How should South East Asia and Vietnam fit into a companies international strategy

Leslie J. Mouat
AIG Thailand

It is a pleasure and great honor to be present at this conference.

Originally, AIG is an Asian company. We started doing business in Shanghai in 1919 over 80 years ago. Today, AIG has operations throughout Asia and in over 130 countries and jurisdictions, with over $550 Billion in assets. We are very proud of our accomplishments in this region and remain totally committed to economic progress including the future economic growth of Vietnam and it’s people.

Why would South East Asia and Vietnam fit into an International Strategy? Perhaps more to the point is how can any International organization ignore the opportunities of this region.

ASEAN represents a population of over 500 Million people. Prior to the financial crisis of 1997, it achieved the highest economic growth rates of any region in the world. This growth was primarily driven by exports.

The cycle of economic growth experienced by ASEAN countries, tracks as follows:-

• Low labour and low manufacturing costs spawned a dynamic manufacturing base which generated substantial export’s earnings (See Exhibit 1 & 2).
• As a result, domestic demand is then generated (See Exhibit 3 & 4).
• Economy’s move from basic industries into high-tech and biotech.

ASEAN countries are at different stages of development, but this general pattern is consistent.

Future success will mean matching innovative ideas with venture capital. Much of that capital will be supplied by international investors and companies.

Undoubtedly, at this stage of development ASEAN is confronted by China, a massive market in itself. Foreign capital investment has changed in favour of China. Prior to 1997, the ratio of investment between ASEAN and China was of 70% - 30% in ASEAN’s favor. That has completely changed around with China now gaining 70% to ASEAN 30%.

I believe all countries and governments understand that there is a finite amount of capital available for investment. Capital and investments will flow to regions and countries where opportunities exist and where investors and companies believe a fair return can be made. International companies will look for countries that offer good governance, transparent laws and regulations, good infrastructure, a fair playing field and a culture that emphasizes innovation and creativity. ASEAN and Vietnam are blessed with many of these attributes.

ASEAN can regain its competitive edge if it continues to develop strategies, has a united vision for the future and maximizes its strength. The European Union has successfully developed the flow of free trade throughout its borders. The NAFTA agreement is another example of free trade. ASEAN appears to still be struggling with this concept, with nationalistic views prevailing.

ASEAN FTA – ASEAN + 1 + 2 or +3 represents a strategic opportunity for the future. ASEAN, plus Japan, South Korea and China offers huge market opportunities.

China’s biggest strength apart from its sheer size and potential domestic demand, is its low cost base and high qualifications of its people as against the high cost and high qualifications of Japan/South Korea. This provides the current advantage China has.

China Japan and South Korea should become a huge market for ASEAN in the future particularly in industrial components and Agro-Industries. China will threaten ASEAN’s worldwide export markets. ASEAN needs therefore to develop an Intra-ASEAN market much in the same way as Europe and North America has done as I mentioned earlier.

Vietnam is a late entrant on the global competitiveness scene. This can offer advantages. Vietnam was only affected in a limited way during the economic meltdown of 1997. Vietnam has enjoyed a limited but robust export performance and is the only ASEAN country to match China’s growth rates of 7% or better over the last few years. Vietnam has a young population with strong work ethic, good education traditions and a thirst for learning. This bodes well for the future.

Since the signing of the bi-lateral trade agreement with the U.S.A., investments and trade with the U.S.A. has shown strong improvement (See Exhibit 5 and 6). As relations and economic ties develop, trade will grow substantially in the future.

It is one of the priority objectives of the Vietnamese Government to build a vibrant Insurance Industry that will make significant contributions to the economy. Insurance and the investment of premium funds have always been a vital component of domestic savings promoting investment in the country as well as providing protection against unforeseen events.

AIG has approximately 40 Million customers worldwide. Many are now doing business in Vietnam and more will follow in the future. To service our customers and provide world class products, it has been our long-term strategy to locate internationally, develop local talented managers and staff to deliver these services. Simultaneously, this encourages foreign investors to look more closely at investing in Vietnam. AIG first operated in Vietnam in the late 1920’s. We have recently re-established a life operation and we now look forward to obtaining approval for a General Insurance operation so that we may further contribute and participate in the tremendous opportunity we believe exists in Vietnam. The demand for financial services and products differs from country to country (Exhibit No. 7). However, a vibrant Insurance Market has always been a vital asset to any country.

To attract foreign investment, Vietnam must ensure that the playing field is level and that adequate laws and regulations are in place. The Government has made tremendous progress in a relatively short period of time. There are, however, currently several issues that face foreign investors in Vietnam.

• To attract new investors and capital a number of new laws and amendment have been passed. This could create disparity between existing and new foreign invested ventures. A level playing field should exist for all investors.
• Ensure transparent and fair competition between private enterprises and state owned enterprises.
• Currently, foreign invested companies cannot issue shares or any other form of securities and cannot be listed on the local stock market.
• At present, the maximum foreign ownership in unlisted companies in Vietnam is 30%. This can constrain the ability to raise capital.
• The current Enterprise Law requires a minimum of 65% agreement for a majority decision (i.e. amending corporate charter, issuing of shares, sale of assets, raising capital, etc.). Given that foreign investors are limited to 30% ownership, it is difficult for them to protect their investment.
• Tax. The current system is viewed as inconsistent. This situation could have consequences for future capital market development.

As I said earlier, Vietnam has incredible potential. It is rich in natural resources, has a low cost-manufacturing base and is one of the world’s largest exporters of food products primarily rice. The population is relatively young, well educated with an excellent work ethic. The government has achieved excellent progress in combining a rapid reform program with continuing stability. Further rapid growth will be achieved with a commitment to WTO entry, the further opening of capital markets, and achieving progress in information technology and Internet access. By creating a level playing field for investors, Vietnam will need to further develop the private sectors to be the main engine of growth as this will stimulate domestic demand.

Once this is achieved, coupled with a growing and strong export performance, Vietnam will be well on the way to achieving its long-term economic goals.

Thank you.