN and China has been
narrowing due to labor productivity in the latter rising
much faster than the former. Between 1997 and 2007,
the compound annual labor productivity growth rate
in ASEAN was 3 percent compared with China’s 8.8
percent. Over the 2008 global-crisis period, ASEAN’s labor
productivity dipped 0.9 percent while China’s increased 8.5
percent. As a result, in 2009, China’s labor productivity, at
to India, ASEAN’s labor productivity has been around 33.7
percent higher over the last few years.
Within ASEAN, Singapore had the highest labor
productivity in the region at US$39,863 in 2009. It was
also the ASEAN country most adversely affected by the
global crisis with productivity falling sharply by 13.3
percent from 2008 to 2009 (Figure 3.11). This compares
with smaller declines in Thailand (-4.7 percent), Malaysia
(-1.4 percent) and Indonesia (-0.3 percent), and positive
but slower productivity growth in the Philippines (0.8
percent), Myanmar (1.3 percent), Cambodia (2.0 percent)
and Vietnam (4.4 percent).
Labor Mobilization
Labor mobilization in ASEAN, as indicated by the labor
force participation rate by the working age population
(15 – 64 years old) in 2009, was below that in China, the

GDP per Person Employed, 2009

figure 3.11: 80,000 (1990 US$, PPP)
Labor 75,000

Productivity 70,000
US
Level and 65,000
60,000
Growth, ASEAN 55,000
and Selected 50,000
Countries Japan 45,000
Singapore 40,000

EU 35,000
30,000
Malaysia 25,000
Note: ASEAN refers to all 20,000
ASEAN countries except
Thailand 15,000 Myanmar
Brunei and Laos. ASEAN India China
10,000
Indonesia Philippines
Source: The Conference 5,000 Vietnam
Board and Groningen Cambodia
0
Growth and Development
-16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10
Centre (2010); authors’
analysis. Producvity Growth, 2008-2009 (%)

34 ASIA COMPETITIVENESS INSTITUTE

 figure 3.12: %, 2009

Labor Force China 79.8

Participation
Rates, ASEAN US 74.1
and Selected
Countries Japan 73.1

ASEAN 72.1

India 60.8
Source: International
Labor Organization
0 10 20 30 40 50 60 70 80 90
(2010).

US and Japan but higher than that in India (Figure 3.12).
ASEAN’s labor force participation rate has declined slightly
over the years, from 73.6 percent in 1990 to 72.6 percent in
2000 and 72.1 percent in 2009. Within ASEAN, the labor
force participation rate has declined between 2000 and
2009 in all countries except Indonesia and Brunei. In 2009,
the countries with the highest labor force participation
rates were Cambodia (81.3 percent), Laos (81.0 percent),
Thailand and Vietnam (77.4 percent), while the Philippines
and Malaysia had the lowest rates at 65.6 percent and 64.7
percent respectively (Figure 3.13).
Purchasing Power
The standard of living is determined by the amount of
products and services that can be purchased for a given
amount of income in a particular country. The ratio of
PPP conversion factor to market exchange rate provides a
measure of price levels between two countries by indicating
the number of US dollars needed to buy a similar basket of
goods and services (typically the basket of goods and services
that make up the GDP) in each country. If the US is used
as a benchmark country (i.e. its ratios are set to one), then
a ratio of below one indicates greater affordability due to
relatively lower local prices while a ratio above one suggests
relatively lower affordability due to higher local prices than
the US. If the ratio is decreasing over time, affordability is
improving while the reverse is true if it is increasing.
Using this yardstick, it can be seen that affordability in
ASEAN is relatively high, especially within the CLMV
region (Figure 3.14). ASEAN’s affordability is better than
that of China and most of the developed countries but
worse than India’s. The global crisis from 2008 to 2009
has improved the affordability among ASEAN countries
in particular Brunei. Japan’s affordability suffered the most
severe impact and deteriorated rapidly during the global
crisis.

figure 3.13: 90 %
82.2 81.3 83.6
81.0 79.0 77.6 77.4 78.6 77.4
Labor Force 80 74.9
71.1 70.9
70.1 70.5 69.6 70.3
Participation 70 65.2 64.7 66.5 65.6
Rates, ASEAN 60
countries 50

40

30

20

10

Note: Labor force 0

participation rates Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam
from ILO estimates.
2000 2009
Source: International
Labor Organization
(2010).

ASEAN COMPETITIVENESS REPORT 35

 figure 3.14: PPP conversion factor to market
exchange rate ra‚o, 2009
Worsening
purchasing
1.6
Price power

Comparisons, 1.4
ASEAN and Japan 1.2
EU
Selected US
Countries 1.0

Singapore 0.8
China
ASEAN Indonesia 0.6
Note: Data for Brunei
Malaysia Philippines Thailand
Brunei, Cambodia, Myanmar
Laos
0.4
India and some India Cambodia
countries in Improving Vietnam
0.2
EU (Belgium, purchasing
Czech Republic, power
0.0
Hungary, Slovak -30 -28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
Republic, Slovenia
and Sweden) are Growth rate, 2008-2009 (%)
estimates for 2009.

Source: IMF (2010);

authors’ analysis.

Intermediate Economic Outcomes
A country’s or region’s underlying competitiveness and
future prosperity can be measured by indicators of exports,
investments, innovation and entrepreneurship. These
measures are important enablers of competitiveness,
that is, they are the channels through which the business
environment can be enhanced. Exports indicate how
competitiveness supports current prosperity while
investments and innovation provide insights into future
prosperity. Entrepreneurship is the mobilization of new
combinations of factor inputs for current and future
prosperity.
Exports
A country’s or region’s export market share in the world
indicates the extent to which its companies can successfully
compete in the world. At the same time, the export market
share of a country or region also indicates the exposure of
its companies to foreign competition in global markets. This
exposure can be an important driver of higher efficiency as it
enables learning from operational practices abroad.
ASEAN’s annual share of world export of goods and services
has been two to three times higher than its share of world
GDP over the years, which reflects the region’s dependence
on exports as a source of economic growth. However, despite
the importance of exports, ASEAN has not made much
inroad in increasing its share of world exports in the last
ten years, as its share has hovered around 6 percent (Figure
3.15). This contrasts with a near doubling of its world export
share in the decade before the Asian financial crisis (from
3.2 percent in 1987 to 6.3 percent in 1997). The stagnation
has been due to a combination of persistently lower share
of services exports after 1997 and ASEAN’s inability to
raise its share of world export in goods. The latter factor is
particularly significant as ASEAN is predominantly a goods
exporter, where goods exports account for an average of 84.5
percent of ASEAN’s total exports between 1999 and 2009.
The average share of services in total exports in ASEAN
over the last decade at 15.5 percent is lower than the world’s
19.9 percent. It is noted that ASEAN’s world export market
share has increased to 6.2 percent in 2009 from 5.9 percent
in 2007 and 2008. However, whether this reflects ASEAN
economies’ relatively better export performance around the
period of global crisis or the start of a sustained increase in
export shares remains to be seen.
Unlike ASEAN, China has made rapid gains in its share of
world exports over the last ten years. 2005 was a milestone
year when China overtook ASEAN in world export
market share. At the same time, Japan’s world export share
dipped below that of ASEAN. India’s export share has been
climbing since 2005 but its share remains significantly below
that of ASEAN. The EU and US, which dominate the world
market in exports, have been losing market shares (Figure
3.16).

36 ASIA COMPETITIVENESS INSTITUTE

 figure 3.15: 8
World market share (%)
World Export 7
Market Shares,
ASEAN 6

3
Note: Shares calculated
from exports and GDP in
US$ at current prices and 2
current exchange rates.
1
Source: UNCTAD (2010);
authors’ analysis.
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Goods Services Total GDP

Among ASEAN countries, Singapore has the strongest
presence in global markets. Its world export market share
fell following the Asian crisis to less than 2 percent but has
recovered grounds to between 2.1 and 2.2 percent from
2004 to 2009, although this is still somewhat below the 2.3
percent achieved in 1996 (Figure 3.17). The market share
of Malaysia, the second-largest exporter from ASEAN, has
fallen over the past ten years from 1.4 percent in 2000 to
1.2 percent in 2009. Thailand’s market share has remained
relatively unchanged at 1.0 percent, while Indonesia’s
market share has returned to around 0.8 percent in the last
two years after dipping to 0.7 percent between 2003 and
2007. The Philippines experienced the greatest worsening
of position among ASEAN countries after the Asian crisis
as its global export share declined from 0.6 percent in 1997
to 0.3 percent in 2009.
CLMV and Brunei have the weakest positions in ASEAN
in global export markets. Among these countries, Vietnam
has made the greatest gain in world market share over the
last ten years. Vietnam’s market share doubled from 0.2
percent in 2000 to 0.4 percent in 2009. Cambodia’s and
Myanmar’s global market share has remained at about 0.03
and 0.04 percent respectively. Laos has the lowest share at
0.01 percent. Brunei’s market share has been little changed
at around 0.05 percent.
Exports by Clusters
Proximity of businesses engaged in similar economic
activities results in both competitive effects on the one hand
that raise the costs of inputs and drive down profits, and
beneficial agglomeration effects on the other that attract
suppliers, employees and consumers, and create a pool for

figure 3.16: 48 Share of world export of goods and services (%)

World Export 46

Market Shares, 44
ASEAN and
42
Selected
Countries 40

16

14

12

10

0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: UNCTAD (2010);
authors’ analysis. ASEAN China India EU Japan US

ASEAN COMPETITIVENESS REPORT 37

 Share of world export of goods and services (%)
figure 3.17: 2.5

World Export
Market Shares, 2.0
ASEAN Countries
1.5

1.0

0.5

Note: For 2009, data for 0.0

Brunei, Myanmar and Laos
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
are for goods exports only.
Brunei Cambodia Indonesia Laos Malaysia
Source: UNCTAD (2010);
authors’ analysis. Myanmar Philippines Singapore Thailand Vietnam

knowledge and other positive spillovers. Industry-specific
agglomeration effects refer to beneficial proximity effects
of a narrow set of related economic activities that lead to
specialization of specific economic activities within the
region. Given the right conditions, these agglomeration
forces can be stronger than the competitive effects and
make it more attractive for businesses to be situated close to
competitors rather than far away from them. Clusters include
large companies, small and medium-sized enterprises,
partners in the value chain, research and educational
institutes, capital providers and other intermediaries.
ASEAN has strong clusters in a number of industries such
as information technology (IT), oil and gas products,
agricultural products, metal mining and manufacturing,
transport and logistics, and business services. Oil and gas
products are the largest export item for four of the ASEAN
countries, namely, Brunei, Indonesia, Myanmar and Vietnam
while IT products are the largest export commodity in
Malaysia, Philippines, Singapore and Thailand. Apparels are
a major export in CLMV (Figure 3.18).
Investments
Investments, both domestic and inward foreign direct
investment (FDI), indicate a location’s attractiveness to local
and foreign companies. Outward FDI indicates the ability
of local companies to transfer their competitive advantages
to foreign locations.

figure 3.18: 200,000

Export value (2007,US$m)

Exports by 180,000
Clusters, ASEAN
160,000
Countries
140,000

120,000

100,000

80,000
Note: Export values for 60,000
Laos refer to 2006.
40,000
Sources: Porter, M.E.
and R. Bryden (2010). 20,000
International Cluster
Competitiveness Project, 0
Institute for Strategy
s

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ui

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Ag

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r
ns
in

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Fo

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nd

tP
Lo

Underlying data drawn

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Fo
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and the IMF BOP statistics;

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Laos and Vietnam: EIU

Country Profiles, 2008. Brunei Cambodia Indonesia Laos Malaysia
Myanmar Philippines Singapore Thailand Vietnam

38 ASIA COMPETITIVENESS INSTITUTE

 figure 3.19: 50 Gross investment in % of GDP

Domestic 45
Investment, ASEAN
and Selected 40
Countries
35

30

25

20

15

10
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: EIU (2010).

ASEAN China India EU Japan US World

Domestic Gross Fixed Capital Investment
Domestic gross fixed capital investment signals companies’
positive assessment of current and future business
opportunities in a location. By enhancing a country’s capital
stock, capital investment helps to drive labor productivity
and also ensures future productivity growth through new
technology or production processes embedded in new
machines.
ASEAN’s gross fixed capital investment has been high
historically, exceeding 30 percent of GDP before the Asian
financial crisis (Figure 3.19). However, the onset of the
Asian crisis caused the region’s investment rate to plunge
precipitously. The rate has started to recover since 2004
to reach 26.2 percent in 2009. The recent global crisis
did not seem to affect the investment rate in ASEAN as a
whole as the rate has continued rising in 2008 and 2009.
While ASEAN’s investment rate was among the highest in
the world before 1997, the region’s capital formation fell
behind countries such as China and India in the 2000s. In
particular, the investment rates in China and India climbed
significantly in the 2000s. China’s investment rate, at 43.9
percent in 2009, is now the highest among the comparison
group of countries.
Within ASEAN, Vietnam’s investment as a percent of GDP
has been the highest in the region in the 2000s, amounting to
34.5 percent of GDP in 2009 (Figure 3.20). The investment
rate in the Philippines, which has been declining in the
2000s, was the second lowest among ASEAN members in
2009, at 14.7 percent. Myanmar had the lowest estimated
investment rate of 14.5 percent in 2009. The rates of gross
fixed capital formation fell in a number of countries after the
Asian financial crisis and in most cases, have not returned to
pre-1997 levels. This is particularly so for Malaysia, which
experienced a sharp plunge in investment rate after 1997 and
has recorded a much lower investment rate since. Malaysia’s
investment as a percent of GDP in 2009 was 20.4 percent
compared with a peak of 43 percent in 1997. Thailand’s
investment rate was on an uptrend in the early 2000s but

Gross investment in % of GDP

figure 3.20: 50

Domestic 45

Investment, 40
ASEAN 35
Countries
30

25

20
Notes: Data are
estimated for the 15
following years for
some countries: 10
Brunei (2009),
Cambodia (2008, 5
2009), Myanmar
(2006 onwards). Data 0
not available for Laos. 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: EIU (2010). Brunei Cambodia Indonesia Malaysia Myanmar

Philippines Singapore Thailand Vietnam

ASEAN COMPETITIVENESS REPORT 39

 figure 3.21: 60 FDI inward stock as % of GDP
FDI Inward
50
Stock, ASEAN
and Selected
40
Countries
30

20

10

0
Source: UNCTAD (2010); 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
authors’ analysis. ASEAN China India EU Japan US World

has been falling from 2005. Singapore’s investment rate was
on a downtrend between 1997 and 2005, but started rising
thereafter to reach 28.9 percent in 2009. Indonesia was the
only ASEAN country to achieve investment rates in 2008
(27.7 percent) and 2009 (31.1 percent) that exceeded pre-
1997 levels, after experiencing a fall in investment rates
between 1997 and 1999.
Inward Foreign Direct Investment
Inward FDI is an important indicator of a country’s or
region’s attractiveness to foreign companies and is driven
by factors such as natural resources, domestic market (size
and/or growth) and export opportunities arising from
the location. The existence of foreign companies in the
domestic market helps to enhance competition through
rivalry, knowledge inflow, injection of capital and linkages
to foreign markets.
FDI inflows to ASEAN exceed outward investments from
ASEAN, by an average of 2.5 times between 2003 and
2009. This is unlike the EU, which is a net outward investor.
The share of FDI inward stock relative to GDP in ASEAN
increased markedly after 1997 following a spate of mergers
and acquisitions after the Asian financial crisis. In 2009, FDI
inward stock as a percentage of GDP is 46 percent, which
underlines the importance of foreign investors relative to
the size of ASEAN’s economy. In contrast, the share of FDI
inward stock relative to GDP in China has been declining
since 1997 to 9 percent in 2008. It rose slightly to 10 percent
in 2009. The share of India’s FDI inward stock to GDP has
been rising rapidly since 2006 to reach 13.3 percent in 2009
(Figure 3.21).
As with the rest of the world, net FDI inflows to ASEAN
plunged amid the global crisis, shrinking by 33 and 22
percent in 2008 and 2009 respectively. As a share of world
total FDI inflows, however, ASEAN’s share recovered from
2.7 percent in 2008 to 3.3 percent in 2009. Over a longer
time horizon, ASEAN’s share of total world inward FDI
flows in the 2000s has not recovered to the levels achieved
before the Asian financial crisis. Due to the volatility in
annual FDI inflows, the shares are calculated on a three-
year moving average basis. In the 2000s, ASEAN’s highest
share of world FDI inflows was an average of 4.5 percent
between 2003 and 2005, in contrast to 8.0 percent between
1994 and 1996 in the 1990s (Figure 3.22). China overtook
ASEAN in its share of total world FDI inflows in 1993

figure 3.22: 60 Share of world total FDI inflows

(%, 3-yr moving average)
World Share 50
in FDI Inflows,
ASEAN and 40

Selected 30
Countries
20

10
10 8
6
0 4
Source: UNCTAD (2010); 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 2
authors’ analysis. 0
05 06 07 08 09
ASEAN China India EU Japan US

40 ASIA COMPETITIVENESS INSTITUTE

 6.0
figure 3.23:
Inward FDI
Performance 5.0

Index, ASEAN
and Selected 4.0
Countries
3.0

2.0

Note: The Inward FDI

Performance Index is the 1.0
ratio of a country’s share
in global FDI inflows to its
share in global GDP. 0.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: UNCTAD (2010);
authors’ analysis. ASEAN China India EU Japan US

and its share has remained above ASEAN’s since then. In
2009, China received 8.5 percent of world FDI inflows (or a
3-year moving average of 5.8 percent). India’s share of world
FDI inflows has increased markedly since 2006. Its share in
2009 of 3.1 percent is similar to ASEAN’s. The EU and US
typically receive over half of total world FDI inflows each
year, although their shares have dipped below half in 2008
and 2009.
An Inward FDI Performance Index has been compiled in
accordance with the definition of the UNCTAD Inward
FDI Performance Index for ASEAN and comparator
countries (UNCTAD 2002). This index is the ratio of a
country’s share in global FDI inflows to its share in global
GDP. It can be seen that from attracting FDI inflows that
were three to four times more than what could be expected
from its size in the global economy in the 1990s, ASEAN’s
FDI inflows over the last two years have been just in line
with its economic size. Meanwhile, China’s Inward FDI
Performance Index has fallen below 1 to 0.9 in 2007 and 0.8
in 2008 and 2009, which means that its FDI inflows in recent
years have been roughly commensurate with its economic
size. India’s Inward FDI Performance Index, which has been
around 0.5 or below for many years, has risen to 0.8 in 2008
and 1.0 in 2009 (Figure 3.23).
Among the ASEAN countries, Singapore receives the largest
share of the region’s FDI inflows. Between 2007 and 2009,
its share was 40.2 percent, which was somewhat lower than
its typical share of nearly 50 or over 50 percent in the 2000s,
due to a plunge in its share to 23.1 in 2008. Thailand is the
second-largest recipient with 16.4 percent, although it has
lost its position twice in recent years to Indonesia. Indonesia
has seen robust inflows since 2005 and is the third-largest
recipient with 13.2 percent share between 2007 and 2009.
This is in contrast to the late 1990s and early 2000s, where
Indonesia’s net FDI inflows were negative due partly to huge
repayments of intra-company loans by foreign affiliates after
the Asian financial crisis.

%, 3-year moving average

figure 3.24:
Share of 7.0 Vietnam
12.2
FDI Inflows 7.3 6.3
Thailand
in ASEAN by 21.9 16.4
Singapore
Country,
Selected Years 37.6 Philippines

Myanmar
40.2
5.8 Malaysia
53.5

Laos
22.3 4.1
Indonesia
10.9
3.6
Cambodia
10.0
16.2 13.2
7.9 Brunei
1.6 1.4
Source: UNCTAD (2010); -6.3
authors’ analysis. 94-96 01-03 07-09

ASEAN COMPETITIVENESS REPORT 41

 figure 3.25: 60 FDI outward stock as % of GDP
FDI Outward
Stock, ASEAN 50
and Selected
Countries 40

30

20

10

0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: UNCTAD (2010);
authors’ analysis. ASEAN China India EU Japan US World

Vietnam’s FDI inflows have been rising steadily in recent
years and it obtained a share of 12.2 percent over the last
three years. Malaysia has been losing its attractiveness as an
investment location to its ASEAN neighbors after the 1997
Asian crisis. From being the second-largest FDI recipient,
it was overtaken by Thailand in ASEAN’s FDI share in
1998. Between 2007 and 2009, its share was also smaller
than that of Indonesia and Vietnam. The Philippines’ share
has averaged around 4 percent in recent years, which is
lower than its share of around 6 percent in the mid-1990s.
Brunei’s share has been around 2.3 percent between 1995
and 2001 but spiked in 2002 and 2003. Since then, its share
has been below 1 percent. Likewise, Myanmar and Laos have
been receiving less than 1 percent of total FDI inflows to
ASEAN. Cambodia’s share has exceeded 1 percent in recent
years (Figure 3.24).
Outward Foreign Direct Investment
Outward FDI is an important indicator of the ability of
local companies to transfer their competitive advantages
to foreign locations, thereby exposing them to global
competition, foreign markets and access to knowledge.
Outward FDI serves an important role in providing
companies with control over a large part of the value chain.
ASEAN’s outward FDI stock relative to its GDP has been
increasing steadily since 1993 (Figure 3.25). In 2009, the
share was 23.5 percent. The bulk of ASEAN’s outward FDI
stock is accounted for by Singapore and to a lesser extent
by Malaysia. The outward FDI stocks of China and India
are quite low relative to their GDPs, although the shares
have been edging up since 2006 to reach 4.9 percent and 6.3
percent in 2009 respectively.
ASEAN, China and India all are not significant investors
abroad compared with the developed countries. ASEAN’s
share of total world FDI outflows peaked at 3.5 percent
between 1994 and 1996 and has remained at around 2
percent in recent years (Figure 3.26). China and India have
been increasing their shares of world FDI outflows, the
former since 2004 and the latter since 2006. Between 2007
and 2009, China and India averaged highs of 2.3 percent
and 1.0 percent for the two countries respectively.

figure 3.26: 70 Share of world total FDI oulows

(%, 3-yr moving average)
World 60
Share in FDI 50
Outflows,
ASEAN and 40

Selected 30
Countries
20
3
10
2

0 1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
0
Source: UNCTAD (2010); 05 06 07 08 09
authors’ analysis. ASEAN China India EU Japan US

42 ASIA COMPETITIVENESS INSTITUTE

 figure 3.27: 2.5
Outward FDI
Performance 2.0
Index, ASEAN
and Selected 1.5
Countries
1.0

0.5

Note: The Outward FDI 0.0

Performance Index is the 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
ratio of a country’s share
in global FDI outflows to its
share in global GDP. ASEAN China India EU Japan US

Source: UNCTAD (2010);

authors’ analysis.

The Outward FDI Performance Index, which is the ratio of
a country’s outward FDI flows to its share in world GDP
according to UNCTAD definition, indicates that relative to
the region’s size in the global economy, ASEAN’s outward
FDI was 70 percent of what could be expected between
2007 and 2009. For a couple of years from 2004, ASEAN’s
outward investment was commensurate with its economic
size. Outward investments from China and India, although
rising, are still substantially below what can be expected
from their economic size (Figure 3.27).
Much of the changes in ASEAN’s FDI outflows over time
have been due to changes in FDI outflows from Singapore,
as it has accounted for 60 to 80 percent of total ASEAN
FDI outflows. Singapore’s share was the largest in the six
years after the 1997 crisis, averaging 79 percent. Malaysia
usually has been the second-largest outward investor from
ASEAN with a share of around 20 percent. However, it was
the largest ASEAN outward investor in 2008 and 2009, as
Singapore registered negative net FDI outflow or reverse
investment by residents in 2008 and lower outward FDI
in 2009 (Figure 3.28). The third-largest ASEAN outward
investor has been Indonesia from 2004 to 2008, but
Thailand took this position in 2009.
Innovation
A country’s or region’s innovation capacity is an important
indicator of its future competitiveness as it contributes to
its stock of knowledge, which increases the productive
capacities of local companies. Innovation is difficult to
measure. Most researchers rely on readily available indicators
such as patenting. The US is the most attractive market for
patent use and a commonly used measure is the number of
patents granted by the US Patent and Trademark Office
(USPTO).
ASEAN’s patenting is low, accounting for just 0.4 percent
of total patents filed in the US in 2009 (or 0.8 percent of
patents filed among non-US based institutions). This puts
ASEAN on par with India in terms of patenting but behind
China (1.2 percent), EU (13.1 percent), Japan (19.8 percent)

figure 3.28: %, 3-year moving average

Share of Outward 6.4 4.0

10.6 Thailand
FDI flows from
ASEAN by Country, Singapore
29.0
Selected Years 53.3 Philippines
4.8
81.5 Malaysia

1.6 Laos
39.5

23.7 Indonesia

0.7 Brunei
14.4 11.6 15.6
1.7
Source: UNCTAD (2010);
authors’ analysis. 94-96 01-03 07-09

ASEAN COMPETITIVENESS REPORT 43

 figure 3.29:
Patent Filings
with USPTO, ASEAN
and Selected
Countries
Source: USPTO (2010);
authors’ analysis.
ASEAN China
and the US (49.5 percent) (Figure 3.29). On a per million
capita basis (computed as the number of patents per million
economically active population), ASEAN has a long way
to go to reach the innovative capacity of patenting leaders
like the US, Japan and EU. ASEAN also falls significantly
behind China and India in the growth rate of patent filing in
the US on a per million capita basis (Figure 3.30).
Within ASEAN, Singapore continues to dominate in terms
of both the absolute number of US patents filed and on a
per million capita basis. Singapore filed 493 patents in 2009
or 118.1 patents per million capita, and was ahead of the
EU (63.5 patents per million capita), China (2.1) and India
(0.9) but behind Japan (344.3) and US (388.5). Malaysia
filed 181 patents (9.3 patents per million capita) while
Thailand filed 39 patents (0.7 per million capita). The other
ASEAN countries play a relatively small role in patenting.
There are very few or no record of patenting in the US from
CLMV while patenting growth has fallen in the Philippines.
Entrepreneurship
Entrepreneurship is an important indicator of the
effectiveness with which new ideas and technologies are
assimilated in a country or region for future prosperity.
Advanced economies typically have strong entrepreneurship
as indicated by high densities of businesses (defined as the
number of registered companies per million economically
active population) and high entry rates of new businesses
(that is, the number of new registered companies divided by
total registered companies).
Data for ASEAN’s registered businesses are available for
Indonesia, Singapore, Thailand and Vietnam between 2001
and 2005. Taken together, ASEAN’s business density at
2,505 businesses per million economically active population
(or per million capita) in 2005, is substantially lower than
44 ASIA COMPETITIVENESS INSTITUTE
India EU Japan US
the business densities in the advanced economies (Figure
3.31). This is due to low business densities in Thailand
(5,292), Indonesia (1, 608) and Vietnam (892), as Singapore
has the highest business density among the comparator
countries and region of 29,924 businesses per million capita.
Vietnam’s business density is the lowest in ASEAN but it is
increasing much more rapidly than the rest of the region at
an annual 30.5 percent between 2001 and 2005.
In terms of entry rates of new businesses, data are available
only for Indonesia, Singapore and Thailand within ASEAN.
Based on these three countries, ASEAN’s entry rate of new
businesses is 11.4 percent in 2005, which is lower than the
US (13.1 percent) but more robust than the entry rates
of EU (10.3 percent), Japan (4.4 percent) and India (5.3
percent). The growth of new businesses in ASEAN has
been relatively faster than that in the developed economies.
Within ASEAN, Singapore has the highest entry rate of
new businesses (19.0 percent) followed by Thailand (12.0
percent) and Indonesia (7.8 percent) (Figure 3.32).
As a reflection of the overall competitiveness of ASEAN’s
locally-owned companies, none of the companies was
placed within the top 100 on the Forbes 2010 Global
2000 list, which ranks companies in 62 countries in terms
of size based on an equal weighting of sales, profits, assets
and market value. Practically all the comparator countries
or regions in this Report have homegrown companies that
are larger compared with ASEAN. Leading companies in
the US took the top four positions with JPMorgan Chase
ranked the largest in the world. China’s ICBC was the
fifth-largest company in the world. The world’s sixth-largest
company on the Forbes list was from the EU, namely, Spain’s
Banco Santander. The highest ranking company from Japan
was Nippon Telegraph & Tel at 41st position. The highest
ranking company in India, Reliance Industries, was ranked
126.
 figure 3.30: 550
Patents per million economically ac‰ve popula‰on, 2009

Number and Growth

of Patent Filings
450
with USPTO, ASEAN
and Selected US
Countries 350
Japan

250

Note: CAGR refers to

compound annual growth rate
of the number of patents per
150
million economically active Singapore
population (aged 15 years and
above) filed with USPTO. EU

Sources: USPTO (2010) and 50

World Bank (2010a); authors’ Philippines Malaysia India China
Brunei Thailand ASEAN
analysis.
-5 0 Indonesia 5 10 15 20 25 30 35
Growth of patents per million capita, 1997-2009 (CAGR %)

ASEAN’s topmost ranking company in the Forbes list
comes from Thailand, whose largest company, PTT Public
Company, was ranked 196. For the other ASEAN countries,
Singapore’s highest ranking company, Wilmar International,
was placed 230. Malaysia’s CIMB Group Holdings was
ranked 493. Indonesia’s Telekom Indonesia was ranked
684 while the largest company in the Philippines, PLDT-
Philippine LDT, was ranked 1080. In total, 63 homegrown
companies from ASEAN were on the Forbes Global 2000
list, which was 3 percent of the total, compared with 113
and 56 companies from China and India respectively.
Of the 200 top-performing small and midsize companies
in the Asia Pacific on Forbes’ 2010 “Best Under a Billion”
list with sales between US$5 million and US$1 billion, 16
percent or 32 of them were homegrown companies from
ASEAN economies. This compared with 32 percent of
companies from China and 19.5 percent of companies from
India.
Summary
ASEAN has several naturally-endowed advantages in
location, resource abundance and market size, but there
are also some fundamental conditions related to disaster
and health risks as well cultural and ethnic diversities that
potentially can disrupt ASEAN’s development.
The analysis of ASEAN’s economic performance over
the last two decades, which would reflect the outcomes
of its past competitiveness, has shown that while there is
considerable variation across countries, ASEAN as a whole
has not performed as well in the decade after the 1997 Asian
financial crisis compared with the heights the region has
attained in the years prior to the crisis. On recent measures

figure 3.31: Singapore 3.3% 29,923.9

Number and Growth
of Registered EU 9.0% 28,423.1

Businesses, ASEAN Japan 0.0% 23,350.0

and Selected
0.9% 22,034.7
Countries US

Thailand 2.2% 5,292.0

ASEAN 3.5% 2,504.9

Notes: CAGR refers to compound
annual growth rate of the number
Indonesia 2.4% 1,607.8
of registered businesses per
million economically active
population (aged 15 years and India 2.8% 973.3
above). ASEAN refers to Indonesia,
Singapore, Thailand and Vietnam Vietnam 30.5% 892.2
only.
5,000 10,000 15,000 20,000 25,000 30,000 35,000
Source: World Bank (2010a);
CAGR %, 2001-2005 Number of registered businesses per million economically acˆve populaˆon, 2005
authors’ analysis.

ASEAN COMPETITIVENESS REPORT 45

 figure 3.32: ASEAN 12.0 11.4
Number and Growth Singapore 17.5 19.0
of New Registered
Businesses to Thailand 8.3 12.0

Total Registered Indonesia 13.8 7.8

Businesses, ASEAN
and Selected US 2.6 13.1

Countries EU 2.2 10.3

Note: CAGR refers to compound Japan 5.3 4.4

annual growth rate in the number
of new registered businesses India 9.7 5.3
to total registered businesses.
ASEAN data refers to Indonesia,
Singapore and Thailand only. 20 15 10 5 0 5 10 15 20 25
CAGR %, 2001 - 2005 Entry Rates (Number of new businesses registered / total
Source: World Bank (2010a); businesses registered)
authors’ analysis.

of economic outcomes in various dimensions, ASEAN that are tailored to the diverse circumstances of individual
lags significantly behind advanced economies and has been ASEAN countries and collective action that derives urgency
overtaken by China in a few aspects. The region performs from the recognition that the region has fared rather
better than India, but the latter is catching up. unfavorably against the comparison group of advanced and
emerging economies post-Asian financial crisis. ASEAN has
ASEAN’s prosperity as measured by GDP per capita is weathered the 2008 global crisis relatively well, and it has
about half of the world average in 2009 and the distribution registered an increase in the share of world exports and world
of prosperity in the region has been uneven. Prosperity in FDI inflows in 2009 from 2008, but whether this marks the
the region has been underpinned by moderately high labor start of more positive development remains to be seen. It
force participation rates and affordable local prices, but the should be noted that the analysis stops at 2008 or 2009 and
third element of prosperity generation – labor productivity ASEAN has started its implementation of measures towards
– has been relatively low and not improving as fast as that of an AEC from 2008. To the extent that deeper economic
China over the last decade. integration is effective and results in positive payoffs,
Exports have been an important source of ASEAN’s growth, ASEAN is on the way to redressing its relatively lacklustre
but ASEAN’s share of world exports has remained relatively competitiveness performance in the 2000s and this should
unchanged since 1997 and is below the levels achieved just be evident in the data in future analysis.
prior to the Asian crisis. China has surpassed ASEAN in
world export share since 2005. India’s world share is much
below ASEAN’s but its share has been increasing quite
rapidly in recent years.
The rates of domestic investment in ASEAN fell markedly
after the Asian crisis but have been recovering, although
these are below the rates recorded prior to the crisis and
lower than that in China and India. ASEAN has become
less attractive to foreign investors after the Asian crisis amid
stiff competition from China and India, as its annual share
of world total FDI inflows in the 2000s is half or less than its
share in the early to mid-1990s. ASEAN is as yet not a major
investor abroad.
ASEAN is relatively weak on innovation outcomes as
measured by patent filings in the US and there is much room
to grow entrepreneurship, in particular, in the nurturing of
ASEAN indigenous companies to become larger players of
global scale.
The findings above point to the pressing need as well as
significant scope for ASEAN to achieve more competitive
economic outcomes. This would require both solutions

46 ASIA COMPETITIVENESS INSTITUTE

Chapter References
Central Intelligence Agency (CIA) (2009). The World Factbook 2009, Washington, DC: Central Intelligence Agency.
Cheong, David and Michael Plummer (2009). FDI Effects of ASEAN Integration, MPRA (Munich Personal RePEc
Archive) Paper No. 26004.
Economist Intelligence Unit (EIU) (2010). Online country statistics, www.eiu.com
____________ (2008). Laos and Vietnam: EIU Country Profiles, 2008.
Forbes.com (2010a). The Global 2000.
____________ (2010b). Asia’s Best Under a Billion.
International Labor Organization (ILO) (2010). Labor Force Participation Rate, http://kilm.ilo.org/KILMnetBeta/
default2.asp
International Monetary Fund (IMF) (2010). World Economic Outlook Database October 2010.
Porter, Michael E. and Richard Bryden (2010). International Cluster Competitiveness Project, Institute for Strategy and
Competitiveness, Harvard Business School. Underlying data drawn from the UN Commodity Trade Statistics Database and
the IMF BOP statistics.
Singapore Department of Statistics (2011). Key Household Income Trends 2010.
The Conference Board and Groningen Growth and Development Centre (2010). The Conference Board Total Economy
Database.
United Nations Conference on Trade and Development (UNCTAD) (2002). World Investment Report 2002: Transnational
Corporations and Export Competitiveness, New York and Geneva: United Nations.
_____________ (2010). UNCTADstat, http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&s
CS_ChosenLang=en
United Nations Development Programme (UNDP) (2009). Human Development Report 2009, United Nations, New York:
United Nations Development Programme.
United States Patents and Trademark Office (USPTO) (2010). Patent Statistics, http://www.uspto.gov/about/stats/index.
jsp
United Nations University-World Institute for Development Economic Research (UNU-WIDER) (2010). UNU-WIDER
World Income Inequality Database.
World Bank (2010a). World Development Indicators.
____________ (2010b). PovcalNet.

ASEAN COMPETITIVENESS REPORT 47

48 ASIA COMPETITIVENESS INSTITUTE
 20
ASEAN
Competitiveness
Report

10
Chapter 4

ASEAN
Competitiveness
Fundamentals

ASEAN COMPETITIVENESS REPORT 49


ASEAN
COMPETITIVENESS
FUNDAMENTALS
This chapter analyzes myriad factors that drive the longer-
term competitiveness performance of ASEAN and its
member countries, which are organized under the two
building blocks of macroeconomic competitiveness and
microeconomic competitiveness in the Porter framework.
The first part of the chapter evaluates the ASEAN region as
a whole on these parameters to identify the strengths and
weaknesses of ASEAN. This is then put into perspective
with respect to China and India. The purpose of this analysis
is to provide an understanding of the competitiveness
fundamentals of the region that can then serve to formulate
an agenda for regional collaboration.
The second part provides an assessment of individual
member countries to identify specific areas that need to be
addressed at the national level.
Additional analysis is conducted using alternative sets of
competitiveness indices in the aspects of economic freedom,
ease of doing business and logistical efficiency as a limited
means to validating the findings in the earlier sections.
Regional Competitiveness
The competitiveness analysis is organized using the Porter
framework and draws on multiple sources of unpublished
and published data to assess ASEAN’s competitiveness from
various perspectives. In particular, it makes extensive use of
a set of competitiveness indices aggregated at different levels
using a methodology developed by Professor Porter and
his research team (see Porter et al. (2008)), primarily from
raw data collected by the World Economic Forum (WEF)
in its annual Executive Opinion Survey (see Browne and
Geiger (2010))1. The 2010 Survey of business executives
was conducted between January and May 2010 for 139
economies. The competitiveness indices also incorporate
selected statistical data from the World Bank’s Worldwide
Governance Indicators, the World Bank’s Doing Business
project, World Health Organization, UNESCO Institute
for Statistics, International Telecommunication Union and
International Monetary Fund; 2009 data were used where
available.
Given the diversity in development within the region, there
are obvious limitations in comparability, reliability and
comprehensiveness of data sources and a caveat is made
here in recognition of this fact. It is also noted that data on
ASEAN from the WEF’s Executive Opinion Survey are
available for only eight of the region’s ten countries, that
50 ASIA COMPETITIVENESS INSTITUTE
is, excluding Laos and Myanmar. In order to give a more
complete picture of overall ASEAN competitiveness, the
competitiveness of Laos and Myanmar will be evaluated
with a limited set of similar indicators in a later section.
ASEAN’s competitiveness profile in 2010 is given in Figure
4.1. The competitiveness ranking for the whole ASEAN
region is calculated as a GDP (PPP)-weighted rank of
eight ASEAN countries. The competitiveness categories
are colour coded to indicate their quintile rankings among
a constant sample of 132 countries2, as well as the extent of
improvement or deterioration from their rankings in 2009.
ASEAN’s position on GDP per capita among the 132
countries is given alongside its ranking on the New Global
Competitiveness Index (New GCI). Since GDP per capita is
a measure of prosperity or the outcome of competitiveness,
and the overall competitiveness index is a measure of
competitiveness fundamentals that will impact on future
prosperity, the ‘competitiveness gap’ or difference in their
rankings would offer some indications of the ability of a
region or country in improving or sustaining prosperity in
the longer term.
ASEAN’s overall competitiveness position in 2010 was
57th globally, which was three places behind its rank
in 2009. The slight deterioration in ASEAN’s overall
competitiveness over the past year was largely due to a
6-rank drop in microeconomic competitiveness to 49th
place. Macroeconomic competiveness was little changed at
64th place.
ASEAN’s GDP per capita in 2009, the latest year available,
was 79th position. The significant gap between current
prosperity and overall competitiveness might point to the
potential of current competitiveness fundamentals in raising
future prosperity.
Macroeconomic Competitiveness
Macroeconomic factors, which are heavily influenced by
government actions, determine the broad setting in which
businesses operate. Although they do not directly affect the
productivity of firms, soundness in these factors is necessary
to provide a supportive context for firms’ efforts to raise
productivity. The macroeconomic competitiveness of
countries is assessed in two broad areas: social infrastructure
and political institutions and macroeconomic policy. The
effectiveness of political institutions, safeguards of property
and legal rights and adequate provisions in basic healthcare
and education are some basic conditions for economic
development. Fiscal and monetary policies affect short-
term fluctuations in economic activity, as well as in the
longer term, firms’ ability to operate in an environment of
sustainable government financing and low inflation.
ASEAN’s macroeconomic competitiveness in 2010 has been
better than slightly over half of the countries in the sample.
The region has been stronger on macroeconomic policy
and clearly weaker on social infrastructure and political
 figure 4.1: GDP pc (79)
Competitiveness Micro (49) Macro (64)
New GCI (57)
Profile of ASEAN
Region 2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (49) and Pol. Institutions
and Strategy (45) (66) (55)

Strategy (44)
Notes: ASEAN’s competitiveness Related and Supporting Political Institutions
rankings have been computed as Industries (37) Org. Practices (57)
(48)
the GDP (PPP)-weighted ranks of
Internationali-
eight ASEAN countries (excluding Demand Conditions zation (45) Quintile Rankings
(56) Rule of Law (72)
Laos and Myanmar). Ranks are
1 (Top 20%)
based on a constant sample of
2
132 countries. The rank for GDP Context for Strategy Human
pc (GDP per capita) is ASEAN’s 3
and Rivalry (53) Development (72)
position from 2009 data. 4
5
Source: Authors’ analysis based Factor Input Conditions Change in Rank (09-10)
on unpublished data in Delgado (59) Improve ≥ 10%
et al. (2010); raw data from World Improve + 1 rank to <10%
Economic Forum, Executive Admin (75) Logistic (64)
+ 1 or - 1 rank
Opinion Survey 2009, 2010.
Capital (42) Comm. (68) Innov. (52) Worsen + 1 rank to <10%
Worsen ≥ 10%

institutions. Although ASEAN’s overall macroeconomic
competitiveness has remained largely unchanged from 2009,
certain aspects have appeared to show a more significant
deterioration. This is particularly in the area of political
institutions, where there has been a perceived decline in
the transparency of economic policymaking, effectiveness
of law-making bodies, and lower government effectiveness
in reducing poverty and inequality. The rule of law has
deteriorated from weaker protection of property rights,
less efficient legal framework and higher business costs of
crime and violence. Human development has been affected
slightly by poorer accessibility of healthcare services.
A significant improvement in ASEAN’s macroeconomic
stability has served to counter its somewhat weakened
position on social infrastructure and political institutions.
This has been due largely to an improved inflationary
environment, as the region’s budget deficit has increased as
a result of fiscal stimulus packages implemented by ASEAN
economies during the global crisis.
Microeconomic Competitiveness
Microeconomic factors directly affect the productivity and
innovativeness of firms. Microeconomic competitiveness
is determined by the quality of two dimensions: first, the
sophistication of company operations and strategies that
directly affect the economic value generated from factor
inputs, and second, the general business environment
that shapes the productivity of company assets and the
opportunities in which these can be used productively. The
quality of the business environment is in turn determined
by four dimensions, namely, the quality of factor inputs that
can be accessed for productive use; the demand conditions
in which companies operate; the strength of local clusters
that determines the level of positive externalities that
can nurture companies; and the context for strategy and
rivalry that promotes investment, technology transfer and
competition. The quality of microeconomic factors is the
outcome of independent decisions made by players in various
companies, government agencies and other institutions in
the economy.
ASEAN’s microeconomic competitiveness is relatively
stronger than its macroeconomic competitiveness. In 2010,
ASEAN has been ranked above 62 percent of the countries
in the sample at 49th position in this dimension. This is a
drop of 6 ranks from 2009 and can be largely attributed to
a worsening of company operations and strategy and to a
smaller extent, to a decline in national business environment.
Company operations and strategy has deteriorated mainly
as a result of poorer assessments for organizational practices
such as the extent of staff training, incentive compensation
and willingness to delegate authority. Internationalization of
firms has also worsened from poorer breadth of international
markets and fewer foreign technology licensing. Some
decline in operational strategy has been the result of
factors such as customer orientation, firm-level technology
absorption and nature of competitive advantage (Table 4.1).

ASEAN COMPETITIVENESS REPORT 51

 table 4.1:
Company
Sophistication in Company spending on R&D 40 -4
ASEAN Extent of markeng 43 -2
Firm-level technology absorpon 48 -4
Note: Changes in rank are
calculated for a constant
sample of 132 countries. A
negative sign indicates a
worsening in rank. Darker
green indicates significant
advantage gain. Light green 45 -5
indicates moderate advantage
gain. Light grey indicates
neutral. Darker pink indicates
significant advantage loss.
Light pink indicates moderate
advantage loss.

Source: Authors’ analysis

based on unpublished data in
Delgado et al. (2010); raw data
from World Economic Forum,
Executive Opinion Survey
2009, 2010.

The quality of the business environment in ASEAN has
worsened slightly in 2010, reflecting lower rankings across
three sub-areas of business environment quality, namely,
context for strategy and rivalry, demand conditions and
factor input conditions. There has been little change in
the ranking of ASEAN’s supporting and related industries,
which is the region’s strongest competitiveness sub-area.
This may reflect the strong presence of regional production
networks in electronics and automotive in the region.
Within this sub-area, there has been a slight deterioration
in cluster development in 2010 and in other aspects of
supporting industries especially in the availability of
advanced technology, but this has been balanced by greater
local availability of process machinery (Table 4.2).
Across ASEAN, strong clusters exist in IT, oil and gas
products, agricultural products, metal mining and
manufacturing, transport and logistics and business services
(Figure 4.2).
The region’s context for strategy and rivalry is the next most
competitive area, but its ranking is significantly behind
that of supporting industries and clusters. In 2010, this
aspect has been placed lower as a result of deterioration in
assessments in a wide range of individual indicators. The less
favorable assessments have been particularly in areas such as
FDI rules, antitrust policy and trade barriers (Table 4.3).
Demand conditions, typically critical for innovation, have
also worsened for ASEAN over the past year. Although there
has been significant improvement in buyer sophistication,
important drivers to innovation such as government
procurement of advanced technology products and ICT
promotion have worsened (Table 4.4). There has also been
some worsening in ICT laws, regulatory standards and
environmental standards.

table 4.2:
National Business Supporng and related industries

Environment in
ASEAN: Supporting
and Related
Industries

Source: Authors’ analysis

based on unpublished
data in Delgado et al.
(2010); raw data from
World Economic Forum,
Executive Opinion Survey
2009, 2010.

52 ASIA COMPETITIVENESS INSTITUTE

 figure 4.2:
Clusters in ASEAN Oil and Gas
Agricultural Products
Forest products
Apparel Forest products
Fishing
MYANMAR
Apparel
IT LAOS Metal Mining & Mfg
Automove Power Generaon
Plasc
IT
Agricultural Products Oil & Gas
Metal Mining & Mfg
THAILAND Texles & Garments
Metal Mining & Mfg
Apparel Communicaons Equipt
Footwear Footwear Agricultural Products
Fishing
CAMBODIA
Transport & Logiscs Automove
Plascs
Business Services
VIETNAM PHILIPPINES
IT Oil & Gas
Source: Porter, M.E. and R. Oil & Gas
BRUNEI Transport & Logiscs
Bryden (2010). International MALAYSIA Agricultural Products Apparel
IT Communicaons Equipt
Cluster Competitiveness Oil & Gas Business Services
Plascs Jewelry
Project, Institute for Strategy Business Services
and Competitiveness, Harvard Transport & Logiscs SINGAPORE
Communicaons Equipt
Business School. Underlying
data drawn from the UN Oil & Gas
Commodity Trade Statistics Metal Mining & Mfg
Database and the IMF BOP Agricultural Products INDONESIA
statistics. Plascs
Coal & Brique es

ASEAN’s national business environment is weakest in factor
input conditions, which have worsened in 2010. Of the
five dimensions of factor input conditions, capital market
infrastructure is the strongest because of less exposure to
the sub-prime crisis and the stronger regulatory framework
after the Asian financial crisis. However, it has weakened
somewhat over the past year due to declines in the protection
of minority shareholder interests, soundness of banks and
financial market sophistication. The other relatively stronger
factor condition is innovation infrastructure but this aspect
has also suffered losses over the past year due to poorer
assessments on the quality of management schools and math
and science education, as well as brain drain (Table 4.5).
ASEAN’s logistical infrastructure has worsened largely from
poorer assessments for the quality of domestic transport
network. Ratings for air transport infrastructure and the
quality of electricity supply have also weakened slightly.

Table 4.3: Indicator

National
Business
Environment in
ASEAN: Context
for Strategy
and Rivalry

Source: Authors’ analysis

based on unpublished
data in Delgado et al.
(2010); raw data from
World Economic Forum,
Executive Opinion Survey
2009, 2010.

ASEAN COMPETITIVENESS REPORT 53

 table 4.4: Indicator
National Business
Environment in
ASEAN: Demand
Conditions
Source: Authors’ analysis
based on unpublished
data in Delgado et al.
(2010); raw data from
World Economic Forum,
Executive Opinion Survey
2009, 2010.

Another dimension in factor input conditions is particularly weak in the time and number of procedures
communications infrastructure. ASEAN’s position in this required to start a business. It also has cumbersome customs
aspect has been little changed from the previous year. The procedures, which have deteriorated over the past year.
region is relatively stronger on internet access in schools
but weaker in internet users and telephone lines per 100
population.
Finally, administrative infrastructure remains one of
ASEAN’s weakest factor input conditions and business
executives have rated the region’s administrative
infrastructure slightly lower in 2010. The region is

Table 4.5:
National Business
Environment in
ASEAN: Factor Input
Conditions

53

Source: Authors’ analysis

based on unpublished data
in Delgado et al. (2010); raw
data from World Economic
Forum, Executive Opinion
Survey 2009, 2010.

54 ASIA COMPETITIVENESS INSTITUTE

ASEAN’s main strengths and weaknesses
ASEAN’s overall competitiveness is better than 57 percent
of countries in the constant sample in 2010. Assessed
over a ten-year period, the region’s competitiveness as
measured by the New GCI has improved from being
nine places below the ‘global’ (sample) average in 2001
to 13 places above the global average in 2010. This
largely reflected progress in the first half of the 2000s, as
ASEAN’s competitiveness ranking has hovered around
the 57th to 60th percentile mark over the last five years.
Throughout the years, ASEAN’s advantage has been more
in microeconomic competitiveness fundamentals than
macroeconomic competitiveness factors.
Comparing across competitiveness categories within
ASEAN in 2010, the region’s foremost competitive
strength lies in its supporting and related industries and
clusters, with strong cluster policy, cluster development
and collaboration and local availability of process
machinery. Its capital market infrastructure is also relatively
strong, particularly in the ease of financing through
local equity market, ease of access to loans and venture
capital availability. Another area of particular strength
for ASEAN is company operations and strategy, where
ASEAN exhibits competitiveness across the sub-areas of
strategy and operational effectiveness, internationalization
of firms and organizational practices.
ASEAN is least competitive in its administrative
infrastructure, where urgent attention has to be paid to
reducing the time and number of procedures required
to start a new business and in improving the efficiency
of customs procedures. The other areas of particular
weakness are in the macroeconomic competitiveness sub-
category of social infrastructure and political institutions.
ASEAN’s human development is weak and more effort is
needed to lower the incidences of tuberculosis and malaria
and raise secondary education enrollment rate. The rule of
law within ASEAN also requires strengthening, especially
in factors related to the control of corruption and the
lowering of business costs of crime and violence.

ASEAN is less competitive overall compared with China, where it is behind by 18 positions
box 4.1: on the New GCI 2010. However, it is more competitive than India, by 13 places. ASEAN’s
ASEAN-China-India negative gap with China has persisted over the last few years, while its significant positive gap
with India has arisen in 2010 mainly as a result of deterioration in India’s competitiveness
position from 2009 (Figure 4.3).
ASEAN is ranked behind China on both micro and macro competitiveness fundamentals,
particularly the latter. It is less competitive across the two sub-categories of social infrastructure
and political institutions and macroeconomic policy under macro competitiveness and the two
sub-categories of company operations and strategy and national business environment under
micro competitiveness.
ASEAN has a competitive edge over India in both micro and macro competitiveness
fundamentals, although the gap in microeconomic competitiveness is relatively small. ASEAN
does better in both macroeconomic competitiveness sub-categories of social infrastructure
and political institutions and macroeconomic policy. Under microeconomic competitiveness,
ASEAN is somewhat stronger than India on company operations and strategy but ASEAN and
India are overall equally competitiveness in their national business environments.
figure 4.3: China India
Competitiveness of
New GCI Micro Macro New GCI Micro Macro
ASEAN-China-India 45

30
21
13
Ranking Gap

15 10
4 4
0
-2
-6
Source: Authors’ analysis -15 -10 -12 -12 2010 Rank New GCI Micro Macro
based on unpublished data in -18 ASEAN 57 49 64
Delgado et al. (2010); raw data -21 China 39 37 43
from World Economic Forum, -30
2009 2010 India 70 53 85
Executive Opinion Survey
2009, 2010.
(Continued on next page)

ASEAN COMPETITIVENESS REPORT 55


table 4.6:
Top-five Relative
Strengths of
ASEAN-China-India
Note: The rank columns
show the ‘global’ rankings of
ASEAN, China and India, that
is, among 132 countries in
the New GCI sample in 2010
in each sub-area.
Source: Authors’ analysis
based on unpublished data
in Delgado et al. (2010); raw
data from World Economic
Forum, Executive Opinion
Survey 2009, 2010.
56 ASIA COMPETITIVENESS INSTITUTE
To facilitate further comparison across sub-areas of competitiveness of ASEAN, China and
India, the sub-areas are sorted from best ranked to worst ranked within each region or country
to identify their relative strengths and weaknesses. The top five areas of relative strength for
ASEAN, China and India are then placed side by side for comparison and discussion. The same
is done for areas of relative weakness. These are presented in Tables 4.6 & 4.7.
ASEAN Rank China Rank India Rank
Supporting & Related Industries &
37 Macroeconomic Policy 1 Capital Market Infrastructure 35
Clusters
Supporting & Related Industries & Supporting & Related Industries &
Capital Market Infrastructure 42 Clusters 23
Clusters
38
Strategy & Operational Demand Conditions Strategy & Operational
44 34 48
Effectiveness Effectiveness
Internationalization of Firms 45 Strategy & Operational
38 Innovation Infrastructure 48
Effectiveness
Organizational Practices Internationalization of Firms Internationalization of Firms
48 39 50
ASEAN, China and India share some common strengths in microeconomic competitiveness
fundamentals. These relate to an aspect of national business environment, namely, supporting
and related industries and clusters and two aspects of company operations and strategy, namely
strategy and operational effectiveness and internationalization of firms.
While ASEAN and India are equally competitive in supporting and related industries and
clusters, China is clearly more competitive than both. China is more competitive than ASEAN
in all the indicators for supporting and related industries and clusters except for availability
of latest technologies in which ASEAN is stronger. ASEAN does notably better than India
for indicators related to cluster development, namely, extent of cluster policy, extent of
collaboration in clusters and state of cluster development. India fares better than ASEAN in
local supplier quantity and availability of latest technologies.
For company strategy and operational effectiveness and internationalization of firms, China is
ahead of ASEAN, which is ahead of India. China does better than ASEAN on the majority of
indicators, although there are selected indicators where ASEAN seems to be more competitive.
Under strategy and operational effectiveness, China is rated significantly higher on capacity for
innovation and company spending on R&D while ASEAN has a greater degree of customer
orientation. For internationalization of firms, ASEAN has a significant advantage in greater
prevalence of foreign technology licensing but fares worse than China for the extent of regional
sales and the breadth of international markets. ASEAN has a slight edge over India for strategy
and operational effectiveness in many of the aspects especially extent of marketing and value chain
breadth. India does better than ASEAN in firm-level technology absorption and production
process sophistication. However, ASEAN does better than India for internationalization of
firms particularly with respect to control of international distribution.
ASEAN’s other areas of relative strength lie in its capital market infrastructure and organizational
practices. Although these are not among the top five areas of relative strength within China,
China’s global ranking on capital market infrastructure is comparable with ASEAN’s while
it is ahead on organizational practices. ASEAN is rated better than India on organizational
practices, but India has better capital market infrastructure than ASEAN particularly in the
laws that facilitate lending, regulation of securities exchanges and soundness of banks. ASEAN,
however, is better than China and India in ease of access to loans.
China’s other relative strengths are in macroeconomic policy and demand conditions, both of
which are more competitive than ASEAN.
Innovation infrastructure is a relative strength for India and it ranks better in this area than
ASEAN (although not as well as China) due to better quality of management schools, quality
of scientific research institutions, availability of scientists and engineers and a higher number of
utility patents per million population. ASEAN, however, has better tertiary enrollment than
both China and India.
(Continued on next page)
table 4.7:
Top-five Relative
Weaknesses of
ASEAN-China-India
Note: The rank columns
show the global rankings of
ASEAN, China and India, that
is, among 132 countries in
the New GCI sample in 2010
in each sub-area.
Source: Authors’ analysis
based on unpublished data
in Delgado et al. (2010); raw
data from World Economic
Forum, Executive Opinion
Survey 2009, 2010.
ASEAN Rank China Rank India Rank
Administrative Infrastructure 75 Human Development 60 Macroeconomic Policy 110
Rule of Law 72 Administrative Infrastructure 60 Administrative Infrastructure 108
Human Development 72 Communications Infrastructure 60 Human Development 100
Communications Infrastructure 68 Rule of Law 52 Communications Infrastructure 96
Logistical Infrastructure 64 Context for Strategy & Rivalry 52 Logistical Infrastructure 72
ASEAN, China and India all are weak in the macroeconomic area of human development
and the microeconomic factor input conditions of administrative and communications
infrastructure. Comparatively, China fares better than ASEAN, which is ahead of India, in
these three areas.
China is stronger in human development on almost all indicators of basic health and education
except that ASEAN has lower infant mortality and the quality of healthcare is about the same
for both. ASEAN’s human development is better than India’s on all indicators but the gap is
wider for infant mortality, primary enrollment and quality of primary education, accessibility
and quality of healthcare services and life expectancy. ASEAN and India have the same score
for tuberculosis incidence and almost the same for health expenditure.
China has better administrative infrastructure than ASEAN with reduced burden of
government regulation and customs procedures. However, the number of procedures and the
time required to start a business is lower in ASEAN. ASEAN has much better administrative
infrastructure compared with India due to a lower number of procedures required to start a
business and lower burden of government regulation. The burden of customs procedures and
the time required to start a business are about the same in ASEAN and India.
The communications infrastructure in China is better than that in ASEAN on the indicators
of fixed-line telephone penetration rate, quality of telephone infrastructure and internet
access in schools, but ASEAN has higher mobile phone penetration rate. ASEAN has better
communications infrastructure than India on all indicators except for the quality of telephone
infrastructure.
Rule of law is among the five weakest areas of both ASEAN and China but not India, although
in terms of global ranking, China is ranked higher than India, which is ahead of ASEAN.
ASEAN’s rule of law is weaker than China and India particularly in the impact and business
costs of crime and violence, judicial independence and property rights. ASEAN, China and
India have similar rankings for control of corruption.
Logistical infrastructure is a relatively weak area for both ASEAN and India. Compared with
India, ASEAN has better quality of roads, electricity supply and air transport infrastructure,
while India is rated higher on the quality of railroad infrastructure. China is more competitive
than ASEAN and India on logistical infrastructure.
Context for strategy and rivalry is a sub-area of relative weakness for China, although in terms
of global ranking, China, ASEAN and India are in similar positions. India is weakest in its
macroeconomic policy. ASEAN is ranked higher on macroeconomic policy than India with
regard to inflation and fiscal balance but not for government debt, while China is strong on
macroeconomic policy.
In summary, when analyzed across competitiveness sub-areas, ASEAN is not as competitive
as China in many respects. Even for sub-areas that are ASEAN’s relative strengths, ASEAN’s
performance is generally not as good as that of China’s. Although ASEAN and China share
some common relative weaknesses, China is still more competitive in these sub-areas than
ASEAN. On the other hand, ASEAN in stronger than India in a good number of sub-areas but
there are a few sub-areas where it is behind India.
ASEAN COMPETITIVENESS REPORT 57
 figure 4.4: GDP pc (5)
Competitiveness Micro (61) Macro (33)
New GCI (40)
Profile of Brunei
2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (58) and Pol. Institutions
and Strategy (79) (37) (1)

Strategy (81)
Related and Supporting Political Institutions
Industries (85) Org. Practices (42)
(47)

Internationali-
Demand Conditions zation (104) Quintile Rankings
(52) Rule of Law (36)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (45) Development (37)
4
5

Source: Authors’ analysis Factor Input Conditions Change in Rank (09-10)

(65)
based on unpublished data Improve ≥ 10%
in Delgado et al. (2010); raw Admin (113) Logistic (65)
Improve + 1 rank to <10%
data from World Economic + 1 or - 1 rank
Forum, Executive Opinion Capital (56) Comm. (52) Innov. (56) Worsen + 1 rank to <10%
Survey 2009, 2010. Worsen ≥ 10%

National Competitiveness across ASEAN Countries Brunei’s national business environment has also weakened
following deterioration across all sub-areas within this
Brunei category, especially in demand conditions arising from
Brunei’s GDP per capita has been maintained at 5th in weaker procurement of advanced technology products, ICT
the world in 2009 and is second highest in ASEAN after promotion and ICT legislation.
Singapore. Brunei retains its overall competitiveness Among factor input conditions, Brunei performs relatively
position of 40th in 2010 from the year before. This is despite well in its communications, capital and innovation
a slight weakening of its relative positions within both the infrastructures. Its administrative infrastructure is weak and
macroeconomic competitiveness and microeconomic has worsened in the past year with poorer assessments for
competitiveness categories (Figure 4.4). customs procedures, government regulation and the ease
Brunei’s macroeconomic competitiveness has worsened of starting a new business. Its logistical infrastructure has
somewhat in 2010, due to weaker political institutions, deteriorated in practically all aspects, such as in the quality
particularly in the transparency of government of port infrastructure.
policymaking and freedom of the press. In the rule of law,
deterioration in several indicators such as efficiency of the
legal framework and property rights have been balanced
by a significant improvement in perceived lower business
costs of corruption. The rankings of indicators in the human
development sub-area have been largely unchanged except
for poorer accessibility of healthcare services. Brunei is
strong in macroeconomic policy and is ranked tied-one in
this category with 17 other countries.
Brunei’s microeconomic competitiveness has weakened slightly
in 2010. This is mainly attributable to deterioration in the
company operations and strategy sub-category. In particular,
indicators related to the internationalization of firms, such
as breadth of international markets, control of international
distribution and extent of regional sales have been rated
more poorly.

58 ASIA COMPETITIVENESS INSTITUTE

 Brunei’s main strengths and weaknesses
Brunei’s overall competitiveness is above 70 percent
of countries in the sample, and it is stronger on
macroeconomic competitiveness than microeconomic
competitiveness. Brunei’s strength lies particularly in
the stability of its macroeconomic environment that has
been marked by fiscal sustainability and low inflation. It
also has relatively sound social infrastructure and political
institutions even though there has been some deterioration
in the last year. The strength of its rule of law is reflected
in the low business costs of crime and improving control
of corruption. Brunei’s strength in human development
is due especially to the quality of healthcare services and
primary education.
In the microeconomic category, Brunei is competitive
on indicators related to labor market efficiency within
the context for strategy and rivalry sub-area. It is ranked
Cambodia
Cambodia’s GDP per capita has worsened marginally by
one rank in 2009 to 110th in the world. Cambodia’s overall
competitiveness position in 2010 is 102nd, which is a four-
rank slippage from 2009. This reflects a weakening in both
its macroeconomic and microeconomic competitiveness, in
particular, the former (Figure 4.5).
Cambodia’s macroeconomic competitiveness has worsened as a
result of declines in all sub-areas of social infrastructure and
political institutions. The quality of political institutions is
rated lower on the indicators of transparency of government
policymaking, frugality of government spending and
impartiality of decisions of government officials. In
addition, weakened rankings in the rule of law and in human
development have emerged because of higher business costs
from corruption, crime and violence and lower quality of
primary education and healthcare services respectively.
However, macroeconomic policy has improved in 2010
with better control over inflation.
Cambodia’s microeconomic competitiveness has weakened
slightly in 2010 following worsened indicators for
company operations and strategy. A decline in company
tied-one with seven countries on the lack of rigidity of
employment, and also rated well on pay and productivity
and cooperation in labor-employer relations. However,
within the same sub-area, Brunei is assessed less favorably
on the extent of market disruption by state-owned
enterprises, and barriers to foreign direct investment.
Brunei’s weakest area is its administrative infrastructure,
which has deteriorated last year. There is an urgent need
to improve the time and procedures required to start a
business. Brunei is also weak on the internationalization
of firms, especially in the breadth of international
markets and extent of regional sales. Another area that
requires boosting is supporting and related industries and
clusters, which is currently characterized by limited local
availability of specialized research and training services
and of process machinery, as well as low local supplier
quantity.
strategy and operational effectiveness has emerged mainly
because of poorer innovation capacity, production process
sophistication and level of technology absorption. The
country has also received poorer ratings for organizational
practices such as willingness to delegate authority and staff
training, as well as for firm internationalization such as
foreign technology licensing and international distribution.
The quality of the national business environment has
remained largely unchanged from 2009, but among sub-
areas, there has been an improvement in the context for
strategy and rivalry, particularly in antitrust policy and
FDI rules, as well as in all factor input conditions with the
exception of innovation infrastructure.
ASEAN COMPETITIVENESS REPORT 59
 figure 4.5: GDP pc (110)

Competitiveness Micro (95) New GCI (102) Macro (112)

Profile of Cambodia
2010 National Business Company Operations
Social Infrastructure
Macroeconomic Policy
Environment (93) and Pol. Institutions
and Strategy (103) (105) (104)

Strategy (100)
Related and Supporting Political Institutions
Industries (89) Org. Practices (73)
(92)

Internationali-
Demand Conditions zation (114) Quintile Rankings
(86) Rule of Law (103)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (72) Development (107)
4
5
Source: Authors’ analysis
based on unpublished data Factor Input Conditions Change in Rank (09-10)
(105)
in Delgado et al. (2010); raw Improve ≥ 10%
data from World Economic Admin (99) Logistic (84)
Improve + 1 rank to <10%
Forum, Executive Opinion + 1 or - 1 rank
Survey 2009, 2010. Capital (96) Comm. (110) Innov. (113) Worsen + 1 rank to <10%
Worsen ≥ 10%

Cambodia’s main strengths and weaknesses
Cambodia’s overall competitiveness is ranked among the
bottom 25 percent of 132 countries, so there are many areas
where it is weak relative to the world. If competitiveness
categories are compared within the country, Cambodia
performs better on microeconomic competitiveness
than macroeconomic competitiveness, particularly in the
quality of the national business environment.
In more disaggregated sub-areas, Cambodia is strongest
in the context for strategy and rivalry, especially on rules
that encourage foreign direct investments, unrestrictive
regulations on capital flows and low market disruption
from state-owned enterprises. Cambodia is also rated
more favorably on its logistical infrastructure, in
particular the quality of roads and port infrastructure.
Under macroeconomic competitiveness, Cambodia is
relatively strong in its political institutions, especially on
the decentralization of economic policymaking.
Cambodia is ranked lowest on the internationalization of
firms and innovation infrastructure. However, given that
the country is in an early stage of economic development,
weak company sophistication and the lack of foundations
for innovation are probably not of immediate concern.
Communications infrastructure is also among the
weakest areas, where Cambodia is placed in the bottom
five percent of countries on telephone lines, internet users
and personal computers per 100 population. Human
development is another area of concern, where the
incidence of tuberculosis and infant mortality are high
and secondary enrollment is low. More attention should
also be focused on improving the rule of law, particularly
in the control of corruption.

Indonesia been rated less favorably in relation to rule of law, among

Indonesia’s GDP per capita has improved marginally
by one rank in 2009 to 96th in the world. Indonesia’s
overall competitiveness position is 64th in 2010, which
is 13 places behind that attained in 2009. This is on the
back of deterioration in both its microeconomic and
macroeconomic competitiveness (Figure 4.6).
Indonesia’s macroeconomic competitiveness has worsened
as a result of poorer assessments in the sub-category
of social infrastructure and political institutions, as
its competitiveness position in the sub-category of
macroeconomic policy has improved with a lower rate of
inflation. The quality of political institutions has weakened
with less effective legislative bodies, less transparent
government policies, and less government effectiveness in
reducing poverty and inequality. A range of indicators have
which are the business costs of crime and violence, efficiency
of the legal framework and the protection of property rights.
Human development has been affected by lower quality of
healthcare services and primary education.
Indonesia’s weaker microeconomic competitiveness has been
the result of a worsening of all the sub-areas under company
operations and strategy and national business environment.
The deterioration in competitiveness on company
operations and strategy has been due especially to sharp
drops in the ratings on organizational practices such as
incentive compensation and delegation of authority, as well
as worsened indicators under internationalization of firms,
such as extent of regional sales and breadth of international
markets.

60 ASIA COMPETITIVENESS INSTITUTE

 figure 4.6: GDP pc (96)
Competitiveness Micro (54) Macro (70)
New GCI (64)
Profile of Indonesia
2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (54) and Pol. Institutions
and Strategy (49) (73) (65)

Strategy (41)
Related and Supporting Political Institutions
Industries (37) Org. Practices (45)
(60)

Internationali-
Demand Conditions zation (53) Quintile Rankings
(60) Rule of Law (83)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (59) Development (84)
4
5

Source: Authors’ analysis Factor Input Conditions Change in Rank (09-10)

based on unpublished data (72) Improve ≥ 10%
in Delgado et al. (2010); raw Improve + 1 rank to <10%
Admin (96) Logistic (81)
data from World Economic + 1 or - 1 rank
Forum, Executive Opinion Capital (51) Comm. (90) Innov. (54) Worsen + 1 rank to <10%
Survey 2009, 2010. Worsen ≥ 10%

As for the national business environment, Indonesia’s Malaysia

competitiveness position in the sub-area of context for
strategy and rivalry has weakened the most, with poorer
assessments on a wide range of indicators that include
rules on FDI, prevalence of trade barriers, effectiveness
of antitrust policy and efficacy of corporate boards.
Factor input conditions have weakened across all but
one area of infrastructure, especially in capital market
and administrative infrastructure. Only communications
infrastructure has improved due to better internet access in
schools. Demand conditions has worsened due to reduced
government procurement of advanced technology products
while industry clusters have deteriorated from lower local
supplier quality and quantity.
Malaysia’s GDP per capita has risen by one rank in 2009 to
54th in the world and remains the third highest in ASEAN.
Malaysia’s overall competitiveness is 34th position in 2010.
This is a gain of four places from improvements in both
macroeconomic and microeconomic competitiveness
(Figure 4.7).
Malaysia’s macroeconomic competitiveness has strengthened
from better macroeconomic performance in the control
of inflation, as well as improved social infrastructure and
political institutions. The gains are particularly in rule of law
through lower business costs of crime and corruption and
more efficient legal framework. Under political institutions,
higher ratings on public trust of politicians and effectiveness
of law-making bodies are countered by less favorable
assessments on freedom of the press and decentralization of
economic policymaking.

Indonesia’s main strengths and weaknesses
Indonesia’s overall competitiveness is better than slightly
half of 132 countries in the sample, and it has greater
strength in microeconomic competitiveness than
macroeconomic competitiveness factors.
Comparing across competitiveness areas within the
country, Indonesia is strongest in its supporting and
related industries and clusters, particularly on indicators
on the extent of cluster policy and collaboration in
clusters, as well as the local availability of process
machinery. It also performs well in the area of strategy
and operational effectiveness, such as value chain breadth,
company spending on R&D and capacity for innovation.
The country’s political institutions are relatively strong,
particularly in the decentralization of economic
policymaking and low wastefulness of government
spending.
Indonesia is weak in a few dimensions of factor
input conditions. Its weakest area is administrative
infrastructure, where it needs to urgently address the time
required to start a business, the number of tax payments
by businesses and the burden of customs procedures. Its
communications infrastructure, although improved from
last year, requires substantial strengthening. Indonesia
also has to enhance its logistical infrastructure, in
particular, the quality of its domestic transport network,
port infrastructure and electricity supply.
Indonesia’s human development and rule of law are also
areas of particular weakness. Attention has to be given
in the area of basic health to improving accessibility
of healthcare services and lowering the incidence of
tuberculosis and malaria. The control of corruption and
high irregular payments by firms and increased impact of
crime are priority issues to tackle under rule of law.

ASEAN COMPETITIVENESS REPORT 61

 figure 4.7: GDP pc (54)
Competitiveness Micro (22) Macro (41)
New GCI (34)
Profile of Malaysia
2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (22) and Pol. Institutions
and Strategy (23) (42) (40)

Strategy (25)
Related and Supporting Political Institutions
Industries (16) Org. Practices (38)
(16)

Internationali-
Demand Conditions zation (20) Quintile Rankings
(28) Rule of Law (47)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (29) Development (47)
4
5
Factor Input Conditions Change in Rank (09-10)
Source: Authors’ analysis (23) Improve ≥ 10%
based on unpublished data
Improve + 1 rank to <10%
in Delgado et al. (2010); raw Admin (26) Logistic (21)
+ 1 or - 1 rank
data from World Economic Capital (12) Comm. (45) Innov. (25) Worsen + 1 rank to <10%
Forum, Executive Opinion Worsen ≥ 10%
Survey 2009, 2010.

Malaysia’s microeconomic competitiveness has improved The context for strategy and rivalry has improved with
slightly, with small gains in the company operations and reduced market disruption from state-owned enterprises,
strategy sub-category especially in indicators related to the enhanced intensity of local competition and lower impact
internationalization of firms and organizational practices, of taxation on incentives to work and invest. Demand
such as control of international distribution, extent of conditions, on the other hand, have been affected by lower
incentive compensation and reliance on professional rankings on the effectiveness of government promotion of
management. ICT, laws relating to ICT and environmental regulation.
The quality of the national business environment has
remained largely unchanged overall, but there have been
gains and some deterioration across sub-areas. Logistical
infrastructure has strengthened with better quality of port
infrastructure, and innovation infrastructure has been
rated higher on the quality of the educational system, math
and science education and management schools. Capital
market infrastructure has improved with better regulation
of securities exchanges and financing through local equity
market.

Malaysia’s main strengths and weaknesses
Malaysia’s overall competitiveness position is just shy of
being in the top 25 percent of countries in the sample,
and it possesses clear strength in microeconomic
competitiveness. It is comparatively less strong on
macroeconomic competitiveness.
Malaysia is strong across many aspects in microeconomic
competitiveness. It is strongest in supporting and related
industries and clusters, which is reflected particularly in
the extent of cluster policy, state of cluster development,
local availability of process machinery and local supplier
quantity. The country is competitive in its capital market
infrastructure, especially on the degree to which laws
facilitate getting access to credit (where it is ranked 1st
in the world), venture capital availability, ease of access to
loans and financing through local equity market. Malaysia
also performs particularly well in the area of organizational
practices, such as the extent of incentive compensation
and staff training.
Malaysia’s weaknesses mainly are in the macroeconomic
competitiveness sub-areas of human development and rule
of law. More can be done to strengthen basic health and
education through lowering the incidence of tuberculosis
and malaria and raising secondary enrollment. The rule
of law can be strengthened through lowering business
costs related to crime and corruption, which are assessed
to be relatively high despite improvements in the past
year. The area of particular weakness in microeconomic
competitiveness is communications infrastructure,
where Malaysia is ranked low on telephone lines per 100
population.

62 ASIA COMPETITIVENESS INSTITUTE

 figure 4.8: GDP pc (98)
Competitiveness Micro (74) Macro (101)
New GCI (89)
Profile of Philippines
2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (80) and Pol. Institutions
and Strategy (55) (106) (42)

Strategy (57)
Related and Supporting Political Institutions
Industries (55) Org. Practices (114)
(38)

Internationali-
Demand Conditions zation (64) Quintile Rankings
(97) Rule of Law (113)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (70) Development (95)
4
5
Factor Input Conditions Change in Rank (09-10)
Source: Authors’ analysis (101) Improve ≥ 10%
based on unpublished data
Improve + 1 rank to <10%
in Delgado et al. (2010); raw Admin (124) Logistic (118)
+ 1 or - 1 rank
data from World Economic Capital (58) Comm. (88) Innov. (85) Worsen + 1 rank to <10%
Forum, Executive Opinion
Worsen ≥ 10%
Survey 2009, 2010.

Philippines Under national business environment, the Philippines

has improved on the quality of its supporting and related
The Philippines’ GDP per capita has risen by one rank industries and clusters due to better local availability of
in 2009 to 98th in the world. Its overall competitiveness process machinery and specialized research and training
has improved by eight ranks in 2010 to 89th position, services. More intense local competition, less distortive effect
with gains in both macroeconomic and microeconomic of taxes and subsidies on competition and more prevalent
competitiveness, in particular, the latter (Figure 4.8). foreign ownership have contributed to an enhanced
The Philippines’ slight gain in macroeconomic competitiveness context for strategy and rivalry. Demand conditions have
reflects an improvement in both sub-categories of social strengthened due mainly to greater buyer sophistication.
infrastructure and political institutions and macroeconomic Factor input conditions have improved due mainly to
policy. The quality of rule of law is perceived to have stronger capital market infrastructure that is supported by
improved, with lower occurrence of irregular payments by greater soundness of banks, ease of access to loans and more
firms, lower impact of organized crime and greater judicial sophisticated financial markets. Innovation infrastructure
independence, even while political institutions are rated has been boosted by vastly lower brain drain. The quality of
less favorably, such as on the indicator of transparency logistical, communications and administrative infrastructure
of government policymaking. The condition of primary have not changed substantially from the year before.
education and healthcare has remained little changed.
The Philippines’ better performance on macroeconomic
policy has been due to its lowering of government debt as a
percentage of GDP.
The Philippines has made substantial progress in
microeconomic competitiveness across all sub-areas in
company operations and strategy and national business
environment. Its competitive positions on strategy and
operational effectiveness, organizational practices and
internationalization of firms have improved with substantial
gains in ratings on value chain breadth, control of
international distribution, prevalence of foreign technology
licensing, extent of incentive compensation and extent of
marketing.

ASEAN COMPETITIVENESS REPORT 63

 Philippines’ main strengths and weaknesses
The Philippines’s overall competitiveness position is
below 67 percent of countries in the sample. Although its
microeconomic competitiveness is comparatively stronger
than its macroeconomic competitiveness, there are a
considerable number of areas under both categories that
require substantial improvement.
Comparing across competitiveness areas within the
country, the Philippines’s strongest area is in organizational
practices, where all the indicators: the extent of staff
training, willingness to delegate authority, extent of
incentive compensation and reliance on professional
management receive relatively favorable assessment. It is
also relatively strong in supporting and related industries
and clusters, especially in the local availability of process
machinery, local supplier quantity and state of cluster
development. The Philippines also performs better on
macroeconomic policy, where its government budget
balance and debt are within the core policy ranges.
The Philippines’ least competitive area is its administrative
infrastructure followed by its logistical infrastructure,
both of which are under factor input conditions. It has to
substantially improve the quality of its domestic transport
network and port infrastructure, as well as reduce the
number of procedures required to start a business and the
burden of its customs procedures. Political institutions
and rule of law are also among the weakest areas for the
Philippines. There is an urgent need to raise public trust
of politicians, lessen favoritism in decisions of government
officials, increase government effectiveness in reducing
poverty and inequality, reduce the occurrence of diversion
of public funds and lower the business costs of corruption,
among others.

Singapore company operations and strategy and the national business

Singapore has maintained the highest GDP per capita in
ASEAN in 2009 at 4th in the world. Singapore’s overall
competitiveness has been maintained at 7th position
in 2010, with a slight improvement in macroeconomic
competitiveness and a slight drop in microeconomic
competitiveness (Figure 4.9).
Singapore’s macroeconomic competitiveness has improved
due to stronger macroeconomic performance as the
rate of inflation falls. Its competitive position on social
infrastructure and political institutions has remained largely
unchanged, although a few indicators have received less
favorable assessment, such as decentralization of economic
policymaking and freedom of the press.
Singapore’s microeconomic competitiveness has been
affected by slight deteriorations in business opinions on
environment. Within company operations and strategy,
the sub-areas of strategy and operational effectiveness,
organizational practices and internationalization of firms
have all lost competitiveness positions. In particular,
the ratings on degree of customer orientation, firm-level
technology absorption and the extent of regional sales have
worsened.
Although the quality of the national business environment
has not changed much on the whole, there has been
deterioration in the competitiveness of supporting and
related industries and clusters, particularly local supplier
quantity and quality.

figure 4.9: GDP pc (4)

Competitiveness Micro (3) Macro (10)
New GCI (7)
Profile of Singapore
2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (2) and Pol. Institutions
and Strategy (12) (7) (67)

Strategy (15)
Related and Supporting Political Institutions
Industries (19) Org. Practices (4)
(12)

Internationali-
Demand Conditions zation (16) Quintile Rankings
(4) Rule of Law (3)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (1) Development (28)
4
5
Factor Input Conditions Change in Rank (09-10)
Source: Authors’ analysis (1) Improve ≥ 10%
based on unpublished data
Improve + 1 rank to <10%
in Delgado et al. (2010); raw Admin (1) Logistic (2)
+ 1 or - 1 rank
data from World Economic Capital (3) Comm. (7) Innov. (4) Worsen + 1 rank to <10%
Forum, Executive Opinion Worsen ≥ 10%
Survey 2009, 2010.

64 ASIA COMPETITIVENESS INSTITUTE

 Singapore’s main strengths and weaknesses
Singapore is one of the top-ranked countries on overall
competitiveness. It is highly competitive in a wide range
of areas across microeconomic and macroeconomic
competitiveness categories, in particular, the former.
Singapore is among the best in the world on the quality of
its national business environment. It is ranked first in two
sub-areas, namely, factor input conditions and the context
for strategy and rivalry. It is strongest in administrative
infrastructure under factor input conditions, particularly
in the low burden of government regulation, efficient
customs procedures and the short time required to
start a business. This is followed closely by logistical
infrastructure where the country’s airport and port
infrastructures are world class.
Singapore’s strength in the context for strategy and
rivalry is due especially to an efficient labor market with
low rigidity of employment, good industrial relations and
pay that is linked to productivity, as well as a regulatory
environment that is friendly to foreign direct investment
and in the strength of investor protection. However, there
are a few indicators where Singapore does not do as well,
such as in the extent of market disruption from state-
owned enterprises and the intensity of local competition.
Thailand
Thailand’s GDP per capita has fallen by one rank in 2009
to 76th in the world. Thailand’s overall competitiveness has
strengthened slightly to 49th position in 2010 from 52nd
in 2009, due to enhanced macroeconomic competitiveness.
The country’s microeconomic competitiveness has dipped
somewhat (Figure 4.10).
Thailand’s macroeconomic competitiveness has been
boosted by a subdued inflationary environment in the
figure 4.10:
Competitiveness Micro (46)
Profile of Thailand
2010
National Business Company Operations
Environment (45)
and Strategy (45)
Related and Supporting
Industries (34)
Demand Conditions
(57)
Context for Strategy
and Rivalry (50)
Factor Input Conditions
Source: Authors’ analysis (42)
based on unpublished data
in Delgado et al. (2010); raw Admin (52) Logistic (35)
data from World Economic
Capital (39) Comm. (53) Innov. (47)
Forum, Executive Opinion
Survey 2009, 2010.
Singapore is ranked relatively low in its macroeconomic
policy, which stems from its low ranking on government
debt. However, this is not a cause for concern, as it reflects
the way in which the country’s social security savings
plan, the Central Provident Fund (CPF), is treated. CPF
contributions are captured as public debt, while the
corresponding assets are not taken into account. Similarly,
the lower healthcare expenditures that contribute to
Singapore’s poorer assessment in human development
is less a sign of weakness but more a reflection of the
country’s efforts to keep healthcare costs in check and
promote a healthy lifestyle among its people.
Singapore could do more to enhance its supporting
and related industries and clusters, generally on the
indicators of local supplier quantity and quality, local
availability of specialized research and training services
and availability of latest technologies. It could also
strengthen its competitiveness position across all sub-
areas in company operations and strategy, particularly the
internationalization of firms and strategy and operational
effectiveness. These include policies to encourage more
domestic firms to take control of international distribution
and measures to develop the capacity for indigenous
innovation, facilitate firm-level technology adoption and
strengthen the degree of customer orientation.
macroeconomic policy sub-category, although its fiscal
balance has deteriorated. In the social infrastructure and
political institutions sub-category, the rule of law has
improved slightly, while the quality of political institutions
has worsened significantly with lower transparency
of government policy making, reduced government
effectiveness in reducing poverty and inequality and some
loss in public trust in politicians. Thailand’s basic human
capacity has been affected by poorer accessibility of
healthcare services.
GDP pc (76)
Macro (56)
New GCI (49)
Social Infrastructure
Macroeconomic Policy
and Pol. Institutions
(64) (18)
Strategy (51)
Political Institutions
Org. Practices (75)
(56)
Internationali-
zation (31) Quintile Rankings
Rule of Law (67)
1 (Top 20%)
2
Human 3
Development (66)
4
5
Change in Rank (09-10)
Improve ≥ 10%
Improve + 1 rank to <10%
+ 1 or - 1 rank
Worsen + 1 rank to <10%
Worsen ≥ 10%
ASEAN COMPETITIVENESS REPORT 65
 Thailand’s main strengths and weaknesses
Thailand’s overall competitiveness is stronger
than 63 percent of countries in the sample.
It has comparatively better microeconomic than
macroeconomic competitiveness fundamentals.
Within microeconomic competitiveness categories,
Thailand is strongest in its supporting and related
industries and clusters under national business
environment, particularly on the extent of cluster policy,
extent of collaboration in clusters and local supplier
quantity. It also ranks well on the internationalization
of firms under company operations and strategy, on
indicators such as the breadth of international markets
and control of international distribution. Thailand’s
macroeconomic policy is also an area of its relative
Thailand’s microeconomic competitiveness has weakened
slightly due to a less conducive national business
environment, while the strength of its company operations
and strategy has remained unchanged. In the latter category,
there has been a marked improvement in the control of
international distribution but a notable drop in the rankings
for firm-level technology absorption, company spending on
R&D and nature of competitive advantage.
Within national business environment, factor input
conditions have weakened with lower rankings for capital
market, logistics and communications infrastructure.
Indicators that have lost competitiveness positions include
financial market sophistication, soundness of banks,
quality of airport infrastructure and electricity supply, and
quality of telephone infrastructure and internet access in
schools. The context for strategy and rivalry has worsened
with poorer assessments in particular on the indicators of
prevalence of trade barriers, effectiveness of antitrust policy,
extent of market dominance by business groups and market
disruption from state-owned enterprises.
Demand conditions have weakened slightly from a
deterioration in laws relating to ICT and less stringency
on environmental regulations. On the other hand, the
strength of supporting and related industries and clusters
has improved due to better ratings on the extent of cluster
policy, extent of collaboration in clusters and increased local
availability of processed machinery.
Vietnam
Vietnam’s GDP per capita remained at 100th in the world in
2009. Vietnam’s overall competitiveness is 78th position in
2010, which is 4 places behind that in 2009. This is mainly
due to a decline in microeconomic competitiveness as well
as a slight drop in macroeconomic competitiveness (Figure
4.11).
Vietnam’s weakened macroeconomic competitiveness has
66 ASIA COMPETITIVENESS INSTITUTE
strength, with low inflation rate and modest government
debt as a percentage of GDP.
Thailand weakest areas are within the sub-category
of social infrastructure and political institutions. The
lowest-ranked is political institutions, which are weak
on a range of indicators such as voice and accountability,
decentralization of economic policymaking, transparency
of government policymaking, public trust of politicians
and government effectiveness in reducing poverty and
inequality. The rule of law needs to be strengthened with
better protection of property rights, control of corruption
and reduction in the business costs of corruption, crime
and violence. Human development can be improved
through efforts to lower the incidence of tuberculosis and
malaria and raise secondary enrollment.
been due to some deterioration in business assessment of its
social infrastructure and political institutions as there has
not been much change in its ranking on macroeconomic
policy. The quality of political institutions has been affected
by greater wastefulness of government spending, an increase
in favoritism in decisions of government officials, and erosion
of public trust in politicians, among others. The rule of law
has worsened from poorer ratings on the ethical behaviour
of firms, business costs of crime and violence, efficiency of
the legal framework and protection of property rights.
Vietnam’s microeconomic competitiveness has worsened
considerably due to weakened capacity for company
operations and strategy as well as a less favorable national
business environment. All sub-areas within company
operations and strategy have lost competitiveness. In
particular, strategy and operational effectiveness has been
compromised across all the indicators from company
spending on R&D, production process sophistication to
degree of customer orientation. Organizational practices
have been affected by notable declines in the extent of staff
training and the extent of incentive compensation.
Vietnam’s worsened competitiveness in its national business
environment has been due to a decline in its rankings
across all sub-areas, especially the context for strategy and
rivalry, where there has been a weakening across most of the
indicators. The degree of competition has been affected by a
perceived increase in market dominance by business groups
and market disruption by state-owned enterprises, reduced
effectiveness of antitrust policy and greater distortive
effect of taxes and subsidies on competition. Inadequate
intellectual property protection is also an area of concern.
Within factor input conditions, logistical infrastructure
has weakened the most, where the quality of road, railroad,
port, air transport infrastructures have all been assessed less
favorably. Innovation infrastructure has been affected by
lower university-industry research collaboration, reduced
 figure 4.11: GDP pc (100)
Competitiveness Micro (73) Macro (89)
New GCI (78)
Profile of Vietnam
2010 Social Infrastructure
National Business Company Operations Macroeconomic Policy
Environment (73) and Pol. Institutions
and Strategy (67) (75) (122)

Strategy (71)
Related and Supporting Political Institutions
Industries (51) Org. Practices (63)
(74)

Internationali-
Demand Conditions zation (71) Quintile Rankings
(71) Rule of Law (76)
1 (Top 20%)
2
Context for Strategy Human 3
and Rivalry (93) Development (78)
4
5
Factor Input Conditions Change in Rank (09-10)
Source: Authors’ analysis (84) Improve ≥ 10%
based on unpublished data
Improve + 1 rank to <10%
in Delgado et al. (2010); raw Admin (103) Logistic (103)
+ 1 or - 1 rank
data from World Economic
Capital (63) Comm. (68) Innov. (86) Worsen + 1 rank to <10%
Forum, Executive Opinion
Worsen ≥ 10%
Survey 2009, 2010.

quality of math and science education and increased brain from lower ratings on indicators such as government
drain. Capital market infrastructure has been rated more procurement of advanced technology products, and falls
poorly from reduced protection of minority shareholders’ in the local availability of specialized research and training
interests, lower venture capital availability and more services and availability of latest technologies.
difficult access to loans. There has been no change in the
position of communications infrastructure and little change
in the ranking of administrative infrastructure although the
burden of government regulation has increased.
Vietnam’s demand conditions and the state of its supporting
and related industries and clusters have also deteriorated,

Vietnam’s main strengths and weaknesses
Vietnam’s overall competitiveness is below that of 59
percent of countries in the sample. It is stronger in
microeconomic competitiveness than macroeconomic
competitiveness, but there are areas within each that need
to be substantially enhanced relative to the world.
Comparing across competitiveness categories within
Vietnam, the country is strongest on its supporting and
related industries and clusters, especially on factors related
to cluster development, that is, the extent of cluster policy,
state of cluster development and extent of collaboration
in clusters. However, more needs to be done to boost the
availability of latest technologies and local availability
of specialized research and training services. Vietnam’s
capital market infrastructure is also relatively strong,
especially in the degree to which laws facilitate getting
access to credit, extending domestic credit to the private
sector and financing through the local equity market.
Political institutions is another area of relative
strength, where Vietnam is assessed to be strong in the
decentralization of economic policymaking, government
effectiveness in reducing poverty and inequality, public
trust of politicians and effectiveness of law-making bodies,
although voice and accountability needs to be improved.
Vietnam’s weakest area is its macroeconomic policy,
where it is challenged to control inflation. Its inflation
in 2009, though much below the runaway rate in 2008,
has remained high, and is edging up quickly in 2010. The
problem of high budget deficit also has to be addressed.
Two dimensions under factor input conditions, namely
administrative and logistical infrastructure, are also among
Vietnam’s weakest areas. Vietnam has to improve on a
range of indicators under administrative infrastructure,
especially in reducing the burden of government
regulation, the time and number of procedures required
to start a business and the burden of customs procedures.
It also has to strengthen its logistical infrastructure,
especially its quality of roads, ports and air transport.
Within the context for strategy and rivalry, there are
pockets of particular weakness that require attention.
These include the prevalence of trade barriers, market
disruption from state-owned enterprises, inadequate
investor and intellectual property protection, and weak
auditing and reporting standards.

ASEAN COMPETITIVENESS REPORT 67

 The data for Laos and Myanmar are quite limited. However, some indicators for which data are
box 4.2: available can help to shed light on the competitiveness of Laos and Myanmar in certain areas.
Laos and Myanmar Table 4.8 presents indicators for Laos and Myanmar in the categories of macroeconomic policy,
social infrastructure and political institutions and factor input conditions. It also gives their
relative positions among ASEAN countries as well as their approximate quintile ranking if the
two countries were included in the New GCI country sample.
On macroeconomic policy indicators, Laos and Myanmar experienced relatively low inflation
in 2009 from 2008, which place them in the top and second quintile among New GCI sample
countries respectively. Laos’ and Myanmar’s fiscal deficits have widened in 2009, but their
levels are lower than 60 and 40 percent of countries respectively. Laos’ government debt is
comparatively high and places it in the fourth quintile, while Myanmar is ranked in the third
quintile on this indicator.
Laos and Myanmar are relatively weak in the sub-area of basic health and education and are
placed among the bottom 20 percent of countries on some indicators. Laos performs better
than Myanmar in basic health and fares worse on school enrollment rates. In the political
institutions and rule of law sub-areas, both Laos and Myanmar receive very unfavorable
assessments, in particular the latter, as given by the World Bank’s Worldwide Governance
Indicators in the dimensions of voice and accountability, control of corruption and rule of law.
The two countries are among the last placed when compared with other ASEAN countries, and
are in the bottom quintile of sample countries.
On communications infrastructure, Laos and Myanmar fare poorly, as measured by the
telephone lines and mobile telephone subscribers per 100 population. The two countries are
among the worst performers within ASEAN and are in the bottom quintile of sample countries.
The competitiveness profiles of Laos and Myanmar that emerge from this analysis of limited key
indicators are that of comparatively uncompetitive economies. Both countries, as with the other
ASEAN countries, appear to be stronger on macroeconomic policy than social infrastructure
and political institutions under macroeconomic competitiveness. Human development and
rule of law have been identified as being among the weakest areas for ASEAN in the New GCI
analysis above and the relative positions of Laos and Myanmar on basic health and education
and governance indicators reinforce this finding. Likewise, data on Laos and Myanmar support
the observation that communications infrastructure is weak across a number of ASEAN
countries.

table 4.8: Laos Myanmar

Approx. Approx.
Selected Posion in Quinle Posion in Quinle
ASEAN Ranking ASEAN Ranking
Comparative 2008 2009 2009 2009 2 2008 2009 2009 2009 2
Macroeconomic Policy
Competitiveness Government Surplus/deficit (% of GDP) -2.8 -3.3 4 2 -3.5 -4.8 7 3
Indicators for Laos Government Debt (% of GDP) 60.0 62.1 9 4 48.7 50.8 6 3
and Myanmar Inflaon (% change per annum) 7.6 0.0 3 1 26.8 1.5 6 2
Social Infrastructure and Polical Instuons
Notes: 1. Data are for 2007 Human Development
and 2008. 2. Approximate Malaria Incidence (per 100,000 populaon) 1 312.5 284.4 6 4 675.9 830.2 8 4
quintile ranking if country
Tuberculosis Incidence (per 100,000 populaon) 88.0 89.0 4 4 404.0 404.0 9 5
were among the countries in
the New GCI sample. Net Primary Enrollment Rate 1 79.8 82.4 10 5 89.8 88.6 8 4
Gross Secondary Enrollment Rate 1 44.0 43.9 9 5 49.3 52.7 8 5
Sources: Economist Polical Instuons
Intelligence Unit (EIU), Voice and Accountability (percenle rank) 4.8 4.7 9 5 0.5 0.5 10 5
World Health Organization
Rule of Law
(WHO), World Economic
Control of Corrupon (percenle rank) 7.2 9.5 8 5 1.0 0.0 10 5
Outlook (WEO), Worldwide
Governance Indicators Rule of Law (percenle rank) 23.0 18.4 8 5 4.8 3.8 10 5
(WGI), World Development Factor Input Condions1
Indicators (WDI); authors’ Communicaons Infrastructure
analysis. Mobile Telephone Subscribers (per 100 populaon) 24.3 32.6 8 5 0.5 0.7 10 5
Telephone Lines (per 100 populaon) 1.6 2.1 8 5 1.4 1.6 9 5

68 ASIA COMPETITIVENESS INSTITUTE

Analysis with Additional Competitiveness Indicators
The competitiveness analysis thus far has relied on New
GCI rankings. This section discusses the competitiveness
positions of ASEAN and individual member countries
based on indices that are compiled for multiple countries
from other data sources and using different methodologies.
These indices are not directly comparable with New GCI
– some are more narrowly focused, while others organize
competitiveness categories differently. Nevertheless, their
representations of ASEAN countries’ competitiveness
in various aspects are useful in serving either to reinforce
or qualify the identification of strengths and weaknesses
based on New GCI data. Boxes 4.3 to 4.5 analyze ASEAN’s
performance on economic freedom, ease of doing business
and logistical efficiency respectively.
In summary, the component measuring corruption in the
Index of Economic Freedom compiled by The Wall Street
Journal and The Heritage Foundation and subindices on the
ease of starting and closing a business in The World Bank’s
Ease of Doing Business Index support the earlier assessment
that corruption and administrative regulations are major
areas of weakness for ASEAN. The Economic Freedom
Index subcomponent on restrictions on both domestic and
foreign investment indicates that ASEAN has relatively high
investment barriers, while assessment on FDI restrictions
in the New GCI, which are measured differently, are more
favorable. Nevertheless, FDI indicators are ranked lower
relative to other items within the same sub-area of context
for strategy and rivalry in New GCI. Taken together, the
data suggest that investment barriers might be another area
for ASEAN to monitor more closely. The World Bank’s
Logistics Performance Index meanwhile, gives a more
positive depiction of infrastructure quality and customs
efficiency in ASEAN compared with the New GCI.

The Index of Economic Freedom compiled by The Wall Street Journal and The Heritage
box 4.3: Foundation ranks countries on ten components of economic freedom, which are aimed at
Economic Freedom measuring the extent to which individuals can engage in economic activities in any way they
in ASEAN please and resources can move freely, ‘with that freedom both protected by the state and
unconstrained by the state.’ Economic freedom has been shown to be positively related to
positive social and economic values such as per capita income and economic growth rates.
The Index of Economic Freedom covers a broad range of areas similar to the New GCI, but the
data used are mainly from different sources and are organized differently. This section assesses
ASEAN’s performance across components of economic freedom based on the 2011 Index
and 2010 Index that are available for a constant sample of 179 countries. ASEAN’s ranking
is constructed as the GDP (PPP)-weighted rankings of nine ASEAN countries (excluding
Brunei). Since the 2011 (2010) indices cover primarily data from the second half of 2009
(2008) through to the first half of 2010 (2009), the analysis below will refer to changes in
ASEAN’s rankings in 2010 from 2009 to reflect the time period captured in the data.
ASEAN is ranked above 47 percent of countries in the sample on overall economic freedom
in 2010, which is slightly improved from 2009. ASEAN is weakest on investment freedom,
which measures restrictions on both domestic and foreign investments, and business freedom,
which captures the ease of starting, operating and closing a business. The other component
where ASEAN is placed worse than its overall economic freedom index ranking is freedom
from corruption. ASEAN is strongest on government spending, that is, in keeping the level of
government expenditure as a percentage of GDP within a reasonable range. Between 2009 and
2010, ASEAN’s largest gain has been in monetary freedom, which combines a measure of price
stability with an assessment of price controls (Figure 4.12).
ASEAN is assessed to be weaker on economic freedom compared with its position on global
competitiveness as given by the New GCI, where the region is ranked above 57 percent of
countries. ASEAN is ranked lower on factors under trade freedom, investment freedom and
labor freedom compared with similar indicators in the context for strategy and rivalry sub-area
under the New GCI. In particular, ASEAN’s ranking on investment freedom is substantially
weaker than on indicators of FDI restrictions under the New GCI.

(Continued on next page)

ASEAN COMPETITIVENESS REPORT 69

 Restrictions measured under investment freedom include whether there is national treatment
and prescreening of foreign investment, transparency of investment laws, restrictions on land
ownership, foreign exchange controls and capital controls. ASEAN’s investment freedom has
improved slightly by 1 place from 2009 to 2010, which reflects a jump in Malaysia’s rankings,
as the positions of the other ASEAN countries, particularly Vietnam, have declined (Table
4.9). Indicators of FDI restrictiveness are grouped under the context for strategy and rivalry in
the New GCI. The rankings of ASEAN on business assessments of indicators such as impact
of business rules on FDI, prevalence of foreign ownership and restrictions on capital flows
comparatively are more favorable. Nevertheless, these indicators are ranked lower relative
to other items within the context for strategy and rivalry sub-area, and their ratings have
deteriorated between 2009 and 2010. Thus, investment barriers might be another area for
ASEAN to monitor more closely.
ASEAN’s ranking on freedom from corruption has shown improvement over the last few
years but it is still perceived to have more corruption than over 55 percent of countries in the
sample. This ranking, which is derived primarily from Transparency International’s Corruption
Perceptions Index, reinforces the assessment from indicators on control of corruption and
irregular payments by firms from the New GCI, which are among the lowest ranking indicators
within the rule of law sub-area.

Rank 2011 (Change over 2010)

figure 4.12: 120
of 179 countries
Economic Freedom 107 (+1) 109 (+1)
100 (+4)
100 94 (+1) 93 (-8)
in ASEAN Region 85 (+17) 81 (+3)
90 (+1) 86 (+8)
80
69 (-1)
Notes: (a) Business Freedom:
Data used in measuring 60

business freedom are from the 40

World Bank’s Doing Business 27 (+4)
study, which are analyzed in 20
the section below. (b) Labor 0
Freedom: Based on data from Index of Business Trade Fiscal Government Monetary Investment Financial Property Freedom from Labor
World Bank’s Doing Business Economic Freedom (a) Freedom Freedom Spending Freedom Freedom Freedom Rights Corrupˆon Freedom (b)
study, under the Employing Freedom
Workers topic.

Source: Authors’ analysis

based on The Heritage
Foundation and The Wall Street
Journal (2010, 2011).

table 4.9: Index of Freedom

Economic Business Trade Fiscal Government Monetary Investment Financial Property from Labor
Index of Economic Freedom Freedom Freedom Freedom Spending Freedom Freedom Freedom Rights Corrupon Freedom
Freedom, ASEAN Cambodia 102(5) 161 124 20 4(6) 57(51) 62 70 99 160(9) 143(11)
Countries
Indonesia 116 133(6) 103(-19) 58 22(5) 98 123 106 99 113(16) 123(11)

Notes: Numbers in brackets Laos 141 123(-5) 133 77 15(5) 34(39) 146 159 146(18) 160(-6) 134(-30)
indicate changes in ranks in
Malaysia 53(6) 74 85 39 59(-5) 27(16) 103(29) 70 52 55(-8) 35(20)
the 2011 Index of Economic
Freedom and sub-indices from Myanmar 174 175 112(-7) 64(-5) 1 172(6) 172 172 176 178 176
2010 ranks. Only rank changes
larger than + 5 (improvement) Philippines 115(-6) 152 86 84 10(6) 77(7) 117 70 99 141 128
or -5 (deterioration) are
reported. Singapore 2 4 1 18 9(-7) 5 26 38(31) 2 3 1

Thailand 62 72 94 107 13(10) 136 117 17 70 84 44(7)

Source: The Heritage
Foundation and The Wall Street Vietnam 139(5) 109 132 101(-5) 77(7) 45(127) 164(-12) 133 164 122 63
Journal (2010, 2011); authors’
analysis.

70 ASIA COMPETITIVENESS INSTITUTE

 ASEAN (excluding Myanmar) is rated stronger on ease of doing business than 57 percent of
box 4.4: 183 countries in the World Bank’s Doing Business 2011 Report, which is a slight deterioration
Ease of Doing from the 2010 Report.
Business in ASEAN
The World Bank’s Doing Business indicators measure business regulations and the protection
of property rights and their effect on businesses, especially small and medium-sized domestic
firms. The Ease of Doing Business (DB) Index 2011 is constructed from component indicators
of nine Doing Business topics, with the data mainly applicable at June 2010.
The region is strongest on trading across borders, which measures the documents required, time
and cost to export and import, and protection of investors, such as the extent of disclosure and
shareholders’ ability to sue officers and directors for misconduct (Figure 4.13).
ASEAN is particularly weak in the ease of starting a business in terms of procedural requirements,
time and cost, where it is ranked in the 34th percentile. This is followed by closing a business
(44th percentile), that is, the time, cost and outcome of insolvency proceedings.
Singapore retains its top position on overall ease of doing business, while Thailand and Malaysia
are among the top 12 percent of countries. The overall DB rankings of the other countries are
fairly low (Table 4.10).
ASEAN’s rankings on DB indicators point to substantial scope for the region to lower the
burden of administrative regulations, particularly in relation to starting and closing a business.
This is also the message from analysis under the New GCI framework, where administrative
infrastructure, which is measured by two component indicators of DB on starting a business
among others, is identified as an area of substantial weakness.

figure 4.13: Trading Across Borders 40 (+2)

Rank 2011 (Change in rank
from 2010)
Doing Business of 183 countries
Protecng Investors 53 (-1)
Index for ASEAN
Region Dealing in Construcon Permits 66 (-3)

Registering Property 68 (-2)

Ge…ng Credit 75 (-2)

OVERALL 78 (-3)
Note: ASEAN’s rankings
have been computed as GDP Enforcing Contracts 89 (-1)
(PPP)-weighted ranks of nine
ASEAN countries (excluding Paying Taxes 95 (0)
Myanmar).
Closing a Business 100 (0)
Source: World Bank (2009,
2010); authors’ analysis. Starng a Business 121 (+2)

table 4.10:
Ease of
Doing Business Doing
Index, ASEAN Business
Index Contracts Borders Business Property Taxes Business Permits Investors
Countries
Brunei 159 52 183 22 74 120

Cambodia 147 142 183 117 89 57 170 146 74

Note: Numbers in brackets Indonesia 154 47 142 98 155 60 44

indicate changes in ranks
Laos 171 110 170 183 163 152 115 182
in the 2011 DB Index and
sub-indices from 2010 ranks. Malaysia 21 59 37 55 1 23 113 108 4
Only rank changes larger
than + 5 (improvement) or -5 Philippines 148 118 153 102 128 132
(deterioration) are reported.
Singapore 1 13 1 2 15 6 4 4 2 2
Source: World Bank (2009,
Thailand 19 25 12 46 72 12 12
2010a); authors’ analysis.
Vietnam 31 124 43 173

ASEAN COMPETITIVENESS REPORT 71

 ASEAN (excluding Brunei) is ranked 53 or in the 62nd percentile on overall logistics
box 4.5: performance in 2010, based on the World Bank’s 2010 Logistics Performance Index (LPI). This
Logistical is a worsened position from the 2007 LPI by 9 places. The LPI is compiled from responses to
Performance in the LPI Survey of international freight forwarders and is a weighted average of country scores
ASEAN on six key dimensions. The 2010 Survey was conducted in 2009 for 155 countries, but the
analysis in this section will be undertaken with reference to a constant sample of 140 countries
in 2007 and 2010.
ASEAN’s strongest dimension is international shipments, which measures the ease with which
competitively priced shipments can be arranged to the country in question. It is ranked around
the same positions on the other dimensions, and is weakest on logistics quality and competence,
which rates the competence and quality of logistics services such as transport operators and
customs brokers. ASEAN’s performance in all six dimensions has declined in 2010 from 2007.
The decline is greatest in tracking and tracing of consignments by 15 positions, followed by
customs and logistics quality and competence, which fell by 13 ranks (Figure 4.14).
The logistics performance of ASEAN countries are highly varied, ranging from Singapore
in 2nd position to Myanmar in 122nd place in 2010. Between 2007 and 2010, the logistics
performance of Indonesia and Cambodia have deteriorated the most with substantial drops
in ranks across nearly all dimensions, while the Philippines has made the largest improvement
(Table 4.11).
The infrastructure dimension of LPI assesses the quality of trade and transport-related
infrastructure such as ports, railroads, roads and information technology and is similar to
indicators under the logistical infrastructure and communications infrastructure sub-areas
under the New GCI. The quality of ASEAN’s infrastructure is ranked more favorably in the
LPI (61st percentile) compared with New GCI, where ASEAN’s logistics and communications
infrastructure are ranked in the 52nd and 48th percentile respectively.
The LPI and New GCI also give different depictions of the relative competitiveness of
infrastructure quality in individual ASEAN country. For instance, there is significant difference
between Vietnam’s ranking on infrastructure under LPI (54th percentile) and its position on
logistical infrastructure under New GCI (22nd percentile) in 2010. Philippines’ infrastructure
is assessed to be better in the 2010 LPI (56th percentile) than with New GCI data, where its
logistical infrastructure is ranked in the 11th percentile.
Furthermore, while the LPI shows an improvement in the Philippines’ infrastructure from
three years ago, the New GCI shows otherwise. For Cambodia, the New GCI indicates that the
country has improved its competitive position on logistical and communications infrastructure,
while the LPI points to a decline in ranking over three years.
The customs dimension of LPI and the indicator on burden of customs procedure within
the administrative infrastructure sub-area of the New GCI give vastly different rankings for
ASEAN. The LPI assessment is much more positive, placing ASEAN in the 61st percentile on
customs efficiency in 2010 compared with 39th percentile on the New GCI customs indicator.
However, both data sources suggest that ASEAN’s position on the quality of customs clearance
has weakened over the last few years, with declines in Indonesia, Vietnam, Thailand and
Malaysia.

(Continued on next page)

72 ASIA COMPETITIVENESS INSTITUTE

 Customs
60 Rank 2010 (Change in
figure 4.14: ASEAN rank from 2007)
of 140 countries
Logistics LPI 53 (-9)
55 54 (-13)
Performance Index
for ASEAN Region 50 Infrastructure
Timeliness
54 (-4)
54 (-6)
45

40

Note: ASEAN’s rankings have 48 (-5)

been computed as GDP (PPP)-
weighted ranks of nine ASEAN 57 (-15)
countries (excluding Brunei). A Tracking and Tracing Internaonal Shipments
negative figure in the bracket
indicates a worsening in 2010
rank from the 2007 LPI.
59 (-13)
Sources: World Bank (2007,
2010b); authors’ analysis. Logiscs Quality and Competence

table 4.11: Logiscs Logiscs

Performance Internaonal Quality and Tracking and
Logistics Index Customs Infrastructure Shipments Competence Tracing Timeliness
Performance
Index, ASEAN Cambodia

countries Indonesia

Laos 110 93
Note: Numbers in brackets Malaysia 29 28
indicate changes in ranks
in the 2010 LPI and sub- Myanmar
indices from 2007 ranks.
Only rank changes larger Philippines 53
than + 5 (improvement) or -5
(deterioration) are reported. Singapore 2 2 4 1 6 6

Thailand 35 35 29 37
Source: World Bank (2007,
2010b); authors’ analysis. Vietnam 52 54

Summary operations and strategy. ASEAN’s competitive weaknesses

ASEAN’s competitiveness, as a whole, was ranked at 57th
among 132 countries in 2010, based on New GCI data for
eight ASEAN countries (excluding Laos and Myanmar).
Its position has not changed much over the last five years.
ASEAN’s GDP per capita in 2009, the latest year available,
was 79th position. The significant gap between current
prosperity and overall competitiveness might point to the
potential of current competitiveness fundamentals in raising
future prosperity.
ASEAN’s advantage has been more in microeconomic
fundamentals than macroeconomic competitiveness
factors. Across competitiveness categories, the region’s
relative strengths lie in its related and supporting industries
and clusters, its capital market infrastructure and company
are in its administrative infrastructure, human resource
development and rule of law.
The strength of competitiveness fundamentals varies widely
across ASEAN member countries. Of the eight countries for
which New GCI data are available, five of them are ranked in
the top half of the 132 countries on overall competitiveness
while three are in the bottom half. At the top end, Singapore
ranks among the top ten countries in the world, while at the
other end, Cambodia places in the bottom 25 percent. Based
on an analysis of limited data from other sources for Laos and
Myanmar, the competitiveness profiles that emerge are that
of comparatively uncompetitive economies. Among more
disaggregated competitiveness sub-areas, ASEAN countries
share some common relative strengths and weaknesses that
provide grounds for collective action. There are also sub-

ASEAN COMPETITIVENESS REPORT 73

areas that are relative strengths in some countries but relative
weakness in others. This diversity is conducive to policy
learning and the sharing of best practices among ASEAN
countries.
Alternative datasets covering ASEAN’s performance on
economic freedom, ease of doing business and logistical
efficiency support the assessment using New GCI data
that corruption and administrative regulations are major
areas of weaknesses for ASEAN. The alternative indicators
are, however, more positive about ASEAN’s infrastructure
quality and customs efficiency as compared with the New
GCI, but rate ASEAN’s investment restrictions to be more
stringent than that given in the New GCI.
ASEAN’s competitiveness also needs to be framed within
the larger context of competitiveness of the Asian region.
The high-growth, big economies of China and India present
some competition for ASEAN with regard to export markets
74 ASIA COMPETITIVENESS INSTITUTE
and resources but also present a source of new demand
and benefits from wider regional integration. In terms of
competitiveness fundamentals, ASEAN is more competitive
than India but less competitive than China. China has a
smaller microeconomic than macroeconomic edge over
ASEAN, which has an even smaller microeconomic edge
over India. Thus, competition is close on microeconomic
factors. There is, however, a much larger gap in the
competitiveness of macroeconomic factors between
ASEAN and China, where the former is lagging behind,
and between ASEAN and India, where the former is ahead.
ASEAN would need to address a range of competitiveness
factors in order to close the gap with China. ASEAN, China
and India are all strong in their business environment for
supporting and related industries and clusters and greater
cooperation in this area may yield mutual benefits.
Endnotes
1
The Global Competitiveness Index compiled by the WEF and published in its annual Global Competitiveness Report is
not directly comparable to the New Global Competitiveness Index compiled by Porter et al. Although both approaches use
basically the same underlying data, there are some differences in the detailed indicators used, as well as distinct differences in
the organization and processing of the data and in the methodology used in deriving the Index.
2
The competitiveness ranking of ASEAN, individual ASEAN countries, China and India will be analyzed with respect
to a constant sample of 132 countries throughout this chapter. This sample will be referred to generally as the global set of
countries or the world.

Chapter References
ASEAN (2010). ASEANstats, http://www.aseansec.org/22122.htm
Browne, Ciara and Thierry Geiger (2010). “The Executive Opinion Survey: The Business Executives’ Insight into Their
Operating Environment”, in The Global Competitiveness Report 2010-2011, World Economic Forum.
Delgado, Mercedes, Christian Ketels, Michael E. Porter and Scott Stern (2010). Explaining Prosperity Differences Across
Countries: The Determinants of National Competitiveness, mimeo.
International Monetary Fund (IMF) (2010). World Economic Outlook October 2010: Recovery, Risk and Rebalancing,
Washington, DC: International Monetary Fund.
Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi (2010). Worldwide Governance Indicators, http://info.worldbank.
org/governance/wgi/index.asp
Porter, Michael E., Mercedes Delgado, Christian Ketels and Scott Stern (2008). “Moving to a New Global Competitiveness
Index”, in The Global Competitiveness Report 2008-2009, World Economic Forum.
Porter, Michael E. and Richard Bryden (2010). International Cluster Competitiveness Project, Institute for Strategy and
Competitiveness, Harvard Business School. Underlying data drawn from the UN Commodity Trade Statistics Database and
the IMF BOP statistics.
The Heritage Foundation and The Wall Street Journal (2010, 2011). The Index of Economic Freedom, Washington DC: The
Heritage Foundation and The Wall Street Journal.
World Bank (Arvis, Jean-Francois, Monica Alina Mustra, John Panzer , Lauri Ojala and Tapio Naula) (2007). Connecting to
Compete: Trade Logistics in the Global Economy, The Logistics Performance Index and Its Indicators, Washington DC: World
Bank.
World Bank (2009). Doing Business 2010: Reforming through Difficult Times, Washington DC: The World Bank and
International Finance Corporation.
World Bank (2010a). Doing Business 2011: Making a Difference for Entrepreneurs, Washington DC: The World Bank and
International Finance Corporation.
World Bank (Arvis, Jean-Francois, Monica Alina Mustra, John Panzer, Lauri Ojala, Ben Shepherd and Daniel Saslavsky)
(2010b). Connecting to Compete: Trade Logistics in the Global Economy, The Logistics Performance Index and Its Indicators,
Washington DC: The World Bank.
World Bank (2010c). World Development Indicators.

ASEAN COMPETITIVENESS REPORT 75

76 ASIA COMPETITIVENESS INSTITUTE
 20
ASEAN
Competitiveness
Report

10
Chapter 5

Assessment
and Policy
Recommendations

ASEAN COMPETITIVENESS REPORT 77


ASSESSMENT
AND POLICY
RECOMMENDATIONS
The earlier chapters in this Report have covered the
changing global and regional environment as well as
ASEAN’s competitiveness performance and fundamentals.
This chapter provides an overall summary and assessment
of ASEAN competitiveness with a focus on developing
relevant policy recommendations for ASEAN members to
collectively improve regional competitiveness.
The first section of this chapter offers an assessment of
ASEAN’s competitiveness and the second section suggests
elements that ASEAN could address in defining a region-
wide Competitiveness Agenda.
Key Challenges in a Changing Global Context
The ASEAN region has rebounded fast from the global
crisis of 2008-2009, relatively unscathed. The safeguards and
sound macroeconomic policies put in place in the region
pursuant to the 1997 Asian financial crisis have enabled the
ASEAN economies to undertake macroeconomic stimulus
measures with relatively low public debt during the recent
crisis. However, sustainability of the recovery is important
if ASEAN is to continue to grow. In the short term, risks
to ASEAN’s economic prospects include the buildup of
inflationary pressures and asset bubbles. In the longer term,
ASEAN has to formulate a development strategy that
addresses cumulated challenges and responds to changing
circumstances to generate sustainable growth.
The challenges confronting ASEAN are at both the national
and regional levels. ASEAN is comprised of a diverse group
of countries that runs the full range from high-income to
low-income categories. Since 1997, seven of its members in
the low- and middle-income groups have failed to move up
to the next rung of the income ladder. Each country, in its
quest to improve prosperity, would need to tailor solutions
to the competitiveness issues that are specific to its national
conditions. At the same time, ASEAN members share
common concerns and face challenges that are posed by the
wider global environment that can be addressed through
collective action.
The export-led growth strategy has served as a good model
for many developing countries, including those in ASEAN,
to achieve rapid economic development over the past few
decades. The recent global crisis, however, has brought
this strategy into question as global demand wanes, huge
current account imbalances persist and the possibility of
protectionism rears its head. ASEAN now needs to diversify
its sources of growth, which would include stimulating
78 ASIA COMPETITIVENESS INSTITUTE
domestic and regional demand. While ASEAN is expected
to retain significant ties with major advanced economies,
China and India are becoming increasingly important.
ASEAN has established a widening network of free trade
and economic partnership agreements with external
partners in recent years, including with China and India,
where ASEAN seeks to maintain “ASEAN Centrality”. The
evolving regional architecture provides opportunities for
ASEAN as well as presents challenges and ASEAN needs to
maximize its competitiveness as well as develop and deepen
complementarities vis-à-vis the emerging Asian powers.
At the collective level, ASEAN has entered a new phase
in its cooperation with its goal to establish an ASEAN
Community by 2015 that comprises the three pillars of a
political-security community, economic community and
socio-cultural community, with well-defined blueprints. The
Blueprint to form an ASEAN Economic Community has
been implemented since 2008. If successfully implemented,
this will substantially enhance the region’s attractiveness for
economic activities. At present, implementation is behind
schedule. ASEAN needs to find the political resolve as
well as ways to strengthen its institutional mechanisms and
capacity to enable both the ASEAN Secretariat and member
economies to effectively fulfill the tasks required.
ASEAN’s Competitiveness Performance
ASEAN has solid foundations on which to raise its
competitiveness. The region has several naturally-endowed
advantages in location, resource abundance and market size
and it has achieved a sustained period of rapid economic
growth in the 1980s and 1990s. However, the analysis
of ASEAN’s economic performance over the last two
decades, which would reflect the outcomes of its past
competitiveness, has shown that while there is considerable
variation across countries, ASEAN as a whole has turned
in a relatively staid performance post-1997 Asian financial
crisis. On recent measures of economic outcomes, ASEAN
lags significantly behind advanced economies and has been
overtaken by China in a few aspects. The region performs
better than India, but the latter is catching up.
ASEAN’s prosperity, as measured by GDP per capita, stood
at $4,739 in 2009 (PPP at 2005 international dollars) at
about half that of the world average. Prior to the Asian
financial crisis, ASEAN’s prosperity was rising faster than
the world average at a yearly rate of 5.4 percent but this
growth rate has decelerated to an annual 2.3 percent over the
last decade, which is only slightly above the world average.
Within ASEAN, Singapore and Brunei fall under the high-
income category while Laos, Cambodia and Myanmar are in
the low-income category. The other countries are classified as
middle income, with Malaysia in the upper-middle-income
bracket and the rest as lower middle income.
The distribution of prosperity in the ASEAN region has
been uneven. Income inequality is relatively high among
ASEAN countries as five of eight members have a Gini
coefficient above 0.4. The level of poverty varies across
ASEAN with Cambodia and Laos having high rates of
poverty and Thailand and Malaysia having the lowest levels
of poverty (Singapore does not have a poverty line). On non-
income measures, there is a wide gap in the quality of human
development across ASEAN countries, with Singapore
performing well on the Human Development Index and
Myanmar rating poorly on this indicator. There are also large
differences in the extent of gender-related development and
empowerment across ASEAN economies.
While ASEAN has moderately high labor force participation
rate and affordable local prices, the region has relatively low
labor productivity with the exception of Singapore where
labor productivity is high. While ASEAN has maintained
its edge in labor productivity over India, its edge over China
has been steadily eroding with China’s labor productivity
now slightly better than that of ASEAN.
Exports have thus far been a driving force in ASEAN’s
growth with ASEAN being predominantly a goods exporter.
Singapore has the strongest presence in world markets with
over 2 percent share of world exports while CLMV and
Brunei have the weakest positions, although Vietnam has
doubled its world share to 0.4 percent over the last ten years.
ASEAN has over the years developed strong export clusters
in a number of industries such as IT, oil and gas products,
agricultural products, metal mining and manufacturing,
transport and logistics, and business services. However,
ASEAN has not made much progress in raising its share
of world exports over the last decade, which has hovered
around 6 percent, in contrast to a near doubling of its share
of world exports in the decade before the Asian financial
crisis. In 2005, ASEAN was overtaken by China in world
export market share at the same time that Japan’s share
dipped below ASEAN’s. ASEAN’s world export market
share has increased to 6.2 percent in 2009 from 5.9 percent
in 2007 and 2008. However, whether this is the start of a
sustained increase remains to be seen.
While domestic investments in ASEAN have been high
prior to the Asian financial crisis, exceeding 30 percent
of GDP, they fell markedly during the crisis. Although
ASEAN’s investment rate has recovered to 26 percent in
2009, the region’s capital formation has fallen below that
in China and India. Vietnam and Cambodia are exceptions
where domestic investment rates have been increasing over
the last two decades. Vietnam has the highest investment
rate in the region in the 2000s.
ASEAN still has not recovered its share of world total FDI
inflows from the decline during the Asian financial crisis,
and the region faces stiff competition from China and India
in attracting foreign investments. In the 2000s, ASEAN’s
highest world share was 4.5 percent between 2003 and 2005,
compared with 8.0 percent between 1994 and 1996 in the
1990s. FDI inflows to ASEAN, as with the rest of the world,
plunged amid the global crisis, although ASEAN’s share of
world total FDI inflows recovered from 2.7 percent in 2008
to 3.3 percent in 2009. From attracting FDI inflows that
were three to four times more than what could be expected
from its size in the global economy in the 1990s, ASEAN’s
FDI inflows over the last two years has been just in line with
its economic size. Singapore has been attracting the most
foreign investments, followed by Thailand and Indonesia,
while Brunei, Myanmar and Laos have been receiving the
lowest shares of total FDI inflows to ASEAN.
In terms of outward FDI flows, ASEAN is not a significant
investor compared with the developed countries, accounting
for around 2 percent of world total FDI outflows. This is
similarly the case with China and India, although outward
investments from these two countries have been rising.
Most of the outward FDI in ASEAN is accounted for by
Singapore and Malaysia.
ASEAN is relatively weak on innovation outcomes in terms
of patent filings in the US, which is way behind that of
the developed countries. ASEAN is slightly behind China
and ahead of India in the number of patents filed with the
US Patent and Trademark Office on a per capita basis, but
it falls significantly behind both countries in the growth
rate of patent filing per capita between 1997 and 2009.
Singapore has by far the highest number of patent filings
in the region, followed by Malaysia and Thailand, while the
other countries have no or very low levels of patent filings
in the US.
On the state of entrepreneurship, ASEAN economies
have relatively low business densities compared with the
advanced economies, except for Singapore. The entry rate
of new businesses in ASEAN is comparatively more robust.
ASEAN’s companies generally have not been able to grow
large on a global scale as homegrown companies account for
3 percent of companies on the 2010 Forbes Global 2000 list,
none of which is among the top 100. ASEAN fares better in
the performance of its small and medium enterprises, which
are better represented in the Forbes 2010 Asia Pacific “Best
Under a Billion” list.
For ASEAN to improve its prosperity, it is important
to maximize the utilization of the resources available to
ASEAN such as natural endowments, locational advantages,
large labor supply and favorable price levels. The findings
suggest that improving labor productivity is very important
for the region. Other areas where performance can be
improved relate to attracting more foreign investments as
well as mobilizing domestic investments, and nurturing
entrepreneurship and innovation through local enterprises.
Thus far, exports have been the backbone of ASEAN’s
growth strategy, and ASEAN needs to increase its world
share of exports. The export clusters already developed can
be further strengthened and efforts can be directed to raising
the export of services.
ASEAN COMPETITIVENESS REPORT 79
 figure 5.1:
Microeconomic and 100 90 80
Macroeconomic
Competitiveness
across ASEAN
countries
Vietnam
Source: Authors’ analysis
based on unpublished data
in Delgado et al. (2010); raw
Philippines
data from World Economic
Forum, Executive Opinion Cambodia
Survey 2009, 2010.
ASEAN’s Competitiveness Fundamentals
The review of ASEAN’s competitiveness performance
has pointed to the need as well as significant scope for
ASEAN to improve economic outcomes. To assist in the
identification of specific areas that ASEAN can focus
on to raise competitiveness regionally and nationally, an
analysis was conducted in Chapter 4 on ASEAN and its
member countries’ global competitiveness positions on a
wide array of fundamental factors that affect longer-term
competitiveness.
ASEAN is ranked 57th among 132 countries on overall
competitiveness in 2010, based on New GCI data.
ASEAN’s ranking is computed as the GDP (PPP)-weighted
ranking of eight ASEAN countries for which data are
available and excludes Laos and Myanmar. ASEAN has
made good progress in its competitiveness positions in the
first half of the 2000s but over the last five years, ASEAN’s
competitiveness ranking has lingered around the 57th to
60th percentile mark. Throughout the years, ASEAN has
performed much better on microeconomic competitiveness
fundamentals than macroeconomic competitiveness factors.
The overall competitiveness of the eight New GCI-ranked
ASEAN countries varies in a broad range with Singapore
placed among the top ten countries and Cambodia in the
bottom 25 percent. The competitiveness of Singapore,
Malaysia, Brunei, Thailand and Indonesia are in the top
half of the 132 countries while Vietnam, Philippines
and Cambodia are in the bottom half. Most of the
member countries are ranked higher on microeconomic
competitiveness fundamentals than macroeconomic
fundamentals. It is further observed that microeconomic
competitiveness and macroeconomic competitiveness
go hand-in-hand. If a country has better microeconomic
competitiveness fundamentals relative to other countries,
80 ASIA COMPETITIVENESS INSTITUTE
Ranking in Micro Compeveness
70 60 50 40 30 20 10 0
0
Singapore
Ranking in Macro Compeveness
20
40
Brunei Thailand
Malaysia
ASEAN 60
Indonesia
80
100
120
it is likely also to have relatively stronger macroeconomic
competitiveness fundamentals. The exception to this is
Brunei (Figure 5.1).
Main Areas of Strengths and Weaknesses
A comparative analysis of individual countries’ main
strengths and weaknesses will shed light on the common
areas that are contributing to the overall strengths and
weaknesses of ASEAN and help to identify the grounds for
collective action. To facilitate this comparison, sub-areas of
competitiveness are sorted from best ranked to worst ranked
within ASEAN and each member country to identify their
relative strengths and weaknesses. The top three areas of
relative strength in ASEAN and each member country are
then placed side by side for comparison and discussion.
The same is done for areas of relative weakness. ASEAN
countries have been listed in accordance with the World
Bank income classification from high income to low income
in order to decipher emerging trends as related to income
status, if any. It should be noted that an area of relative
strength (weakness) within a country can have an absolute
ranking that is relatively low (high) among the countries in
the New GCI sample and this differentiation will be made
where appropriate in the analysis below.
Strengths
The top strengths for ASEAN are in the sub-areas of
supporting and related industries and clusters, capital market
infrastructure and strategy and operational effectiveness.
ASEAN’s relative competitiveness in microeconomic
fundamentals is reflected in the relative strengths of
individual member countries, which are predominantly in
areas under microeconomic competitiveness although some
countries are strong in the subcategory of macroeconomic
policy under macroeconomic competitiveness (Table 5.1).
 table 5.1: ASEAN
Top-Three Supporting and Related Industries and Capital Market Infrastructure Strategy & Operational Effectiveness
Areas of Clusters

Relative Singapore Brunei Malaysia Thailand Indonesia Philippines Vietnam Cambodia

Strength, Administrative Macroeconomic Supporting Macroeconomic Supporting Organization Supporting Context for
ASEAN and Infrastructure Policy & Related Policy & Related -al Practices & Related Strategy &
Industries & Industries & Industries &
Member Clusters Clusters Clusters
Rivalry

Countries Context for Capital Internationali - Strategy & Macroeconomic Capital Political
Rule of Law
Strategy & Market zation of Firms Operational Policy Market Institutions
Rivalry Infrastructure Effectiveness Infrastructure

Logistical Human Organization Supporting Capital Supporting Political Logistical

Source: Authors’ Infrastructure Development & Related Market & Related Institutions Infrastructure
-al Practices
analysis based on Industries & Infrastructure Industries &
unpublished data in Clusters Clusters
Delgado et al. (2010);
raw data from World
Economic Forum,
Executive Opinion
Survey 2009, 2010.

The middle-income economies of Malaysia, Thailand,
Indonesia, Philippines and Vietnam share a common
relative strength in their national business environment
for supporting and related industries and clusters. The
countries’ absolute rankings out of 132 countries (or ‘global’
rankings) in this sub-area range from 16 (Malaysia) to 55
(Philippines). While supporting and related industries and
clusters is among Singapore’s areas of relative weakness,
Singapore’s global ranking in this sub-area is 19.
Four of the middle-income members of ASEAN (Malaysia,
Thailand, Indonesia and Philippines) also are relatively strong
in some aspect of the subcategory of company operations and
strategy, whether it is organizational practices, strategy and
operational effectiveness or internationalization of firms.
The global competitiveness rankings of these countries in
company operations and strategy range from 23 (Malaysia)
to 55 (Philippines). Again, while this dimension is another
area of relative weakness for Singapore, its global ranking is
12.
The other notable areas of relative strengths shared by
different countries are in the national business environment
aspects of context for strategy and rivalry and the factor
input condition of capital market infrastructure. ASEAN
countries could harness common areas of strengths to build
national and regional prosperity.
Weaknesses
The top three areas of relative weakness for ASEAN are in
the sub-areas of administrative infrastructure, rule of law
and human development.

table 5.2: ASEAN

Top-Three Areas Administrative Infrastructure Rule of Law Human Development
of Relative
Weakness, Singapore Brunei Malaysia Thailand Indonesia Philippines Vietnam Cambodia
ASEAN and Supporting Administrative Human Political Administrative Administrative Macroeconomic Communications

Member & Related

Industries &
Infrastructure Development Institutions Infrastructure Infrastructure Policy Infrastructure

Countries Clusters

Internationali- Internationali - Rule of Law Rule of Law Communications Logistical Administrative Human
zation of Firms zation of Firms Infrastructure Infrastructure Infrastructure Development

Strategy & Supporting Communications Human Human Political Logistical Rule of Law
Operational & Related Infrastructure Development Development Institutions Infrastructure
Effectiveness Industries &
Clusters
Source: Authors’ analysis
based on unpublished data
in Delgado et al. (2010); raw
data from World Economic
Forum, Executive Opinion
Survey 2009, 2010.

ASEAN COMPETITIVENESS REPORT 81

The top areas of relative weakness for the eight ASEAN
countries are distributed almost equally between areas related
to macroeconomic competitiveness (human development,
political institutions, rule of law, macroeconomic policy)
and those related to factor input conditions (administrative,
communications and logistical infrastructures) in the
national business environment. Common areas of relative
weakness cut across ASEAN countries in different income
brackets from high to low income (Table 5.2).
Administrative infrastructure is one of the more frequent
areas of relative weakness across ASEAN countries although
Singapore is ranked first globally in this sub-area. The four
ASEAN countries where administrative infrastructure is
among the top three relative weaknesses (Brunei, Indonesia,
Philippines and Vietnam) also have poor global rankings in
this area, ranging from 96 (Indonesia) to 124 (Philippines)
of 132 countries. They generally perform poorly on the
indicators for the number of procedures and the time
required to start a business.
Human development is another common area of relative
weakness across ASEAN countries. It is among the top three
relative weaknesses in Malaysia, Thailand, Indonesia and
Cambodia. The other areas of relative weakness common
to two or more member countries are communications
infrastructure, rule of law, political institutions, logistical
infrastructure and internationalization of firms. Some of
these areas are relative weaknesses in some countries but
relative strengths in other countries.
The limited indicators available for Laos and Myanmar
support the general trend of weakness in human
development, rule of law and communications infrastructure
within the ASEAN region while both countries fare better
on macroeconomic policy.
Analysis using alternative datasets covering ASEAN’s
performance on economic freedom, ease of doing business
and logistical efficiency support the assessment using New
GCI data that corruption and administrative regulations are
major areas of weakness for ASEAN. There is indication that
ASEAN’s restrictions on investments might be higher than
the assessment in New GCI. On the other hand, alternative
indicators give a more positive depiction of infrastructure
quality and customs efficiency in ASEAN compared with
the New GCI.
The common areas of weakness among the ASEAN countries
provide common areas of concern for ASEAN that members
could improve on through greater cooperation and sharing.
The disparity in global competitiveness across the ASEAN
countries in some of the sub-areas and indicators provides an
opportunity for policy learning from the better-performing
members in the corresponding areas. One such area is
administrative infrastructure, which is weak in a number of
ASEAN countries but where Singapore is rated well.
82 ASIA COMPETITIVENESS INSTITUTE
Prosperity and Competitiveness Fundamentals
The current prosperity of a country or region, as measured
by GDP per capita, is the outcome of past competitiveness.
At the same time, the strength of current competitiveness
fundamentals will impact on future prosperity. The current
global position of a country or region in prosperity level
relative to its ranking on competitiveness fundamentals,
or “competitiveness gap”, may offer some indications of
the ability of a country or region to improve or sustain
prosperity in the longer term.
Where a country’s or region’s global competitiveness ranking
leads its GDP per capita ranking (positive gap), this may
suggest that it is in a relatively strong position to generate
future prosperity. On the other hand, where a country’s
or region’s competitiveness ranking lags behind its GDP
per capita ranking (negative gap), this may indicate that it
is in a weaker position to maintain its relative position on
prosperity against other countries.
ASEAN’s GDP per capita in 2009 (the latest year available)
was 79th position out of 132 countries, which was lower
compared with its overall competitiveness position in 2010
of 57th place. This positive gap may point to the potential
of current competitiveness fundamentals in raising future
prosperity.
Across ASEAN countries, Singapore has high global
rankings in GDP per capita and competitiveness, which
points to the strength of its competitiveness fundamentals
in sustaining its global position in prosperity. The other
high-income country, Brunei, has a significant negative
gap, which may indicate that its prosperity may not be
sustainable unless its competitiveness fundamentals are
substantially improved. The middle- and low-income
ASEAN countries all have positive gaps, which suggests
that these countries may achieve higher levels of prosperity
in future in line with their competitiveness fundamentals.
The gap is smaller for the Philippines and Cambodia and
these countries may need to do more to strengthen their
competitiveness fundamentals in order to climb higher on
the world prosperity ladder (Figure 5.2).
ASEAN, China and India
ASEAN’s overall competitiveness lies ahead of India but
behind that of China. ASEAN is ranked lower than China
by 18 positions and higher than India by 13 places on the
New GCI 2010. ASEAN’s negative gap with China has
persisted over the last few years, while its significant positive
gap with India has arisen in 2010 mainly as a result of
deterioration in India’s competitiveness position from 2009.
China is more competitive than ASEAN on both micro and
macro competitiveness fundamentals although its lead is
higher on macro factors. When analyzed across sub-areas,
ASEAN is not as competitive as China in many respects.
Even for sub-areas that are ASEAN’s relative strengths, which
are supporting industries and clusters, company strategy and
 figure 5.2: 40
“Competitiveness
30
Gap”: DIFFERENCE
IN GDP PER CAPITA 20
AND NEW GCI
RANKINGS 10

Ranking gap
0

N
ei
-10

sia

m
nd
re

ia

a
s
ne
EA

di
un

es

na
po

la
ay

bo
pi
AS

on
Br

ai

et
ga

al

ilip

m
Th

Vi
d
M
Sin

Ca
In
Source: Authors’ -20

Ph
analysis based on
unpublished data in
-30
Delgado et al. (2010);
raw data from World
Economic Forum, -40
Executive Opinion
Survey 2009, 2010.

operational effectiveness and internationalization of firms,
ASEAN’s performance is generally not as good as that
of China’s. Although ASEAN and China share common
relative weaknesses in human development, administrative
infrastructure, communications infrastructure and rule of
law, China is still more competitive in these sub-areas than
ASEAN. ASEAN, however, is equally competitive with
China in the context for strategy and rivalry and can build
on its comparative strengths within this sub-area. In general,
ASEAN needs to improve its competitiveness fundamentals
vis-à-vis China in most categories.
ASEAN has a competitive edge over India in both micro
and macro competitiveness fundamentals, although the
gap in microeconomic competitiveness is relatively small.
ASEAN is stronger than India in the areas of human
development, organizational practices, internationalization
of firms, logistical, communications and administrative
infrastructures. While ASEAN continues to strengthen
its competitive position vis-à-vis India in the above areas,
it would also need to catch up in the areas of rule of law,
capital market and innovation infrastructure.
Towards an ASEAN Competitiveness Agenda
Analyzed as a single economic entity, ASEAN’s
competitiveness, whether measured by performance or
fundamentals, has not been as impressive in recent years as
before the 1997 Asian financial crisis, and the region risks
being overshadowed by the economic might of China and
India. Although individual member countries vary widely in
their competitiveness and each has different priority issues
to address in enhancing national prosperity, the analysis has
shown that there is much ground for policy learning and
action at the regional level.
ASEAN has in the last few years intensified its efforts
towards implementing a wide-ranging collective agenda
to achieve deeper integration as a means to raising the
region’s competitiveness. It has set a goal to form an AEC
by 2015, to reap scale economies in production and to
enhance its attractiveness as a consumer market. However,
the implementation of measures towards an AEC, which
started in 2008, is behind schedule. To make a leap in its
competitiveness, ASEAN not only has to carry out existing
tasks more effectively but also define new approaches and
new tasks.
In the past, ASEAN integration efforts have tended to focus
on trade and investment liberalization. Such negotiations
over reciprocal market access are typically politically difficult
and the extent of market opening achieved is often less
than satisfactory. ASEAN could extract greater gains from
regional cooperation by placing more emphasis on activities
that yield significant cross-border externalities and direct
mutual benefits. Given the region’s diversity where strength
in one country may be a weakness in another, ASEAN also
provides an important platform for policy learning and the
sharing of best practices across a wide range of areas.
This Report, by analyzing a multitude of competitiveness
factors that span the economic, political and social
dimensions, serves to highlight the importance of building
competitiveness through an integrated, multi-pronged
ASEAN Competitiveness Agenda. Such a Competitiveness
Agenda will be guided by a few principles:

ASEAN COMPETITIVENESS REPORT 83

 figure 5.3:
ASEAN ASEAN Integraon
Competitiveness
Agenda Building on Strengths Addressing Weaknesses

Integrating Stepping Up
Regional Human
Encouraging Resource
Capital Market
Local Development
Infra-
Enterprises Improve basic
structure health and
Foster SMEs
Mobilize financial education
resources Enhancing Upgrade skills
Administrative
Boosting Improving Infrastructure
Clusters Regional Expedite the
Align regional ASEAN Single
infrastructure
Macroeconomic Window
development Policy Simplify business Improving
Coordination procedures Rule of Law

Inclusive Growth

Source: Authors’ analysis.

Asia Pacific and Global Integraon
• The first is recognition of the value of regional
cooperation in providing synergistic benefits for member
countries. ASEAN countries should strive to align their
national interests with the interests of ASEAN as a
region to maximize collective gains.
• The second is commitment to fostering inclusive growth
both within and between member countries. Currently
the spread of prosperity around the region is uneven
with large development gaps. Measures that ensure a
more equitable distribution of the benefits of growth
are pertinent in minimizing the exposure of the less
privileged to external shocks such as escalating food and
fuel prices as well as natural disasters.
• The third is continuation of ASEAN’s outward
orientation and integration with the rest of the Asia
Pacific region and the world, given the importance of
ASEAN’s external trade and investment linkages and the
rise of China and India.
The Competitiveness Agenda for ASEAN must leverage
ASEAN’s competitive strengths while addressing its
competitive weaknesses. The suggested areas of focus for
ASEAN are depicted in Figure 5.3, and these include
interlinked microeconomic competitiveness areas as well
as macroeconomic competitiveness factors that provide the
broad setting in which businesses operate.
Building on Strengths
Cluster Development
ASEAN is relatively strong in the competitiveness of its
supporting and related industries and clusters. ASEAN has
a wide variety of endowments, resources and capabilities
that practically span the whole production process. It
has developed strong clusters in IT, oil and gas products,
agricultural products, metal mining and manufacturing,
transport and logistics and business services. IT products
84 ASIA COMPETITIVENESS INSTITUTE
are the largest export commodity in Malaysia, Philippines,
Singapore and Thailand, and apparels are a major export in
CLMV.
ASEAN can leverage this strength by creating integrated
regional value chains of clusters. ASEAN should explore
a more coordinated regional development of clusters
and supporting and related industries with specialization
of specific economic activities within the region. Better
cluster development would also foster the growth of local
enterprises.
Recently, ASEAN unveiled its Master Plan on ASEAN
Connectivity, which included the enhancement of physical
connectivity as a key element. Since developing physical
infrastructure is a capital and time intensive process, it would
be judicious for ASEAN to explore the prioritization of
infrastructure development in line with cluster development.
ASEAN can also seek to tap into synergies with China and
India on cluster development to further integrate the Asian
economies.
Capital Market Infrastructure
Capital market infrastructure is a relative strength for
ASEAN. Further regional efforts to improve and integrate
the capital market infrastructure within ASEAN as well as
with the world would help to mobilize the high savings in
the region and attract FDI inflows. Active capital markets
also encourage the growth of local enterprises.
ASEAN has taken a welcome initiative in this direction
with the proposed ASEAN Exchange Linkage, in which
the stock exchanges of Malaysia, Singapore and Thailand are
proposed to be linked in the second half of 2011 with the
Philippines’ stock exchange expected to join the common
electronic platform in the first half of 2012.
Local Enterprise Development
Another area of relative strength for ASEAN is company
operations and strategy. This may reflect mainly the
practices of foreign multinational enterprises, which have
a substantial presence in ASEAN economies, as there are
relatively few top-performing locally-owned companies.
Presently, ASEAN has a dearth of large, homegrown firms
with no publicly-traded companies among the top 100 in
Forbes’ Global 2000 list, although the region’s small and
medium enterprises are better represented in Forbes Asia
Pacific’s “Best Under a Billion” list. ASEAN should thus
give more attention to developing its SME sector, as well as
grow the size of local companies.
ASEAN could intensify its efforts to nurture local
enterprises, by promoting the transfer of management
knowledge from foreign to local companies and also
facilitating the regionalization and globalization of local
companies. A well-implemented Strategic Plan of Action
for ASEAN SME Development 2010-2015 will contribute
to this objective.
Macroeconomic Policy
Macroeconomic policy is an area where a few ASEAN
countries are particularly strong in while others are
relatively weak in and thus can be a prime area for policy
learning among members. ASEAN’s macroeconomic
policy responses to the global crisis have involved national
strategies with no coordinated effort at the regional level.
Given the diversity of the member countries, policy
coordination would have been extremely difficult. However,
the crisis did strengthen regional financial cooperation
through expediting implementation of the multilateral swap
arrangement, the Chiang Mai Initiative Multilateralization
agreement among ASEAN, China, Japan and Korea to
address short-term liquidity problems in the region.
Over the long term, as economies become more
interdependent, macroeconomic policy coordination
would become increasingly important in ensuring that
policy instruments work effectively in promoting economic
stability. A step towards greater coordination would be
through an enhanced ASEAN+3 Economic Review and
Policy Dialogue process.
Addressing Weaknesses
Enhancing Administrative Infrastructure
Administrative infrastructure is ASEAN’s least competitive
area. Many of the ASEAN countries are particularly weak
in their administrative infrastructure due to burdensome
customs procedures as well as the number of procedures
and time required to start businesses. To improve ASEAN’s
competitiveness and to enhance ASEAN’s attractiveness as
a business investment destination, urgent action is required
to reduce administrative red tape.
ASEAN has undertaken to establish an ASEAN Single
Window for customs clearance that integrates ten National
Single Windows of individual member countries. The
ASEAN-6 countries have activated their National Single
Windows after a two-year delay from the initial schedule
while the CLMV countries have until 2012 to do so. In
the later half of 2010, the ASEAN countries signed the
Memorandum of Understanding on the Implementation of
the ASEAN Single Window Pilot Project and the Protocol
on Electronic Customs Facilitation (Single Window) to
test the infrastructure and procedures. The ASEAN Single
Window is an ambitious project and remains a challenge.
In view of ASEAN’s assessed weakness in administrative
infrastructure, it is worth emphasizing the need to expedite
this project.
Human Resource Development
ASEAN has very weak competitiveness in basic health
and education. Its labor productivity is also relatively low.
ASEAN has ongoing cooperation in many aspects of human
resource development with initiatives mainly in the ASEAN
Socio-Cultural Community Blueprint as well as ASEAN
Economic Community Blueprint that are under the purview
of different ASEAN sectoral ministerial bodies, including
Health, Labor, Science and Technology and Education
Ministers. Much of the human resource development efforts
have entailed capacity building, sharing of knowledge and
best practices and research activities.
In view of its poor competitiveness in these areas, ASEAN
could engage in more urgent and concerted endeavor to raise
its human capacity and upgrade the skills of its labor. These
issues gain even greater significance given the risks faced by
ASEAN countries due to natural disasters and pandemic
infectious diseases. For example, ASEAN could strengthen
basic health through the control of infectious diseases with
sustained funding and greater coordination of national and
regional initiatives, in partnership with the World Health
Organization and other development agencies and dialogue
partners. There is also scope to strengthen the coordination
of education and skills development initiatives across
various ASEAN bodies, for instance, through the Education
and Science and Technology Ministers working together
to develop science and technology human resources and
promote collaborative research and development in the
region.
Rule of Law
Many of the ASEAN countries have received unfavorable
assessments for rule of law, particularly on the indicators
of corruption and crime. While many of the factors related
to rule of law fall under the purview of, and are most
effectively addressed at the national level, ASEAN members
could engage in information sharing and contribute to the
establishment of certain norms such as transparency to
create a more favorable regional culture.
ASEAN COMPETITIVENESS REPORT 85
Strengthening Implementation
ASEAN does not lack well-defined goals and plans.
Its weakness lies in its inability to deliver on provisions
in its agreements. ASEAN has to ensure the timely
implementation of agreements and decisions within a rule-
based framework to maintain its credibility. This requires
the strengthening of both institutional mechanisms and
capacities and political will.
For forty years, ASEAN has established a norm in
interactions that is based on the ASEAN Way, which
emphasizes consultation, consensus and non-interference in
internal affairs. This informal and consensual approach has
succeeded in maintaining peace and stability in the region,
but it might also be a bane to ASEAN achieving greater
success in its regional integration efforts.
The ASEAN Charter has established a legal and institutional
framework for making ASEAN more rules-based, but the
organization’s effectiveness in coordinating and executing
policies is not going to improve vastly overnight. Various
mechanisms to enhance compliance are in place but they
have been largely ineffectual. For instance, members have
traditionally preferred to resolve their economic disputes
through political channels rather than in a more rules-based
manner through the 2004 Enhanced Dispute Settlement
Mechanism. The AEC Scorecard in its current form requires
improvements to strengthen its monitoring function, and
the public version of the Scorecard should contain more
detailed information by individual country to increase the
transparency of the compliance review process.
The diversity within ASEAN also requires a flexible
mechanism for moving forward since the member countries
are at different stages of development and have different
priorities thus making it difficult for them to move at the
same pace. The Charter provides for an ASEAN Minus X
formula but this is the only formula that is endorsed, and it
can only be adopted if there is consensus to do so. ASEAN
can consider adopting another formula – 2 Plus X – that had
previously been utilized, and to develop more pilot projects
involving participation by countries that are ready, so as to
progress initiatives.
The successful implementation of ASEAN’s Roadmap
for an ASEAN Community by 2015 also hinges on the
ASEAN Secretariat as well as member countries having
adequate capacity and tool kits to effectively fulfill the tasks
required. Although the Secretariat’s resources and research
capabilities have been boosted and less developed members
are assisted with capacity building programmes, more needs
to be done to upgrade ASEAN’s ability to act institutionally.
Conclusion
The assessment of the competitiveness of ASEAN as a whole
and its member countries has been conducted against the
backdrop of profound changes in the global economic
landscape following the 2008 global crisis.
86 ASIA COMPETITIVENESS INSTITUTE
Over the last decade, ASEAN’s economic performance has
been stable. However, it has not taken big strides unlike in
the period before the 1997 Asian financial crisis. ASEAN’s
position on competitiveness fundamentals as measured by a
wide range of macroeconomic and microeconomic factors
is above the world average, but its ranking has remained
relatively unchanged over the last five years.
While individual ASEAN countries vary widely in their
competiveness and each country would need to chart its own
national agenda for improving competitiveness, the analysis
has also revealed areas of common competitive strengths and
weaknesses among the member countries. This provides the
basis for the development of an ASEAN Competitiveness
Agenda with a focus on building on strengths and addressing
weaknesses across a range of economic, social and political
areas to generate synergistic benefits for the region. ASEAN
has already undertaken a broad range of initiatives towards
an ASEAN Economic Community, but the assessment
in this Report serves to further inform a more nuanced
approach to boosting regional competitiveness that moves
away from a traditional focus on trade and investment
liberalization.
Suggested elements of an ASEAN Competitiveness
Agenda would involve a greater emphasis on building
strengths through coordinated cluster development, an
integrated capital market infrastructure, the nurturing
of local enterprises and enhanced macroeconomic policy
coordination. Weaknesses for intensified improvement
include raising quality in the areas of administrative
infrastructure, healthcare and education and rule of law.
The effective execution of plans of action is crucial in
delivering results for ASEAN. The imperatives of deeper
regional integration may bring into question the ASEAN
Way of working and require greater powers under the
Charter to monitor and ensure compliance. More also needs
to be done to upgrade the capacity of the ASEAN Secretariat
and member countries to fulfil their responsibilities.
Regardless of current limitations in ASEAN’s institutional
framework and mechanisms, ASEAN’s cooperation has
moved onto a higher plane and the regional integration
process is progressing. As implementation towards an AEC
has started only since 2008, any payoffs from measures
already implemented are not as yet evident in the data
analyzed in this Report, and it will be worthwhile to conduct
similar competitiveness analyses on a regular basis to see if
ASEAN’s integration efforts have translated into enhanced
competitiveness performance.
ASEAN has proven itself thus far to be a viable regional
grouping worthy of recognition and has established
positive relationships with China, India and the rest of the
world. Further progress for ASEAN requires continued
commitment from the member countries to the vision of
an ASEAN Community and a willingness to tackle difficult
challenges as the region adapts and prospers in a changing
world.
Chapter References
Coker, Richard J., Benjamin H. Hunter, James W. Rudge, Marco Liverani and Piya Hanvoravongchai (2011). “Emerging
Infectious Diseases in Southeast Asia: Regional Challenges to Control”, Health in Southeast Asia Series Paper 3, Lancet
Series on Southeast Asia.

ASEAN COMPETITIVENESS REPORT 87

88 ASIA COMPETITIVENESS INSTITUTE
 ASEAN
Competitiveness
20
Report 10

ASEAN Competitiveness Report 2010

Foreword by
Michael E. Porter
Professor
Harvard Business School

Marn-Heong Wong
Rakhi Shankar
Ruby Toh
Photography by Anthon Kiong

LEE KUAN YEW SCHOOL OF PUBLIC POLICY Christian Ketels

NATIONAL UNIVERSITY OF SINGAPORE
469C Bukit Timah Road, Oei Tiong Ham Building
Special Advisor
Singapore 259772

www.lkyspp.nus.edu.sg/ACI