Part 1 of 2: The future of ASEAN competitiveness

Susilo Bambang Yudhoyono, Vientiane/Laos

It is a pleasure and honor for me to address all of you, the leaders of business from ASEAN, at this very important ASEAN Business and Investment Summit.

And in this spirit of togetherness, it is timely that we are joined here today to think about the many ways and means of enhancing our collective competitiveness.

Yet as many of you will agree, our critics have probably begun snickering now. How can ASEAN accomplish this, they say, what with increased global and regional competition? How can ASEAN compete in this cut-throat environment?

Granted, the challenges are indeed great. But we can be as determined as the critics and overcome their skepticism -- and may I say, our own as well. How? Well, keeping our positive attitude, for one, is a good start. And I have always believed that a positive attitude can overcome challenges --or else I would not be speaking here today as Indonesia's executive chief --it wasn't easy getting here, trust me.

With this positive attitude, I confidently say that if we put our heads together to think of collective solutions, then we will be stronger, more dynamic, and better able to cope and overcome these challenges.

Why? Because competition is a fact of life -- it is not going away. I sympathize that for some countries, competition can be a matter of life and death, because it determines job creation and the people's welfare. We certainly have seen how this struggle for greater competitiveness has created new economic regions.

We see this in countries where agglomeration of economic and industrial activities often define a nation's competitiveness. It is also happens within a wider region -- when neighboring countries join forces to create an economic region that strengthens not only the member countries, but the region as a whole.

For ASEAN, competition is serious business. In fact, I dare say that ASEAN will be increasingly defined by its economic competitiveness -- it is through this distinction that we can wield greater international diplomatic power. Indeed, we articulated our determined approach towards competitiveness last October, when we outlined our vision for an ASEAN Economic Community (AEC) at the summit meeting in Bali.

As we all know, AEC is one of three pillars of the ASEAN Community vision, defined at that summit as the Bali Concord II, the other two pillars being the ASEAN Security Community and the ASEAN Socio-Cultural Community. The AEC seeks to create (and I quote) "a stable, prosperous, and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment, and a free flow of capital, equitable economic development and reduced poverty and socio-economic disparities in the year 2020".

In order to achieve this vision, ASEAN needs to transform the region into a single market and production base. Why a single market? So that consumers in the region has freedom of selection, to buy regional goods as if they were produced in their home countries.

Our individual countries have large markets -- but as an ASEAN single market, we have an enormous consumer market.This larger "domestic" market will make the region's industries much more competitive. Isn't it then just common sense to have this free flow of goods and services, funds and people, and equally important, a free flow of ideas?

Surely as leaders of business and captains of industry you will agree with me that a healthy economy requires a secure and efficient flow of all these things, within and across borders. This is what the AEC aims to achieve.

Now, why a single production base? Well, it would make linkages between far-flung production centers much easier. This production base would also allow for a dynamic division of labor between those centers, based on their individual comparative advantages.

What we are aiming for is enhanced competitiveness, so that firms operating in the region can withstand global competition. The basic tenet is that increased specialization, efficient resource allocation, and diffusion of knowledge through trade will heighten ASEAN-wide competition, and hence the firms' competitiveness.

Some of our critics may say, well, the differences between these ASEAN countries are too great --how can they possibly function as one entity? I don't agree with this thinking --but then again, I am from Indonesia, where differences are everywhere, an intrinsic part of our society.

Consider this: ASEAN members vary according to individual natural resources, and levels of development. To those who say that is a problem, I reply that is the basis for a dynamic division of labor -- If we can ensure a smooth and efficient exchange of inputs. That is why we must eliminate trade barriers -- their presence merely hinders this exchange.

Now, a word about investment. This dynamic division of labor that I am talking about depends on investment, including the movement of industries from the more developed members to the less developed ones.

It also depends on an ongoing expansion and upgrading of regional production networks. As entrepreneurs will say, we must throw money at something in order for it to return.

So we must invest more in these regional production networks, so that they become stronger components of the global supply chain. Here, foreign investment plays a critical role -- with their presence, we can create networks of large, medium, and small domestic companies.

This single production base will mean that production activities in each of the ASEAN members will become regionalized and internationalized, so that less developed members of ASEAN and their SMEs -- can benefit from regional production networks. These so to say "smaller fish" can then "leapfrog" by specializing and finding niches in this production network.

How can we accomplish this? As I've said before, with a lot of positive attitude -- and this attitude is best exemplified by free and open investment. If we allow for greater investment, especially foreign direct investment, then we can maintain the changes necessary for the networks' progress. Governments of member nations must be active in opening up their investment regimes and seeking these investors.

This is an abridged text of a keynote address given by President Susilo Bambang Yudhoyono at the 2nd ASEAN Business and Investment Summit in Vientiane, Laos, on Nov. 28 2004.