SURVEY ON “BUSINESS NEEDS AND STRATEGIES IN THE …€¦ · (apparel) -Produce fabrics/textiles and export to Cambodia -Cut/sew/finish ... from Thailand” (parts makers and motorbike

SURVEY ON “BUSINESS NEEDS AND STRATEGIES IN THE MEKONG SUB-REGION” 2012

August 30th, 2012 Japan External Trade Organization (JETRO)

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Table of contents

I. Overview of the survey………………………….. 3 II. Overall Business Needs and Strategies in the

Mekong sub-region……………………………….10 III. Trade and logistics facilitation…………………...17 IV. Development of hard infrastructures……………30 V. Development of potential industries and service

sectors in Mekong sub-region…………………...37 VI. Strategy towards Mekong by Regional HQs in

Singapore and HQs in Japan (including service sectors) ………………………43

Objective : Follow-up to “Survey on the business needs and strategies in Mekong region”

(August to October 2009, JETRO) and discussions in the Mekong-Japan Industry and Government Dialogues, conduct survey on the most up-dated needs/strategies of Japanese and local companies operating in the Mekong sub-region.

In this regard, coverage of the survey was mainly the i) members of Mekong-Japan Industry and government dialogue and ii) companies which JETRO interviewed during the previous survey in 2009.

The survey in 2012 focused mainly on the “changes” from 2009, in terms of both business operation/strategies and improvement of soft- and hard-infrastructures.

Time period: March 20th to July 18th, 2012 Method: Interview to individual companies (for some companies, response to

questionnaires) Number of companies responded to the survey: 196 In Mekong sub-region---152 (Cambodia: 24, Lao PDR: 19, Myanmar: 21, Thailand: 40, Vietnam: 48) In Singapore and Japan--- 44 (Regional headquarters in Singapore and Kuala Lumpur: 10, Members of the

Mekong-Japan Industry and Government Dialogue in Japan:14, Services sectors in Japan:20) 3

I. Overview of the survey

But still issues remain !

Year2009

Last Survey conducted

<Improvement> • Steady development of hard infrastructures (e.g., completion of Third Mekong Bridge, improvement of road/seaports, industrial estates) • Progress in trade facilitation/ liberalization (e.g., A+1 FTAs) • CBTA partly implemented

Year2011 Year2010

Democratization and economic reform in Myanmar

Steady increase of incomes, Increase of middle class

Change of business environment in China and advanced ASEAN Member States (e.g. elevated labor cost and change in industrial policies)

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1) Custom procedures (burdensome procedures even after introduction of e-customs), 2) FTA utilization (procedures/rules of ROO) 3) Belated implementation of CBTA

Executive Summary of the Survey Year2012

MJ-CI started 1. Development of Hard

Infrastructure 2. Trade Facilitation / Logistics 3. Enhancing SMEs, Supporting

Industries and Entrepreneurship 4. Enhancement of Service Sector

and New Industrial Sectors

Growing interest of Japanese companies in Mekong sub-region Rapid increase of investments and trade amount between Mekong and Japan

1) Improvement of road condition of EWEC/SEC, including i) filling missing links such as Neak Leoung bridge and Dawei, and ii) better access to seaports

2) Enhanced electricity supply

1) Industrial development of key potential sectors (including service sectors), 2) Human resource development, 3) Improvement of productivity

Flood in Thailand and neighboring countries Inside environment in Mekong

Progress in MJ-CI

Outside environment

Trade Facilitation/ Logistics

Development of Hard Infrastructure

Enhancing Industrial Development 4

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(Ref.) Steady Growth of GDP （per capita） in the Mekong sub-region

Source of Data: IMF (WEO Apr. 2012)

estimate

estimate

As an indicator of Mekong countries’ economic growth, average growth rate from 2001 to 2010 are as follows; (Thailand 12%, Viet Nam 13%, Cambodia 11%, Laos 15%, Myanmar 23%)

CLMV

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(Ref.) Japan’s FDI in the Mekong sub-region

Source of Data: Cambodian Investment Board(CIB), Ministry of Planning and Investment(MPI) of Lao PDR, Myanmar Directorate of Investment and Company Administration (DICA) of Myanmar, Board of Investment of Thailand, Ministry of Planning & Investment（MPI) of Vietnam,

Japan’s FDI in the Mekong sub-region has steadily increased. While Thailand and Viet Nam are still the main investment destinations, FDI flows in CLM countries (especially Cambodia) has been increasing.

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(Ref.) Number of Japanese Chamber of Commerce (JCC) members in the Mekong sub-region

※Note: As of Nov.2009. JCCIV in Lao PDR was established in November 2009. Source of Data: JCCI offices in each Mekong country

Number of JCC members has increased in all 5 Mekong countries. - Cambodia: 35 (in 2009) → 87 (in 2012) - Lao PDR: 27 (in 2009) → 39 (in 2012)

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(Ref.) Export from Mekong sub-region to Japan

Source of Data: Japan Customs

Export from Mekong sub-region, especially that from Cambodia, Lao PDR and Myanmar has been drastically increasing (around two-folds).

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(Ref.) Import from Japan to Mekong sub-region

Source of Data: Japan Customs

Import from Japan to Mekong sub-region (especially, Myanmar) has also been increasing

Chapter-II. Overall Business Needs and Strategies in the Mekong sub-region

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Summary of Chapter-II

Among 152 companies responded to the survey, 85 (56%) have expanded their operations in these 3 years either in the form of…

Newly established investments (e.g., new factories/facilities/production processes) Expanding/up-grading existing operations, including shift from abroad Enhanced trade both intra-region and to the outside

Especially, operations in Cambodia (parts manufacturers) and Lao PDR (garment) have been expanding remarkably, including newly established investments.

While many manufacturing companies regard it efficient to concentrate the production operation in one place, they are facing the necessity to diversify the prospective risks (e.g., natural disasters, macroeconomic instability).

In general, both local (especially, Thai) and Japanese companies expect expansion of operation in Cambodia in the short-term (within a few years) and Myanmar with a bit longer time frame.

Expanded operation in these 3 years

Perspective for the future

ENHANCED BUSINESS OPERATIONS IN THE MEKONG SUB-REGION-1 - “Established a new factory in Cambodia as a “supporting factory” to the ones in Thailand” (auto parts maker and other parts maker in TH) -“Established a new factory in Lao PDR, where apparel products are made by using fabrics from Thailand” (garment manufacturer in TH) -“Established new production facilities/processes (e.g., galvanized steels) in order to meet the expanding domestic demand” (steel makers in TH and VN)

-“Strengthened the R&D functions in order to adjust products with local needs” (E&E maker in VN, auto parts maker in TH) -“Shifted several production lines from China, because i) labor cost in China is boosting and ii) quality of products in Viet Nam has been improving” (auto parts makers in VN) -“Moved the production lines from China and/or Thailand to Lao PDR because of boosting labor cost in such countries” (garment makers in Lao) -“Expanded the operation of telecommunication services in Cambodia and Lao PDR in order to meet the increased users of internet/mobile phones” (telecommunication services in TH and VN)

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Newly established investments

Expansion/up-grading of operations

ENHANCED BUSINESS OPERATIONS IN THE MEKONG SUB-REGION-2 (CONT’D)

-Total number of cargo transportation along the East-West Economic Corridor has more than doubled compared to that in 2009. Especially, cargos from North Viet Nam to Thailand are increasing” (logistics companies in TH, VN) -“Upon the elimination/reduction of import duties under ASEAN Trade in Goods Agreement (ATIGA), started exportation to other Mekong countries” (beverage maker in Lao) -“Enhanced the production operation in Thailand and Viet Nam in order to export more to overseas, especially China, Indonesia and India” (auto parts makers in TH and VN) -“Increasing the export to overseas, including the United States, Europe and Japan” (garment makers in KHM, Lao and VN)

-“Operations in Thailand and Viet Nam are getting more independent with each other, because of i) difference in focused products/segments and ii) efficiency of concentrated production under ATIGA” (automobile makers, E&E makers in TH and VN) -“Retreated from land transportation of cargos and focusing on maritime transportation because sufficient demand on land transportation cannot be expected” (logistics company in VN) -“As the requirement of tax paper was introduced in registering motorbikes, smuggled ones from neighboring countries were reduced” (motorbike maker in KHM)

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Enhanced trade both intra-region and to the outside

Enhanced efficiency in the operation

(Reference) Enhanced production network involving CLM

- Design final products

(apparel)

- Produce fabrics/textiles

and export to Cambodia

-Cut/sew/finish

in Lao PDR

and/or

Cambodia

★

Export to overseas (e.g., Japan,

Korea) by using AJCEP, AKFTA

Bangkok

- Produce semi-

finished parts in

Cambodia, and

export to Thailand,

Malaysia

★

Bangkok

- Produce and export core parts

to other ASEAN countries by

AFTA/to India, China through

Thailand-India, ASEAN-China

FTA

<Case-I: Textile/garment products> <Case-II: Electronics parts>

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FUTURE EXPECTATIONS ON BUSINESS OPERATIONS IN MEKONG SUB-REGION-I

-“While concentration of production in one location is cost-efficient, diversification of risks (e.g., natural disaster, macroeconomic instability) should also be considered” (E&E makers, auto parts makers in TH)

-“Improvement of infrastructure and more stable industrial policy in Viet Nam is highly expected with a view to enhancing the operation there and diversifying the risks from Thailand” (parts makers and motorbike maker in TH) - “Aiming at increasing exportation to new markets, both inside Asia and to the outside (e.g., Europe, Africa)” (E&E makers, auto parts makers and processed food maker in TH, motorbike maker in VN)

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Diversification of future risks

Export to overseas

FUTURE EXPECTATIONS ON BUSINESS OPERATIONS IN MEKONG SUB-REGION-II

-“Cambodia is very prominent in establishing new production facilities within 3 to 5 years, if trade/logistics procedures and transparency are improved” (auto parts makers in TH) -“Retailing services in Cambodia would be very prominent in the near future. Operation in Southern Viet Nam could be a good reference.” (trading company and retailing company in TH) -“Lao PDR is prominent for industries/businesses based on natural resources” (trading company in VN) -“Continuously enhance the production operation in Lao PDR” (garment maker in Lao) -“If the Thilawa SEZ along with related infrastructures (e.g., deeper seaport, power plants) are developed, it could satisfy the foreign manufacturers’ necessity for Myanmar” (trading company in MM, wood-processing company in MM) -“Dawei is more important than Thilawa, from the viewpoint of i) gateway to South-west Asia, and ii) potential manufacturing base of material industries. In that regard, stronger commitment from Myanmar and Thailand governments is strongly expected” (trading company in TH) -“Operations in Myanmar, especially i) service sectors (e.g., finance, telecom) and ii) development of industrial estates would be prominent” (telecommunication companies, banks and developers in TH and VN)

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Expectation for Cambodia

Expectation for Lao PDR

Expectation for Myanmar

Chapter-Ⅲ. Trade and logistics facilitation

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Summary of Chapter-III

Among 152 companies, 39 regard custom procedures were improved in these 3 years, through…

Introduction of Authorized Economic Operator (AEO) or green-lane system (especially in Viet Nam) Speed-up in obtaining import/export licensing (especially in Myanmar) Enhanced mutual understanding between custom authorities and companies.

At the same time, 55 found no specific improvement . These companies pointed out bottlenecks such as… Problems in e-customs (e.g., i) systems shut down frequently, ii) “face-to-face” procedures still remain (especially in Viet Nam) and iii) insufficient introduction in the local provinces (especially in Cambodia and Lao PDR)) Burdensome procedures (e.g., i) lack of single stop inspection along EWEC and SEC, ii) requirement of original documents (especially in Viet Nam)) Misclassification of HS code (necessity for introducing advance ruling system) Necessity of longer operation at border customs (e.g., 24 hours operation, out-of-regular office hours operation) Unexpected costs through requirement of “unofficial custom clearance fees” (especially in Cambodia, Viet Nam and Lao PDR)

Custom procedures

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Cross border transportation agreement (CBTA)

FTA utilization

While ATIGA and EPAs with Japan are frequently utilized, several companies already started to use FTAs such as ASEAN-China and ASEAN-India.

In further enhancing the FTA utilization, following bottlenecks were found; Cumbersome procedures in obtaining Certificate of Origin (COO) (e.g., i) longer time in the issuance procedures, ii) inspection in factories by issuing authorities (especially Viet Nam)) Rules of origin (e.g., i) different ROO across various FTAs, ii) stringent ROO under ASEAN-India FTA) Issues related to tariffs (e.g., i) difference in classification/understanding of HS code, ii) insufficient tariff reduction including those caused by “reciprocity” under ATIGA and ASEAN-China).

CBTA is utilized in carrying both cargos and passengers (tourism). However, business sectors request further improvements such as;

Deregulate limitation of transportation inside each country (triple license) Ratification/implementation of CBTA i) by Myanmar, and ii) along Southern Economic Corridor especially between Cambodia and Thailand Increased number of permissions for cargo transportation.

CUSTOM PROCEDURES-1 (IMPROVEMENTS) -“In general, customs and other trade procedures are getting less problematic in these couple of years” (E&E makers, auto parts makers, logistics companies in TH and VN) -“After acquiring Authorized Economic Operator (AEO) and/or green-lane status from the government, custom clearance time was drastically shortened” (E&E makers, auto parts makers and garment makers in VN) -“Custom clearance at Thai-Lao border (near Vientiane) became drastically shortened because custom officers are getting more familiar with the operation with the company” (auto parts maker in TH) -“As the “tax paper” was changed from hand-written format to e-paper, custom clearance time at the Thailand-Cambodia border and Viet Nam-Cambodia border was drastically shortened” (motorbike maker in KHM) -“In acquiring import licenses, the lead time was shortened from 3 weeks to 3-5 days. Custom clearance was also shortened from 10 days to 1-4 days” (logistics company, garment maker in MM)

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CUSTOMS PROCEDURES-2 (OUTSTANDING ISSUES)

- “Although the e-customs was introduced, cost for customs clearance

increased more than 30%” (auto parts maker in TH)

- “As the ASCYUDA system was introduced only in main borders (e.g., Shihannoukville, Thanaleng), customs procedure in local borders is still burdensome” (garment makers in KHM, logistics company and garment maker in Lao)

- “Even though the ASCYUDA was introduced, application procedures still have to be done at the border customs” (garment makers in Lao)

- “Although the e-custom was introduced, custom procedures are still burdensome because i) e-custom system shuts down frequently and ii) hand-written application procedure still remains even after introduction of e-customs” (parts makers, auto makers and logistics companies in VN)

- “Obtaining AEO status is difficult because threshold (especially, that of annual trade amount) is too high” (garment maker in VN)

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Issues arising from customs system

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- “Single-stop inspection (or one-stop customs clearance) at the border

customs should be introduced as soon as possible. It is quite burdensome to get customs clearance at both of the border customs (e.g., Lao Bao and Dansavanh).” (logistics companies in TH and VN, motorbike maker and garment maker in KHM)

- “Original documents are required by customs/police (=photo-copy is not applicable) along the way to/at the border. Obtaining the originals is time-consuming and burdensome. Along with the introduction of NACCS in VN, photo-copy should be accepted so that the procedures are simplified.” (logistics companies, parts makers in VN)

- “Importing procedures in Viet Nam is time consuming because it takes 7 to 10days in acquiring permission from MOIT” (E&E makers in VN)

- “Requirement to acquire prior permission from custom agencies at the capital is redundant, because custom clearance at the border points is also required” (auto parts maker in TH, motorbike maker in KHM, logistics companies in VN)

Burdensome procedures

CUSTOMS PROCEDURES-3 (OUTSTANDING ISSUES, CONT’D)

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- “Prompt implementation/introduction of advance-ruling system is strongly expected in order to avoid unexpected imposition of tariffs” (logistics companies in VN, auto parts makers in TH)

- “Classification/understanding of HS code is different even among local customs in industrial zones and/or officer-by-officer” (E&E makers in VN)

- “24 hours customs clearance should be introduced as soon as possible for

shorter transportation time” (garment makers, SEZ operator in KHM, auto maker in VN, processed food maker and logistics company in TH)

- “Even in the case of urgent export/import procedures are necessary, out-of-regular office hours customs clearance is not permitted” (auto maker in VN)

- “Harmonization of opening hours of custom offices in Cambodia and Viet Nam is needed ” (logistics company in VN)

Misclassification of HS code

Necessity of longer operation at border customs


- “Unofficial customs clearance fee is forced to pay at customs clearance in in many countries. It is 4 to 7 times higher in Cambodia than that in Viet Nam” (logistics companies in KHM and VN)

- “Even after the introduction of e-customs, hand-written procedures still remain and resulting in unexpected unofficial custom clearance fees” (logistics companies in VN, garment maker in Lao)

- “As custom duties are imposed based on custom authorities’ own list, import duties could be higher than that imposed based on invoice price” (motorbike maker in KHM, automobile maker in VN)

- “Customs authorities require to divide the imported materials into exported purpose too strictly (subject to duty draw-back) or non-export (domestic consumption) ones, but it is very difficult” (steel maker in Thailand, beverage maker in VN)

- Import-prohibited goods in VN(e.g. used machines) cannot be imported to KH

through VN, even though not prohibited in KH. The bilateral arrangement between Cambodia and Viet Nam (expired in 2009) should be revived to ease transit regulation. (shipping company in VN)

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Problem in duty draw-back system

Easing transit regulation

Unexpected cost

- “Utilizing ATIGA in exporting to neighboring countries and get market share

before the up-coming AEC” (beverage maker in Lao, automobile maker in Thailand)

- “Using AJCEP frequently so that zero-duty is applied in exporting to Japan. No specific problems in acquiring certificate of origin” (garment makers in KHM and Lao)

- “In order to efficiently connect all manufacturing bases in ASEAN, China and India, utilization of FTAs such as ASEAN-China and/or ASEAN-India is essential” (auto parts maker in TH, garment manufacturer in VN)

- “ASEAN-China FTA is very beneficial in exporting products with lower import duties” (processed food maker in MM)

- “Information of FTA implementation/negotiation is very important in deciding the direction of regional operations” (auto parts makers in TH, garment makers in KHM and Lao, trading company in VN)

- “Currently, not utilizing any FTA/EPA because the company is more familiar with other preferential schemes” (footwear maker in Lao, processed food maker in KHM)

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FTA UTILIZATION-1 (CURRENT STATUS)

FTA UTILIZATION-2 (BOTTLENECKS)

- “Delay in issuance of COO in one country (e.g., Thailand) severely impacts the operations in others (e.g., Viet Nam, Lao PDR). Issuing agencies should duly consider such a chain-reaction” (motorbike maker in VN, garment maker in Lao)

- “Issuing authority sometimes require inspection of production lines as a precondition in issuing COO for new products. As a result, it takes about another 2 to 3 months before obtaining COO” (auto parts makers, logistics company in VN)

- “Issuing agency require acquisition of COO (Form N) even in case a company has no intention to utilize any FTAs” (garment makers, parts makers, logistics companies in KHM)

- “It takes about 5 days in acquiring Form D (ATIGA). Such a delay sometimes force a company to start custom procedures without COO in order to meet the delivery date”. (garment maker in Cambodia)

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Procedures in acquiring COO

- “As the HS classification between ASEAN and China or India is sometimes

different even 6 digit level, unexpected import duty is imposed” (auto parts makers in TH and VN)

- “Upon the conversion of HS (2007 to 2012), import duty on some products were raised due to merging of different tariff lines into one. Even in such a case, lower tariff rate through FTAs should be consistently applied” (auto maker, motorbike maker in VN)

- “Tariff reduction of India under ASEAN-India FTA is insufficient. ASEAN or Mekong countries should take collective action to get more liberalization from India” (auto parts makers in TH and VN)

- “Principle of “reciprocal” tariff elimination under several FTAs (e.g., ATIGA, ASEAN-China) is an obstacle in enjoying the lower tariff rate in exporting to other countries” (auto parts maker in TH, motorbike maker in VN)

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- “With a view to realizing more efficient operation of FTAs, harmonization of ROO or merging of FTAs are strongly expected” (auto parts makers in TH and VN, E&E company in TH, garment maker in VN)

- “As the ROO of ASEAN-India FTA (CTSH+RVC35%) is too stringent, more simplified co-equal rule should be introduced” (E&E maker in VN, E&E maker, auto parts maker in TH)

- “Under several FTAs (e.g., AJCEP), it is difficult to enjoy zero duty if materials/parts from a third country is utilized” (garment maker in VN)

Issues rerated to tariffs

Rules of origin (ROO)

FTA UTILIZATION-3 (BOTTLENECKS (CONT’D))

TRANSPORT FACILITATION-1: CROSS-BORDER TRANSPORTATION AGREEMENT (CBTA) - “With a view to facilitating the tourists between Cambodia and Viet Nam, CBTA is

very meaningful for promoting tourism” (tourism company in VN) - “Cross-border transportation between Thailand and Lao PDR was drastically

smoothened because transshipment became unnecessary” (foot wear maker and processed food makers in Lao, logistics company in TH)

- “Upon the implementation of CBTA, transshipment at borders became unnecessary, and resulted in the reduction of damages risks” (parts maker in VN)

- “Triple license of CBTA was useless because of limitation of transportation inside Thailand (up to Khon Kaen) and Viet Nam (up to Da Nang)” (logistics companies in TH and VN)

- “With a view to facilitating the transportation along Southern Economic Corridor, early enforcement of CBTA at the Cambodia-Thailand border is essential” (logistics companies in TH and KHM, garment maker in KHM, parts maker in KHM)

- “Myanmar’s early ratification and implementation of CBTA is strongly needed so

that damages to cargos during transshipment could be reduced” (logistics company in MM)

- “Number of permissions to trucks for mutual transportation between Cambodia and Viet Nam should be increased. Currently, permissions are mostly assigned to tourist buses, not cargo trucks” (logistics company, shipping company in VN) 28

Current utilization and improvements

Issues to be resolved

TRANSPORT FACILITATION-2: OTHER MATTERS

■In addition to the CBTA-related matters, following concerns were raised by private sectors. -“It was a big improvement that requirement of escort by police car was abolished” (parts maker and garment manufacturers in Lao)

-“Even the CBTA was ratified among Mekong countries, Vietnamese drivers are reluctant to drive inside other countries (Cambodia or Lao PDR), and vice versa” (logistics companies in Lao, VN)

-“Inside the Mekong sub-region, road/traffic signs should be harmonized so that drivers could easily understand the traffic rules and destinations” (logistics companies in VN, trading company in TH)

-“Charges for trucks are increasing year-by-year because increasing not only oil price but also minimum wage” (logistics companies, garment makers in TH, VN, KHM)

-“Need to have implementation of third party insurance covering routing Thailand, Laos and Vietnam so that cross-border transportation is secured” (trading company in TH)

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Improvements

Issues to be resolved

Chapter-IV. Development of hard

infrastructures

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Summary of Chapter-IV

On East-West Economic Corridor (EWEC), business sectors strongly need Improvement of road condition on EWEC (especially in Lao PDR and Myanmar) Development of seaports in Viet Nam (e.g., Lach Huyen and Vung Ang) and Easier access to such seaports through enhanced road connection.

On Southern Economic Corridor (SEC), business sectors regard fulfillment of missing links is necessary, especially, Development of Dawei seaport and related infrastructures (e.g., road linkage to Thailand, industrial estates, trade/transport facilitation) Completion of Neak Leoung bridge and Development of Cai-Mep Thi Vai seaport and easier access from HCMC.

Enhanced electricity supply through appropriate “shared responsibility” among relevant government agencies and private companies is strongly needed in CLMV countries. In addition, projects such as i) development of new SEZ (e.g., Thilawa), ii) improvement of key airports in CLMV countries, should be given priority.

Hard Infrastructures on Economic Corridors

Other Hard Infrastructures

Improvement of road condition/spec

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HARD INFRASTRUCTURES-1: EAST-WEST ECONOMIC CORRIDOR

-”Improvement of road condition/spec of EWEC (especially Lao part), along with streetlights is essential for smoother transportation”. [auto maker in Thailand, logistics company in Viet Nam, finance company in Viet Nam]

-”Considering the future possibility in carrying cargos between Yangon, Thilawa SEZ and Bangkok, improvement of EWEC inside Myanmar, as well as stable transportation at Mae Sot-Myawaddy border point would be important”. [auto parts maker and textile maker in TH, logistics company in MM] - “In order to make Thilawa project useful, cold storage at the seaport should be equipped” (processed food companies in TH)

-”Although the Third Mekong Bridge was opened, short-cut route cannot be used as a logistics route, since the customs and transshipment facilities are not well developed at Lao-Viet Nam border”. [logistics companies in VN and TH]

Development of seaports in Viet Nam

-”Development of Lach Huyen seaport, as well as improvement of connectivity with Hanoi (e.g., new National Route #5) is essentially important for manufacturers in North Viet Nam”. [auto parts makers, E&E makers in VN]

-”Development of Vung Ang seaport, along with connecting route, especially at the mountainous part of National Route 12 of Lao PDR is important in order to facilitate exportation of agriculture & forestry products in Lao”. [food processing company in Lao, logistics company in VN, logistics company in TH]

New requests/proposals

-”If railway from Vientiane to Bangkok could be used for cargo carriage, it would be useful for lowering transportation costs”. [garment manufacturers in Lao]

-”Development of National Route 18 of Lao PDR to Da Nang seaport would be beneficial for sectors such as agro-business, tourism and mining”. [trading company and agro-business company in Lao]

JETRO conducted the research on the trilateral transportation through the Third Mekong Bridge from Bangkok to Hanoi in March 2012. Comparison with the route through the East-West Economic Corridor via the Second Mekong Bridge is as follows;

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(Ref.) JETRO’S Research on a trilateral transportation (Bangkok-

Hanoi) through Third Mekong Bridge

Via 3rd Bridge

Via 2nd Bridge

(Comparison)

Distance 449km 595km -146km

Average Speed 40.7km/h 42.7km/h +2.0km/h

Actual Drive Time 11:02 13:52 -2:50

Custom Clearance Time

5:54 2:28 +3:26

Transshipment Time 1:30 0:30 +1:00

Total Distance (Bangkok - Hanoi) Via 3rd Bridge 1,429km

Via 2nd Bridge 1,575km

<Suggestions> Despite shorter distance, it is more costly and took longer lead time. Shorter custom clearance will be expected by introducing Transit procedure under CBTA. Improvement of logistics infrastructure, development of human resources, promotion of the single stop / single window and extension of operating hours at the customs will contribute to the attractive business environment.

<Mukdahan-Hong Linh>

Improvement of road condition/spec

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HARD INFRASTRUCTURES-2: SOUTHERN ECONOMIC CORRIDOR

-”Improvement of road condition of SEC, including i) construction of Neak Leoung bridge and ii) development of ring-road around Phnom Penh should be expedited”. [motorbike makers in KHM and VN, logistics company in VN, trading company in TH, garment companies in KHM and VN, etc]

New requests/proposals -” Responding to the increasing number of cargo vessels navigating through Mekong river to HCM , It need to eliminate bottlenecks at Cho Gao Canal such as narrow canal width, too low for navigating under bridge ” [logistics company in Viet Nam]

-” Maintenance/ re-connecting of the current railway between Bangkok, Phnom Penh and Ho Chi Minh City would be helpful to convey bulky products” [paper manufacturer in Malaysia]

-”Access route to Cai Mep-Thi Bai seaport should be further improved”. [trading company and logistics companies in VN]

Development of Dawei seaport and related infrastructures

-”If Thailand and Myanmar governments seriously support the establishment of material industries in Dawei, including development of seaport and its road linkage to Thailand, as well as trade/transport facilitation, it would result in a remarkable re-allocation of industries”. [trading companies, steel maker, developer, chemical maker in TH]

-”Considering that automobile industries in India would grow fast, Dawei project would have a significant meaning in realizing mutual complementation between India and Thailand”. [auto company in TH]

-”In order for Myanmar industries to reap the benefit from Dawei project, enhanced connectivity between Yangon and Dawei would be necessary”. [E&E manufacturer in MM

HARD INFRASTRUCTURES-3: ENERGY-RELATED INFRASTRUCTURES

-“The instability of power supply affects operations in factories” (beverage and E&E manufactures in VN, garment makers in KHM and MM)

-“Power shortage and its supply network remain problem. While recognizing the necessity to allocate electricity for households, manufacturers are also in serious need for it” (industrial association in MM, garment makers in Lao and MM)

-“Private companies face difficulties in developing long-distance power grid in Cambodia, because of difficulties in acquiring land” (energy company in TH)

-“Myanmar government should consolidate relevant Ministries into one policy so that appropriate energy policy could be taken” (energy company in TH)

-“Introduction of macro-scale grid system such as “Smart City” could be a practical solution for the shortage of electricity supply” (developer in TH)

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Viewpoints from the user side

Viewpoints from supplier side

HARD INFRASTRUCTURES-4: OTHERS

- “Thilawa SEZ could be a prospective destination for foreign investors thinking

about start manufacturing in Myanmar” (logistics company, developer in MM) - “If a SEZ is developed near the Thailand-Myanmar border, it would be

meaningful because the geographical distance is very close from industrial agglomeration in Thailand” (logistics company in TH, parts manufacturer in TH, processed food maker in TH)

- “Expansion of airports at key cities such as Hanoi, Ho Chi Minh City, Phnom

Penh and Yangon would be necessary for a smoother cargo carriage” (logistics companies in TH and VN, developer in VN)

- “Improvement of cargo treatment facilities (e.g., warehouse for parts/components, cold storage facilities for fresh foods) is strongly requested at key airports such as Phnom Penh and Yangon” (parts makers in KHM and TH)

- “Improvement of North-South route in Viet Nam is significantly important with a

view to facilitating domestic logistics, and connection to Southern Economic Corridor” (motorbike makers and logistics companies in VN)

- “Regulatory schemes on PPP should be introduced soon so that private

companies could engage in a project with more stability” (construction company and developer in VN)

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Special Economic Zones

Development/improvement of airports

North-South route of Vietnam

PPP scheme

Chapter-V. Development of

potential industries and service

sectors in Mekong sub-region

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Summary of Chapter-V

Garment industry, machinery and parts (automobile and electric/electronic) and tourism industries are regarded as potential industries. While manufacturing sectors’ investment in Mekong sub-region has been

increasing, several companies pointed out that agro-based industries are still important especially in CLM countries. Appropriate policies are needed to meet industrial needs (e.g., automobile

production in Vietnam)

Both Japanese and local service industries (e.g., distribution, retail, finance,

telecommunication, restaurant, education ) are interested in enhancing the operation across the Mekong sub-region. At the same time, service providers face bottlenecks such as i) troublesome

licensing procedures, and ii) stringent regulations (e,g., foreign capital ratio, store size).

Many companies face the necessity of i) basic human resources development

in Cambodia, Lao and Myanmar, and ii) appropriately responding to the hike of labor cost in Thailand and Viet Nam through advancement of industries and improved productivity.

Potential industries and appropriate policy

Further development of service industries

Necessity to appropriately address issues on labor/HRD

DEVELOPMENT OF POTENTIAL INDUSTRIES-1: POTENTIAL SECTORS AND EXPECTATIONS/BOTTLENECKS

- “In spite of the potential of market and production quality, government’s policy (e.g., higher registration fee, tax system) has been preventing the development of automobile, auto-parts and related industries in Viet Nam” (auto makers, auto parts makers in TH and VN)

- “Myanmar, especially areas around Yangon could be developed as manufacturing base of garments if EWEC is well developed” (textile maker in TH, garment maker in VN)

- “Dawei could be an idealistic location for material industries as long as the necessary infrastructures (e.g., seaport, road connection, SEZ, trade/transport procedures) are developed appropriately” (textile company, developer, trading companies in TH)

- “Cambodia is very prominent in establishing new production facilities in the near future, if trade/logistics procedures and transparency are improved” (auto parts makers in TH)

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Manufacturing industries

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- “Agriculture and related sectors are important in the Mekong sub-region,

especially in CLM. Cooperation programs from Japan, such as i) quality/safety control, ii) enhancement of productivity and iii) export promotion are expected” (processed food makers, industrial associations in Lao and MM)

- “Protection of intellectual property rights (patents and trademarks) should be

further enhanced in order to prevent the proliferation of counterfeit products” (E&E maker and processed food maker in TH)

- “While attracting foreign investments is necessary, government should duly pay attention to the operation of existing SMEs” (industrial association in MM)

DEVELOPMENT OF POTENTIAL INDUSTRIES-2: POTENTIAL SECTORS AND EXPECTATIONS/BOTTLENECKS)(CONT’D)

Agro-based industries

Other issues/concerns

- “Deregulation of restrictions such as i) foreign capital ratio, ii) store size

and iii) number of operations are strongly needed. Expansion of Japanese retail services would be beneficial for ASEN countries from the viewpoint of providing well qualified products and job opportunities” (retail services in TH and VN)

- “Restriction on the number of shops, such as “economic needs test” in Viet Nam is a bottleneck in expanding the operations.” (trading companies in TH and VN)

- “It is quite difficult and time-consuming to obtain operation license from Myanmar government” (telecommunication company in VN, finance company in TH)

- “100% foreign-owned service providers should not be permitted easily so that existing companies could be protected” (trading company in MM)

- “Calculation method of insurance premium rate should be introduced in

Mekong sub-region countries so that stable service supply could be enabled” (insurance companies in VN)

- “Pre-registration list system of imported products is too stringent and preventing expansion of business operations” (trading company in VN, logistics company in VN)

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DEVELOPMENT OF POTENTIAL INDUSTRIES-3: ISSUES ON SERVICE INDUSTRIES DEVELOPMENT

Restriction on foreign capital ratio and related regulations

Other bottlenecks

DEVELOPMENT OF POTENTIAL INDUSTRIES-3: HUMAN RESOURCES DEVELOPMENT AND LABOR COSTS

- Compared to factories in China, productivity of that in Lao is less than 1/3 in terms of speed and preciseness” (garment manufacturer in Lao)

- “In starting production in Cambodia, initial education/training for newly employed workers was a bit burdensome because most of them had no experience to work in the manufacturing sector” (parts makers in KHM)

- “Japan’s professional technical education (high school or college level) should be introduced in Viet Nam so that sufficient number of well-educated workers could be trained” (E&E manufacturer in VN)

- “Continuous support from Japanese government agencies (e.g., JICA, JODC) on human resource development is necessary” (garment manufacturer in MM)

- “As the minimum wage was raised, companies and workers in Thailand

should enhance productivity in order to maintain competitiveness.” (auto makers, auto parts makers and E&E makers in TH)

- “Labor cost is becoming a serious issue both in Thailand and Viet Nam” (textile company in TH, parts maker in VN)

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Human resources development

Labor Cost

Chapter-VI. Strategy towards

Mekong by Regional HQs in

Singapore and HQs in

Japan(including service

sectors)

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Summary of Chapter-VI

Among 14 respondents from members of Mekong-Japan Industry and Government Dialogue, 13 has made new investments in these 3 years, and 9 are planning to establish new investments in the sub-region (mainly manufacturing sector).

All of the 20 companies (service sector) regard Mekong sub-region as their potential market. At the same time, many of them face the bottlenecks such as i) restrictions on FDI in service sectors, ii) immature logistics systems, iii) undeveloped legal system and so on. In general, regional headquarters in Singapore regard Mekong sub-region very important as i) future investment destination in infrastructure development, ii) manufacturing base especially labor-intensive industries, and iii) potential consumer market.

Head quarters in Japan

Regional head-quarters in Singapore

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STRATEGY TOWARDS MEKONG BY HQS IN JAPAN 1. New Investments and Businesses launched in Mekong sub-

region after 2009 (when last survey was implemented) Among 14 companies responded to the survey, 13 has made new

investment such as setting up new plants, establish new sales subsidiaries and kicking off new services, etc.

Newly-launched investment and businesses have been focused mainly on manufacturing sector.

2. New Investments and Businesses to be launched in the region in near future

Among 14 companies responded to the survey, 9 are planning to launch new investments or businesses in the next one to two years, including expansion of their existing plants, establishing new entities, and equity participation.

Much of future investments will be focused on manufacturing sector while service sectors, infrastructure development, and power generations are also becoming more attractive for Japanese investment.

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3. Attractiveness of Mekong sub-region as a whole

Economic dynamism in Mekong markets with 230 million population despite of economic gaps among each country

Expectation to remarkable economic growth in the future, especially in Cambodia, Lao PDR and Myanmar.

⇒ Huge demand for infrastructure developments (electricity, water & sewer supply, etc.)

Expanding markets (populous coastal areas and underdeveloped inland areas)

Development based on East-West Economic Corridor (EWEC) and Southern Economic Corridor (SEC)

Pro-Japanese sentiment and similar social/cultural values can help both of local and Japanese workers deeply understand with each other to do businesses smoothly

Necessity for strategic approaches on the initiative of public-private partnerships (institutional and capacity building for industrial development, etc.)

Low-wage rates

STRATEGY TOWARDS MEKONG BY HQS IN JAPAN ( CONT.)

1. Attractiveness of Mekong sub-region as a whole Recognizing Mekong sub-region as an important area for future

investment in the areas of infrastructure development, in particular ports, industrial parks and power generation in Myanmar and hydro power generation in Laos (trading company, electronics)

Enhancement of production bases in Viet Nam in addition to existing bases in Thailand. Identifying high potential in Myanmar in terms of labor-intensive industry (electronics).

Enhancing operation in Myanmar, Cambodia and Laos as a potential area for future business utilizing their abundant primary goods. (trading companies)

Using ports in Thailand or Viet Nam for distributing goods manufactured in Cambodia and Laos (trading companies).

Emphasizing potential consumer market in Mekong area (electronics, trading

companies, processed food maker). 2. Challenges for Japanese companies doing business in Mekong market Lack of bilateral tax treaties between Japan and CLM countries. Those

would facilitate and enhance businesses in these countries. (electronics).

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STRATEGY TOWARDS MEKONG BY HQS IN SINGAPORE

1. Attractiveness All of the 20 companies responded to the survey regard

Mekong Sub-region as their potential markets overseas (or already have business bases in the region).

Viet Nam has become more attractive to many Japanese service sectors.

Importance of Mekong Sub-region from the viewpoint of regional logistics operation

(Ref: “Since our logistics service connecting Shanghai and Singapore by land road has started, the East-West Corridor is very important route for the service”(Logistics company))

2. Expectations Marketability, Economic Growth, People’s Economic Power Major factors for service industry to decide launching overseas

market-entry are upward trends in economy and a high potential for future market growth. Mekong sub-region is recognized as the promising market.

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INTERESTS IN AND EXPECTATIONS FOR INVESTMENT IN SERVICES SECTORS IN THE MEKONG SUB-REGION

3. Challenges for Japanese companies entering into Mekong market

a. Restrictions on FDI in Service sectors Among 20 companies responded to the survey, 11 companies

pointed out this problems. FDI restrictions in services in Thailand and Viet Nam have been

discouraging Japanese companies from entering markets in that region. Concretely pointed out are: i) unclear contents of the restrictions, ii) difficulties in finding partnerships with local businesses and iii) all-out exclusion of foreign investment in services, etc.

b. Immature Logistic Infrastructure Among 20 companies responded to the survey, 12 companies

pointed out this problems. Poor cold chains system which are indispensable in the supply of

products and services. Unofficial custom clearance fees are still required in customs

clearance procedures.

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INTERESTS IN AND EXPECTATIONS FOR INVESTMENT IN SERVICES SECTORS (CONT.)

3. Challenges for Japanese companies entering into Mekong market(cont.)

c. Undeveloped Legal System Among 20 companies responded to the survey, 6

companies pointed out this problem. Undeveloped Legal Systems regarding service sectors such

as Food Safety Act and Fire Defense Law etc. Transparency of legal systems, e.g., Intellectual Property

Rights (IPR), is also problem. d. Insufficient information Among 20 companies responded to the survey, 8 companies

pointed out this problems. Insufficient local information specialized in service industry

such as construction site, office rent, payment system (which is different from manufacturing industry).

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e. Securing Human Resources, Training Local Staffs Among 20 companies responded to the survey, 5 companies

pointed out this problems. Since service industry’s know-how has not been

disseminated in the region yet, securing work-ready manpower is difficult.

Obtaining work-permits for a certain period of stay of Japanese staffs to provide necessary know-how is also difficult.

f. Remittance /Repatriation Among 20 companies responded to the survey, 5 companies

pointed out this problems. Unclear and time consuming procedure of profit repatriation

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g. Others Electricity: “Blackouts prevent us from keeping products

chilled.” (In Viet Nam) “Infrastructure is poorly developed in Myanmar.”

Procurement of raw materials: “Viet Nam has a plenty of import restrictions, so, we basically make local procurement of raw materials.” “In Cambodia, getting raw materials from its market is unlikely. Cambodia is almost entirely dependent on imports.”

Censorship: “Bookstore business cannot be operated in a country that exercise censorship against publication like Vietnam.”

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