SNAPSHOT ASIA FIRST IN A SERIES OF REGIONAL SECTOR ANALYSES 2003 OCTOBER Benchmarking FDI Competitiveness in Asia Copyright © 2003 The World Bank Group/MIGA 1818 H Street, NW Washington, DC 20433 All rights reserved Manufactured in the United States of America First printing October 2003 Available online at www.ipanet.net/snapshotasia Printed on recycled paper For more information contact: MIGA, Investment Marketing Services 1818 H Street, NW Washington, DC 20433 t. 202.458.2076 f. 202.522.2650 The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to MIGA, Investment Marketing Services at the above mentioned address. Benchmarking FDI Competitiveness in Asia, a study of foreign direct investment costs and conditions for two industries in six countries, was funded under the Miyazawa Initiative, a special component of the Japanese foreign assistance program intended to promote economic recovery in the countries most affected by the 1997 Asian financial crisis. The efforts of the Multilateral Investment Guarantee Agency (MIGA) under this initiative supported capacity building in the national investment promotion intermediaries of Korea, Thailand and the Philippines, as well as in raising awareness of the importance of non-commercial risk insurance in fostering the flow of foreign direct investment. The Multilateral Investment Guarantee Agency of the World Bank Group was established in 1988 to promote the flow of private foreign investment to developing member countries. In pursuit of this objective, MIGA's Investment Marketing Services department offers technical assistance programs to develop and implement effective strategies for attracting and retaining foreign direct investment. This hands-on technical assistance focuses on three primary areas: dissemination of information on investment opportunities and business operating conditions in developing member countries through online services; capacity building of the organizations and institutions involved in the promotion of foreign investment; and, investment facilitation activities supporting the efforts of developing countries to identify and attract investment. MIGA also offers political risk insurance coverage to eligible investors for qualified investments in developing member countries. MIGA insures against the following risks: transfer restriction, expropriation, war and civil disturbance, and breach of contract. SNAPSHOT ASIA 2003 OCTOBER BENCHMARKING FDI COMPETITIVENESS IN ASIA First in a Series of Regional Sector Analyses Foreign Direct Investment Costs and Conditions For the Electronics and Shared Services Industries in Six Countries Note: The outbreak of SARS (Severe Acute Respiratory Syndrome) occurred in several Asian countries during the final stages of the Benchmarking FDI Competitiveness in Asia study, primarily after Phase II company interviews. Consequently, this study does not attempt to assess the impact, if any, of SARS on investment decisions in the two sectors in any of the six participating Asian countries. Neither the Multilateral Investment Guarantee Agency nor Tractus Asia nor Brooker Policy Research are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, site selection, or other professional advice or services, and shall not be responsible for any loss sustained by any person who relies on this publication as a substitute for such professional advice or services. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Table of Contents I. Study and Analysis Overview 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . .1 Background . . . . . . . . . . . . . . . . . . . . . . . . . .2 Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Methodology . . . . . . . . . . . . . . . . . . . . . . . .4 Industry Context . . . . . . . . . . . . . . . . . . . . .7 Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Implications . . . . . . . . . . . . . . . . . . . . . . . . .12 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . .14 II. Country and Sector Findings 15 Comparative Costs by Factor . . . . . . . . . .16 China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Philippines . . . . . . . . . . . . . . . . . . . . . . . . . .32 Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Appendices 45 1. Acronyms and Abbreviations . . . . . . . . . .46 2. Methodology Sequence and Description . . . . . . . . . . . . . . . . . . . .47 3. Factors Used to Develop Operating Costs and Conditions Matrices . . . . . .52 4. Methodology Assumptions and Resources ­ Phase I . . . . . . . . . . . . . .53 5. Detailed Findings ­ Phase I . . . . . . . . . . .56 6. Detailed Findings ­ Phase II . . . . . . . . . .61 7. Comparisons between Phase I . . . . . . . . .68 and Phase II Findings Study and Analysis Overview The basic premise behind the methodology is that countries can best compete for FDI by understanding the approach of an investor in search of a site. Introduction When a global corporation decides to locate a new "best practices" in the given field or area. First applied facility, it may have literally hundreds of considerations to improve manufacturing processes, benchmarking is to evaluate. Some are easily quantifiable as expenses now used across a wide range of organizational disci- that fall directly to the bottom line, such as labor costs, plines, including site selection and expansion. It is taxes and costs to build or rent space. Other consider- evolving from its roots as a method for purely quanti- ations require more qualitative judgment, for example, tative, "boilerplate" comparison, to a highly cus- the quality of roads, the efficiency of government tomizable mechanism that emphasizes and reinforces services, and the lifestyle enjoyed by expatriate strategic objectives, and identifies opportunities to gain employees and their families. These too, are often added competitive advantage. related to productivity, and will likely affect the facility's Benchmarking is particularly adaptable to the overall performance. Together all the factors that must complex, high-stakes world of foreign direct investment be considered, and how much each will influence the (FDI). Through its collection of timely, "on-the-ground" overall decision, reflect the corporation's individual information, benchmarking reduces a variety of risk strategy, leadership and operating requirements for its factors for investors, which in turn, helps to foster industry and customers. For instance, a business that increased FDI flow. In particular, the information that is relies on its interface with customers on another con- compiled and quantified during a benchmarking study tinent will value an ample pool of trained local often relates to five categories of issues that are managers, reliable electricity for phone and computer important to investors: 1) the country's business systems, good language skills among employees, and climate and government policy, 2) specific industry safe commuter transportation for night shift workers. factors, 3) investment promotion services, 4) infra- To systematically sort through these priorities structure, such as land and building space, power and across a universe of potential and existing sites, corpo- telecommunications, and 5) labor. rations often turn to a form of competitive analysis For investment promotion intermediaries (IPIs), called benchmarking. Benchmarking is an evaluation of whose role is to attract and retain foreign direct criteria that compares and contrasts performance investment, benchmarking provides a sharp view of the among a group of competitors, and in doing so, environment through the lens of potential investors. It develops measurements that result in a standard for is at once a methodology, a database and a tool for Study and Analysis Overview 1 SNAPSHOT ASIA Benchmarking captures a "snapshot" in time of competitive costs and conditions that impact foreign direct investment. "product" differentiation. As a methodology, bench- decision to locate a site, and on the resulting range of marking structures the in-depth research and analysis highly segmented, viable IPI strategies for increasing of costs and conditions relative to competitive FDI. Every company has its own formula for weighing locations for a particular industry sector. The results myriad considerations that influence the process; each create a database of comparable information on key location has its own set of opportunities to position for factors corporations consider when choosing a site, or various niches of investors. Investment promotion expanding within a region. Equipped with these intermediaries, policymakers, and investors should find findings, governments of countries, regions and this report useful because it helps to demonstrate both provinces more thoroughly understand their relative the complexity of the investment environment, and the strengths and weaknesses as locations for FDI. In turn, depth and sophistication of the site selection process IPI managers are able to develop strategies that differ- among investing corporations. entiate their locations among competitors, and position them more effectively for investment in targeted, well-defined industry sectors. Background Benchmarking also helps IPIs to strengthen rela- tionships with existing investors. Its use is an In early 2003, MIGA launched a study to determine and important step in developing effective "aftercare" ini- compare operating costs and conditions in six Asian tiatives, which focus on the imperative of retaining countries for two industries that are regionally strong in investors likely to expand their operations over time. foreign direct investment. The two industries ­ elec- Aftercare is an increasingly critical component of IPI tronics manufacturing and shared services ­ were strategic planning, given recent corporate downsizing analyzed in China, Indonesia, Malaysia, the Philippines, and trends in disinvestment, and the reality that with Thailand and Vietnam. The shared services industry fierce global competition for investment, FDI growth is incorporates regional headquarters (RHQs), call often more likely to come through expansion from centers and shared support functions such as existing investors than from new ones. accounting, procurement, human resources, and This report summarizes a recent benchmarking administration. study conducted by the Multilateral Investment At the time of the study, Asia's investment climate Guarantee Agency (MIGA) that analyzed the was very much defined in the context of recovery from investment climate for two sectors in six Asian the devastating financial crisis of the late 1990s, the countries. The study was designed to provide an impact of the global economic downturn of the recent overview of the competitive environment, but more past, and the events following September 11, 2001. importantly, to address the unique needs of each par- Although markets and currencies have stabilized, ticipating country in its aim to attract investment. The investors remain tentative. In addition, FDI on a global implications of the findings were discussed inde- basis is declining, and the Asian countries face pendently with the participating IPIs in the context of increasing competition both in their region and each individual country setting. Similarly, the findings worldwide. are presented here in a format that focuses on each The study was designed to set a baseline, or country's unique situation. benchmark, across a range of factors against which This approach, rather than a rank order presen- relative strengths, improvements in the investment tation of countries by sector, places proper emphasis climate, and changes in sector dynamics could be on the inherently customized nature of the corporate measured. Benchmarking was a new and unique 2 Study and Analysis Overview SNAPSHOT ASIA Quality, standardized information about locations mitigates investment risk and furthers investment potential. approach for the participating countries' IPIs. Mission Although all the six countries are experienced in pro- motion activity, it has been very difficult for the IPIs to The study was based on MIGA's experience, and conduct the sort of analysis that will differentiate the mission in general, that IPIs must dramatically countries in the marketplace, and help them compete improve their skills and capacities to compete for FDI. for FDI. Specifically, they have not conducted in-depth Research must extend beyond domestic borders. research and analysis of costs and conditions relative Investment policies and incentives, created through to their competitors, which allows for positioning of intelligent and accurate data collection, must be con- country sites as "products" for investors to evaluate. figured to the realities of the global marketplace. Given that mandate, the basic task was to create a scalable mechanism that would enable IPIs to systematically collect and analyze regionally comparative infor- mation. The perspective would reach broadly within the study's six-country region, yet pay particular attention to the motivations of key foreign investors operating in each participating country. Figure 1: The Mission Lack of Information = Risk Information (even if negative) Lowers Risk Quality, Industry - specific Investment Information (that is standardized and can be benchmarked across country boundaries) Greatly Increases Increases Reduces Reduces Investment Country Poverty Risk Potential Wealth Study and Analysis Overview 3 SNAPSHOT ASIA Desktop research must be verified with live interviews to get an accurate reading of investors' actual costs and conditions. The underlying theme of the project was that and publication sources, Phase I determined the best quality, standardized information, even if it is negative, sources for comparative information, accessibility of mitigates investment risk and furthers investment information, and the salient factors for each sector. potential, which in turn supports economic prosperity for the host countries. (See Figure 1: The Mission.) Phase II. The teams performed due diligence, con- ducting detailed interviews with 64 companies in either electronics or shared services at 69 operating units Objectives located in the six countries. (See box on next page: Profile of Phase II Company Interview Sample.) This study, the pilot for a broader competitive bench- marking program, was intended to equip the IPIs with both real-time, comparative information, and capacity- Figure 2: Methodology Phases building knowledge that would help change the ways they operate within their competitive environment. The primary objective was to provide each IPI with a com- Desktop Level Research ­ Phase I petitive "snapshot" of costs and conditions associated Determine Costs with the electronics and shared services industries, Determine Conditions which could then be incorporated into FDI strategy and Identify Sources marketing efforts. The secondary objective was to Compile Data develop a viable methodology that would serve as a Enter Data into Model template for future studies. Both objectives were to deliver an analytic tool that helps pinpoint opportu- nities, and generates maximum returns on resources and efforts for investing companies and IPIs alike. Fieldwork Interviews ­ Phase II Methodology Interviews with Foreign Investors Fine-tune Costs and Conditions The project methodology mirrored the type of analysis Compile Results corporations often conduct in selecting a site location. Enter Data into Model Benchmarking was conducted in two phases: Phase I at the desktop level and Phase II at the fieldwork, or "due diligence" level. Regional consulting groups, Tractus and Brooker Policy Research, assisted MIGA in conducting the research in Asia. Interpretation of Results ­ Findings Phase I. The team performed desktop research on Normalize Data eight critical site location factors, including labor and Benchmarking Analysis real estate costs and considerations, utilities, market SWOT Analysis access, taxes, transportation/shipping infrastructure, Report Results and business and living conditions. Using web-based 4 Study and Analysis Overview SNAPSHOT ASIA Interview questions covered the same factors researched in Phase I, and interviewees were asked to Profile of Phase II Company provide answers on a scale of 1 to 5 for qualitative Interview Sample factors. Quantitative data from both phases was compiled and compared. (See Figure 2: Methodology Phases, and also Appendix 2: Methodology Sequence and Description.) r 64 total corporations; 69 distinct operating Once overall results for each country were units compiled, the countries' costs and conditions were r 54% in electronics; 46% in shared services benchmarked against each other. Through a process of ranking and weighting, which takes into account the r Over 60,000 total employees ascribed importance of each factor in the location decision, each country was given a composite score r 1,380 average number of employees in representing its relative competitiveness in each electronics operations industry among the surveyed countries. The composite r 374 average number of employees in shared country scores are the basis for the examples, shown services operations on matrices in Figure 3, which correlate costs against conditions and provide a sort of "cost-benefit" per- r 66% foreign ownership spective for each country. r 31% joint ventures r 3% domestic ownership Factor Influences. Researchers developed two sce- narios for each sector: 1) the competitive environment r 38% from United States when all factors are treated as equal influences, and r 30% from Japan assigned no weighting, and 2) the same environment r 17% from other Asia when factors are applied a weighting that recognizes r 9% from Europe varying degrees of factor importance in the location r 6% from Caribbean or other decision. The second scenario, which can be adapted to reflect an individual company's preferences, helps show how much the competitive environment is impacted by assuming some factors are more critical to investors' decisions than others. However, it is not Phase I data. This was largely a function of the generic intended to represent an absolute competitive perspective, wage and benefit sources available at the desktop level since factor influence is a highly subjective determination that do not specify the norms within a particular based on individual company goals and objectives. industry. (See Figure 4, Differences in Reported Average Annual Labor Costs.) Desktop Research and Fieldwork Variances. In addition Other discrepancies appear in labor conditions, to country and sector findings, the study yielded results real estate costs, and transportation/shipping infra- significant to its empirical model. Differences in results structure. In the case of utilities, telecom costs in every between Phase I desktop research and Phase II country were determined to be higher in Phase II fieldwork research reinforced the logic and necessity of research than in that of Phase I. Researchers concluded "interrogating" Phase I data with Phase II live that Phase II fieldwork is essential to the process; interviews. Because much of the Phase I data was Phase I analysis alone, although cost-efficient in its macro, and not specific to industry, and because Field "desktop" logistics, may deliver misleading results that II data was micro, at the individual company level, do not always accurately depict the competitive variations between the two phases were expected and dynamics for all factors. did materialize. The ramifications for countries are significant, For several factors, including some considered given that an estimated three-quarters of investing critical, discrepancies emerged between published data companies rely on desktop research to narrow their and information obtained directly from investors. The choices to a short list, or "first cut" of prospective most dramatic example is in labor costs. The study locations that warrant visits and more in-depth determined labor costs in particular, are actually much fieldwork. The irony lies in that most desktop resources lower in many cases ­ to the advantage of the IPIs in are based on information supplied by the countries. By their promotion efforts ­ than was revealed through providing information that does not always accurately Study and Analysis Overview 5 SNAPSHOT ASIA represent their competitive advantages at the onset, interviews with existing investors to help substantiate the countries may set in motion a self-perpetuating, the information released to commonly used resources negative cycle that can limit their chances as first-cut for desktop research. (See Appendix 7: Comparisons candidates, and their overall ability to compete for FDI. between Phase I and Phase II Findings.) The obvious remedy is for the IPIs to conduct Figure 3: Operating Costs and Conditions Matrices Electronics--Unweighted Electronics--Weighted More More Desirable Desirable Malaysia Malaysia China China Philippines Philippines Thailand Thailand onditionsC Vietnam onditionsC Vietnam Indonesia Indonesia Operating Operating Less Less Desirable Desirable Higher Lower Higher Lower Cost Operating Costs Cost Cost Operating Costs Cost The competitive landscape skews based on the relative importance assigned to the costs and conditions influencing the site selection process. In the left-hand matrices, all factors are assigned equal importance by using unweighted scores, a useful basis for comparison, but not a realistic scenario from an individual investor perspective. The right-hand matrices reflect one of many possible weighted scenarios, taking into account that some factors may be more critical than others. Shared Services--Unweighted Shared Services--Weighted More More Desirable Desirable Thailand Malaysia Philippines China Malaysia Thailand China Vietnam Indonesia Philippines onditionsC onditionsC Vietnam Indonesia Operating Operating Less Less Desirable Desirable Higher Lower Higher Lower Cost Operating Costs Cost Cost Operating Costs Cost 6 Study and Analysis Overview SNAPSHOT ASIA Industry Context Electronics Manufacturing. The electronics manufac- r Increasing consumer demand in the region's turing industry is thriving and diverse in the six domestic markets for electronics ­ from basic surveyed countries, and FDI is predominantly driven by kitchen appliances to personal computers and a focus on exports. In fact, electronics can represent up high-speed Internet applications ­ is an important to a third of production for export. In the Philippines, factor in the development of technology and electronics account for 33% of total exports, and in supplier networks. Malaysia, 30%. In several economies, the industry is r Production is primarily based in major metro both a major contributor to GDP (Gross Domestic areas, and in clusters, with new, major high-tech Product), and a key driver behind planned growth. corridors developing in countries such as Malaysia. Several trends emerge in market demand, technology r Industry consolidation of Asia-based factories may development, and production: direct FDI to lower-cost production sites in the r Products range from lower tech assembly to high- surveyed countries. tech and high-value added operations, including research and development (R&D). Shared Services. The shared services industry in the six r Limited supplier bases and supporting infra- surveyed countries is less developed than electronics, structure often require the import of materials and and by definition amorphous, incorporating a range of components, and signal opportunities for niche operations in three sectors ­ RHQs, call centers, and segmentation in FDI. shared support. The shared support center typically Figure 4: Differences in Reported Average Annual Labor Costs Obtained through Desktop and Fieldwork Research (For an average size electronics operation, in US$ M) China 6.2 1.8 Indonesia 1.6 1.9 Desktop Malaysia 6.9 4.5 Fieldwork Philippines 6.6 3.8 Thailand 4.8 3.0 Vietnam 2.4 2.0 Average 4.8 2.8 The average difference in annual labor costs for an electronics operation was more than 30% lower when the cost data was obtained through Phase II interviews, rather than through Phase I non-industry specific, published sources. This table portrays annual labor costs in each subject country for an electronics operation of 1,380 employees, the average size of those interviewed in the electronics industry. Study and Analysis Overview 7 SNAPSHOT ASIA The country findings reveal a complex competitive landscape ripe for differentiation and market segmentation. provides various back-office functions, as either an r Australia and Singapore are the main competitors expansion of company operations, or as a third-party for RHQs. provider. The shared service industry's growth and r Call centers for serving the domestic markets are diversification in a given market are significantly present in most of the participating countries. determined by proficiency in the English language, and r The surveyed countries may benefit as FDI to a lesser degree, other regional languages. This is relocates from high-cost to lower-cost locations. especially true for the international call center segment. The industry is growing rapidly as countries acquire expertise in one or more of the sectors, and no one Findings country appears to have a stronghold in the entire shared services category to date. The Phase II interview results were analyzed in order to FDI in shared services is in its early stages in at present an interpretation of the findings that highlights least one of the three sectors ­ RHQs, call centers, or strengths, weaknesses, opportunities and threats per- shared support ­ per country. It is affected by cor- taining to each country's efforts to attract and retain porate outsourcing and global operating plans, and by FDI. Site selectors use this technique, called a SWOT the opportunistic quality inherent in the business. The analysis, to help evaluate potential locations. In this industry varies widely among surveyed countries, but study, SWOT helps articulate the results at a level that can be generally characterized, as follows: can be acted upon in each IPI's individual situation and plans. r The shared services industry tends to employ The country findings reveal a complex competitive college-educated, white-collar workers with good landscape ripe for differentiation and market segmen- English and office skills. tation. No one country emerged as the clear leader r While several countries are considered favorable across all factors and both industry sectors. Similarly, environments for FDI in shared services, promo- no country is too inexperienced, or too late, to compete tional efforts are not yet widespread, with the in either field. The study suggests however, given the exception of a few incentive programs that are cur- competitive environment, that certain opportunistic rently offered or in development. niches may offer the most viable entry strategies at this r Shared support centers provide administration and point in time. accounting, customer support, procurement, and Each country's situation is summarized below in human resources functions. two parts, beginning with an introductory background r These centers often locate close to the main that briefly outlines the FDI history and climate when facilities to provide back-office functions, and in the study was conducted. (See also box on facing page: China, centralized support for multiple domestic Surveyed Countries at a Glance.) Following these intro- operations. ductions are highlights of each country's SWOT inter- r The international call center segment is unde- pretations. (See Section II, Country and Sector Findings veloped due to lack of proficiency in languages, for more detailed SWOT analysis by country.) except in the Philippines, and to a lesser extent, Malaysia. r India and Australia are the main competitors outside the surveyed region for international call centers, as is Singapore for regional call centers. 8 Study and Analysis Overview SNAPSHOT ASIA China construction. Challenges include: onerous labor regu- lations that burden employers with heavy costs, and China is a country of huge proportions, ranking fourth perceived differences in business culture that may worldwide in physical size, largest in its population of make management more difficult. Quality standards, 1.3 billion, and seventh as a world economy. The World intellectual property protection and government trans- Bank estimates that by 2025 China will account for a parency also need improvement. quarter of the total global economy. China attracts over China is so large that RHQs and coordinated $40 billion in FDI annually, by far the vast majority of domestic support functions or call centers are often total FDI into Asia. Following more than two decades of necessary for multinationals to manage their China- near double-digit growth, China's total value of goods based operations, an opportunity for increased FDI in and services is growing about 7 percent a year, driven shared services. New Shanghai RHQ incentives have by increased domestic demand and its accession to the been introduced to attract such investment. China is World Trade Organization (WTO). considered very competitive in telecommunications China was able to weather the Asian financial costs for the shared services industry. However, growth crisis relatively unscathed, and has limited its external in shared services may be hindered by 1) the relatively vulnerabilities by maintaining a high level of reserves less prevalent English language skills, 2) high service and achieving favorable debt indicators. Lessons sector salaries, 3) high office leasing rates, and 4) learned from the turbulent late 1990s have helped statutory impediments. focus China's efforts on accelerating reforms of the state enterprise and corporate sectors. While it is too early to evaluate how successful China's entry into the Indonesia WTO has been, especially given the WTO conditions related to intellectual property protection and structural reform, the FDI environment is perceived as Indonesia, the world's largest archipelago, has a large, generally positive. ethnically diverse population that supports a rather robust domestic market and holds significant potential Study Findings. A formidable competitor in the sheer for consumer goods. Its well-developed petroleum size of its domestic market and diverse labor pool, and industry helps fuel the GDP, which the World Bank in expected economic growth, the study concluded estimates will grow at a rate of 3.3 percent in 2003. China's superior package for electronics FDI includes Considered one of East Asia's best performing the best-developed supply base among the countries economies prior to the Asian financial crisis, Indonesia surveyed, low-cost labor, and low-cost real estate and grew at a rate of over 7 percent between 1985 and 1996. Surveyed Countries at a Glance Population Surface Area GDP 2001 FDI (M) ('000 km2) (US$ B) Net Inflows (US$ B) China 1300.0 9598 1200.0 44.2 Indonesia 213.6 1905 145.3 3.3 Malaysia 23.8 330 87.5 .6 * Philippines 78.3 300 71.4 1.8 Thailand 61.2 513 114.8 3.8 Vietnam 79.5 331 32.9 1.3 * Note: Malaysia's 2000 FDI net inflows were $3.8 billion. Source: World Development Indicators Database Study and Analysis Overview 9 SNAPSHOT ASIA Since 1997 Indonesia has been experiencing disin- modern sectors, notably electronics manufacturing. vestment, although in early 2003 there are signs among Malaysia was the most affected among the six surveyed foreign investors that some expansion of existing countries by the recent global downturn in the elec- facilities is taking place. While Indonesia has suc- tronics industry. cessfully initiated many changes in its structural and Although FDI into Malaysia declined in the late political reforms, it continues to grapple with chal- 1990s, the country has retained its stature as a strong lenges that impact political and social stability, and in competitor for FDI, particularly from investors based in turn, direct investment, including: 1) alleviating wide- the U.S. and Europe. It appears Malaysia is coping with spread poverty, 2) implementing reforms of the increasing competitive pressure from China, and is banking sector and judicial system, 3) further benefiting from global FDI diverted as a result of addressing corruption and human rights, and 4) outsourcing and relocation. Malaysia is currently resolving increasing internal separatist pressures. focusing on new strategies, incentives and measures to encourage FDI and help develop more diversified Study Findings. Indonesia is strong in lower-tech elec- sources of economic growth that reflect its tran- tronics, and very competitive in wages for unskilled and sition from an investment-led to an innovation-led skilled electronics workers, and in other labor and growth model. building costs. Numerous electronic multinational cor- porations (MNCs) supply its large and underdeveloped Study Findings. High-value added technology helps domestic market, which is considered an opportunity power Malaysia's world-class electronics industry ­ for FDI in consumer electronics. Likewise, there is a which accounts for 18% of the country's manufacturing large, untapped, domestic base of customers and output ­ and incorporates a base of manufacturers future prospects for better services, although lack of across the supply chain. The Multimedia Super English, relatively less-educated workers, and basic Corridor project aims to transform the economy infrastructure issues are impediments to FDI. through technology transfer, an improved base of In electronics, the poorly developed supporting "knowledge workers," clusters and incentives. In industries for raw materials and intermediate com- shared services, opportunity for FDI exists in the low- ponents, a shortage of local technicians and managers, cost call center business, which is growing in Malaysia and the lack of standards and certification are seen as at a rate of 100-200% a year, bolstered by the country's weaknesses. The limited high-bandwidth telecommuni- multilingualism and the large domestic market for out- cations infrastructure and associated high costs are sourced call center services. considered impediments to FDI in shared services. Malaysia's utilities and infrastructure are con- Given the current economic and political environment, sidered well developed and reliable, and there is ample Indonesia is at risk of losing FDI in electronics to land and facilities for manufacturing operations. The China, and of not keeping up with the RHQ incentives quality of life for foreign management and workers in of other surveyed countries. Opportunity exists as Malaysia is considered good. The English-speaking, investors 1) consolidate Asian-based electronics fac- skilled labor pool is also an advantage, although labor tories into lower-cost production sites, and 2) relocate costs are the highest among countries surveyed for RHQs from higher-cost locations, such as Singapore both industries, except at the management level in and Australia. shared services. There is such a shortage of unskilled labor that it must be imported, a cumbersome process. In addition, the government restricts the total number of foreign laborers in the country at any one time by Malaysia country of origin. Malaysia, considered strong in its economic funda- mentals, continues a gradual, broad-based recovery The Philippines with intraregional trade and the accession of China into WTO aiding its economic and exports growth. The country is rich in oil and natural gas reserves, and has The Philippines, a mineral-rich archipelago of over successfully leveraged these resources to develop infra- 7,000 islands, has well-developed agriculture and man- structure in both its urban and rural areas. The diver- ufacturing industries across a range of product sectors sified economy is strong in both traditional sectors ­ ­ food processing, textiles, furniture, aquaculture, petroleum, palm oil, and other commodities ­ and in home appliances, and high technology, including the 10 Study and Analysis Overview SNAPSHOT ASIA fast-growing microcircuits sector. In the first half of oriented manufacturing, primarily from Japanese- 2002, the economy grew in each major production owned corporations. In the early 1990s, the focus category, strengthened by increases in manufacturing broadened to emphasize growth outside Bangkok into and exports. Recent growth in exports has been driven rural Thailand. by market growth in other East Asian developing Thailand quickly emerged from the Asian financial countries, whereas demand in the U.S. and Japan, the crisis ­ a demonstration of the economy's resilience ­ Philippines' largest trading partners, has been more although economic growth has not returned to pre- restrained. crisis levels. Issues related to financial and legal reform, Although the Philippines did not experience a to poverty, and to governance and the implementation systemic financial crisis in 1997-98, financial volatility of the new Thai Constitution remain challenges to and a weak economy have presented continuing chal- further growth and economic development. The gov- lenges, and poverty appears to have increased after ernment embraces a transition toward a knowledge- falling sharply in the mid-1990s. Addressing fiscal based economy, and linkages between domestic and policy and weakness in the banking sector, and imple- foreign firms to maximize technology transfer and menting power sector reforms are central to the FDI development. Strategically situated in the heart of outlook. The recent modest trade recovery, particularly Southeast Asia, Thailand is favorably located for RHQs in electronics exports, may be threatened by current serving India, China, ASEAN and the Greater Mekong global market factors. Sub-Region, and has become a gateway for investors to access nearby Cambodia, Lao PDR and Myanmar. Study Findings. The Philippines' highly educated, English-speaking workforce is considered one of the Study Findings. The study concluded that Thailand is most technically proficient in Asia, and highly qualified competitive in labor costs, availability and productivity, in office and managerial skills. It helps drive the and in its transportation and logistics infrastructure. Philippines' well-developed semiconductor industry, Costs for electricity, high-bandwidth telecommuni- and presents opportunity for FDI in shared services cations and office/facilities leases are the lowest and high value-added technology niches. The third- among the six countries surveyed. Thailand's high party call center business is growing, boosted by quality of life factors, the welcoming business culture, domestic demand, although lack of facility in lan- and political and social stability are seen as competitive guages other than English is seen as a comparative advantages. weakness for the industry as a whole. The Philippines A shortage of engineers to fuel electronics industry is viewed as a more cost-effective alternative to growth and a poorly developed supply base are con- Singapore or Australia for shared services. sidered limiting factors for FDI. In shared services, rel- Proximity to the Subic/Clark industrial corridor ­ a atively less proficiency in advanced English, other major air express, cargo and logistics hub ­ presents foreign languages and professional office trades, and a an opportunity for electronics manufacturing oper- restriction on FDI in the services sector to minority ations in need of transportation access. Current efforts shareholding are seen as challenges to investment. are focusing on critical upgrades of the transportation, Opportunity for FDI exists in 1) just-in-time regional telecom and power infrastructures in the Philippines, assembly operations for electronics, 2) higher value- which are considered not yet sufficiently developed, added electronics component manufacturing for China- especially the roads. Political and social instability, and based assembly operations, and 3) shared services terrorism are perceived to be threats to FDI. operations relocating from higher-cost Singapore and Australia. Thailand Vietnam Over the past thirty years FDI has played a significant role as Thailand's economy evolved from an agrarian The platform for FDI in Vietnam has improved signifi- base to its present well-diversified structure. Following cantly since the mid-1990s, when the lifting of the US its early focus on import substitution through the trade embargo in 1994 prompted a rush of investment creation of basic industries and diversified agriculture, before the country had developed much basic infra- Thailand turned to export-oriented policies that structure and a meaningful legal system for business. emphasized FDI in support of labor-intensive, export- The effects of the Asian financial crisis have largely Study and Analysis Overview 11 SNAPSHOT ASIA Benchmarking offers a way to compare countries in different regions, and to measure progress in developing a competitive business environment over time. subsided, giving way to strong potential for long-term development sector, but the industry's opportunity as a growth and favorable investor reaction to government whole is not yet fully understood by the government. commitments to reform. In fact, as Vietnam continues Although there is a large, middle-class consumer a transition toward a market economy, it is poised for a market for electronics, risk exists in potential ASEAN new phase of high economic growth ­ possibly 7 Free Trade Agreement (AFTA) and WTO policies that percent per year ­ sustained by expanding domestic threaten the viability of the entire industry in Vietnam. consumption, investment and export growth. The Vietnam-US bilateral trade agreement, effective in 2001, is expected to help boost exports. The inflow of foreign capital, which marks the Implications implementation of investment projects, is seen as stable, or on a modest upward trend, indicating an Methodology and Future Study Design. The study has increasingly viable environment for FDI. Vietnam's bur- implications in its methodology for future studies, and geoning consumer market, coupled with both as a practical, analytical framework to 1) understand improved infrastructure in Hanoi and Ho Chi Minh the limitations in the investment environment, and 2) City, and a strategic location for supplying China, are identify ways and means to address or rectify them. helping to make Vietnam a more interesting propo- The methodology utilizes a construct that sition to investors. Industrial parks are becoming more compiles, clarifies and analyzes a magnitude of in- widely dispersed, although the rural areas remain rela- depth information on location costs and conditions tively underdeveloped in terms of infrastructure, and in relative to a country's competitors. For this study's par- many areas, impoverished. Vietnam faces challenges in ticipating countries in particular, the approach allows 1) addressing the third of its population living in for a full sweep of intelligent and accurate data col- poverty, and 2) ensuring that changes in its legal lection, both beyond their borders, and within each and administrative framework keep pace with country among key investors. The results provide a economic growth. solid basis of information for attracting and retaining investment, through: Study Findings. Vietnam's relatively well-educated workforce and ample supply of low-cost unskilled labor r Benchmarking results, SWOT interpretations and have helped attract a base of major Japanese and study recommendations Korean electronics manufacturers. An overall shortage r Improved, more complete information that fills of management-level employees, an underdeveloped gaps and upgrades quality transport, telecommunications and power infra- r Enhanced understanding of in-country investors, structure, and an inadequate base of supporting their goals and objectives industries for electronics are considered relative weak- r A standardized platform that builds confidence nesses. Also, shipping costs are among the highest of among potential investors in IPI positioning those in the participating countries, and office lease r A foundation for further studies, and more in- costs are second highest after those of China. Service depth analysis on targeted areas sector wages for skilled, technical and management r The application of comparative information to employees are the lowest of those surveyed. business strategy and policy Opportunity for FDI in shared services exists in a small, but rapidly expanding high-growth software The benchmarking methodology also offers a way to 12 Study and Analysis Overview SNAPSHOT ASIA The study enables fine-tuned, targeted IPI marketing programs that position strategic advantages from the investor's perspective. measure progress in developing a competitive business marketing campaigns that sell strategic advantages from environment over time, in Asia or other regions. The the investor's perspective. (See box, Study Implemen- results from a six-country level can be considered tation: A Typical IPI Action Plan.) together to glean a "snapshot" of the surveyed The next steps also involve building capacity countries as a whole. In addition, this study can be among the six Asian IPIs to conduct their own bench- repeated in Asia in two years for the same countries marking studies, and to transfer these skills to regional and industries, or expanded globally to other countries and provincial IPIs in their countries. The process in developing regions, enabling comparisons between requires: 1) choosing important sectors, 2) mobilizing countries in different regions. The cross-regional com- teams and resources, 3) performing the research and parison may hold the most value for the investment analysis, and 4) developing a comprehensive investor community; it most closely resembles the actual expe- servicing program. rience of investors in choosing sites, and of IPIs in The final step lays the groundwork for expansion competing for FDI in today's global environment. investment ­ which accounts for 42% of total global FDI ­ through the development of a comprehensive Investment Promotion. The study's results and recom- investor satisfaction "aftercare" program. The objective mendations may be used to help shape FDI policy and is to survey and identify current foreign investors' business strategy, and as a template for future IPI-ini- expectations and perceptions of the level of services tiated studies. (See also box on next page, Common provided by both the IPIs and their host governments. Themes: Improving the FDI Climate.) In particular, the This process helps leverage the existing large base of study enables fine-tuned, segmented promotion for investors, in order to effectively retain and expand their FDI in electronics and shared services, and targeted levels of FDI. Study Implementation: A Typical IPI Action Plan r Develop proactive business strategies based on the competitive environment. r Identify ways to address limitations in the FDI marketplace. r Advocate for policy and government reforms to improve the country's competitive position. r Differentiate and position locations against regional competitors. r Identify and develop new niches in electronics and shared services. r Create more precise marketing programs and materials. r Formulate a more meaningful "aftercare" program. r Develop further studies using benchmarking and SWOT analysis. Study and Analysis Overview 13 SNAPSHOT ASIA Benchmarking studies benefit the FDI community by helping to channel investment to the advantage of investors and countries alike. Conclusion When MIGA conceived of this project its mandate was and keep FDI. In the end, the micro-level data col- clear: how should the Asian IPIs view their markets to lection and attention to subtleties ­ which allow for best compete for FDI? In many ways it is a familiar macro comparisons ­ bring clarity to a complex sit- refrain about customers and prospects, and always uation, and competitive realities to light. about finding the right market niche. Yet this study is a Costs and conditions will always vary widely by reminder that only through competitive analysis, and in industry, and even more so depending on the goals and turn, clearly articulated differentiation does that "fit" objectives of individual companies. The experience in become apparent. Asia is unique to six countries at this point in time, yet While the study documents real-time information, provides a window into FDI in a global context, and its overall perspective is forward thinking. It reaches greater perspective for developing FDI in an out and ahead to reveal potential niches and opportu- increasingly competitive environment. Benchmarking nities, and seeks to find the best fit for companies and FDI Competitiveness in Asia, and future studies that sectors within the dynamic FDI climate. In this regard broaden the range of standardized, competitive infor- the methodology is ultimately pragmatic. It focuses on mation available to investors and the general public, factors that influence actual investing companies, real benefit the FDI community as a whole by helping to investor perceptions and objectives, and information channel investment to the advantage of investors and flows that support and sustain reform efforts to attract countries alike. common themes: improving the FDI climate The SWOT analysis allowed researchers to develop Criminal Activity More vigorously prosecute smuggling strategic, country-specific recommendations, which are of and government corruption; protect intellectual property a confidential nature and will not be released beyond the rights. participating IPIs. However, several broad themes apply across the countries surveyed that help to illustrate areas Deregulation Deregulate the telecommunications and where improvement will enhance the attraction of FDI in utilities industries to help drive down costs for investors in electronics and shared services. both electronics and shared services. Trade Policy Adopt WTO service industry agreements. Legal Reform Modernize the legal system, including labor laws; establish appropriate forums for settling Education Develop curricula and training specific to labor/management disputes. information technology (IT), and also focus on the advanced office skills required for the shared services Statutory Requirements Eliminate statutory industry. restrictions on how foreign companies can set up and operate. Government Procedures Improve government trans- parency, and cooperation between government agencies Marketing Develop proactive marketing strategies that responsible for investment promotion, business licenses, target specific niches and prospects, position against and import/export matters. strong competitors, and focus on expansion investment. 14 Study and Analysis Overview SNAPSHOT ASIA Country and Sector Findings The Phase II interview results were analyzed in order to present an interpretation of the findings that highlights strengths, weaknesses, opportunities and threats per- taining to each country's efforts to attract and retain FDI. This SWOT analysis is presented by country in this section, following Figure 5: Comparative Costs by Factor. (See also, Appendix 6: Detailed Findings ­ Phase II.) Country and Sector Findings 15 SNAPSHOT ASIA Figure 5: Comparative Costs by Factor ­ Labor (Electronics) Costs ­ Unskilled (US$/mo.) The charts on this page compare Phase II labor costs and benefits by country, for the China 82 Indonesia 77 Electronics industry. Malaysia 152 Philippines 126 Thailand 118 Vietnam 84 500 1000 1500 Costs ­ Skilled (US$/mo.) China 130 Indonesia 116 Malaysia 321 Philippines 295 Thailand 162 Vietnam 135 500 1000 1500 Costs ­ Technical (US$/mo.) China 200 Indonesia 277 Malaysia 612 Philippines 312 Thailand 315 Vietnam 206 500 1000 1500 Costs ­ Management (US$/mo.) China 300 Indonesia 540 Malaysia 1122 Philippines 901 Thailand 889 Vietnam 393 500 1000 1500 Benefits ­ (% of Salary) China 28 Indonesia 20 Malaysia 20 Philippines 30 Thailand 20 Vietnam 20 20 40 60 80 100 16 Country and Sector Findings SNAPSHOT ASIA Figure 5: Comparative Costs by Factor ­ Labor (Shared Services) (Continued) Costs ­ Unskilled (US$/mo.) The charts on this page compare Phase II China 242 labor costs and benefits by country, for the Indonesia 84 Shared Services industry. Malaysia 355 Philippines 226 Thailand 104 Vietnam 100 500 1000 1500 Costs ­ Skilled (US$/mo.) China 726 Indonesia 238 Malaysia 846 Philippines 496 Thailand 208 Vietnam 166 500 1000 1500 Costs ­ Technical (US$/mo.) China 605 Indonesia 378 Malaysia 1234 Philippines 527 Thailand 695 Vietnam 251 500 1000 1500 Costs ­ Management (US$/mo.) China 1250 Indonesia 1007 Malaysia 1027 Philippines 1527 Thailand 1391 Vietnam 488 500 1000 1500 Benefits ­ (% of Salary) China 20 Indonesia N/A Malaysia 15 Philippines 27 Thailand 20 Vietnam 20 20 40 60 80 Country and Sector Findings 17 SNAPSHOT ASIA Figure 5: Comparative Costs by Factor ­ Utility Costs (Continued) Electrical Power (US$/KwH) The charts on this page compare Phase II utility costs by country that apply to both the China 0.08 Indonesia 0.07 Electronics and Shared Services industries. Malaysia 0.07 Philippines 0.10 Thailand 0.06 Vietnam 0.07 Water (US$/m3) China 0.21 Indonesia 0.59 Malaysia 0.51 Philippines 0.21 Thailand 0.31 Vietnam 0.25 Sewer (US$/m3) China 0.18 Indonesia 0.80 Malaysia 0.66 Philippines 0.19 Thailand 0.17 Vietnam N/A Telecom (US$/minute to US) China 0.25 Indonesia 1.00 Malaysia 0.24 Philippines 0.30 Thailand 0.56 Vietnam 1.30 Internet ­ (US$/mo. T1 line equivalent) China 5,452 Indonesia 4,863 Malaysia 4,388 Philippines 5,452 Thailand 4,283 Vietnam 7,497 18 Country and Sector Findings SNAPSHOT ASIA Figure 5: Comparative Costs by Factor ­ Real Estate Costs and Tax Rates (Continued) Land Acquisition Costs (US$/m2) The charts on this page compare Phase II costs by country for real estate and taxes that China 35 Indonesia 66 apply to both the Electronics and Shared Malaysia 60 Services industries. Philippines 61 Thailand 52 Vietnam N/A Building Construction Costs (US$/m2) China 97 Indonesia 221 Malaysia 282 Philippines 1022 Thailand 329 Vietnam N/A Facilities Lease (US$/m2- gross/mo.) China N/A Indonesia 7 Malaysia N/A Philippines 5 Thailand 2 Vietnam 3 Office Lease (US$/m2- gross/mo.) China 25 Indonesia 11 Malaysia 12 Philippines 7 Thailand 5 Vietnam 12 Corporate Income Tax Rate (%) China 30 Indonesia 30 Malaysia 28 Philippines 32 Thailand 30 Vietnam 25 Country and Sector Findings 19 SNAPSHOT ASIA CHINA Electronics Manufacturing Industry Strengths The study concluded that China is a regional powerhouse in the size, strength and anticipated rapid growth of its domestic economy following WTO membership, and in the higher disposable incomes and increasing purchasing power of Chinese consumers. It has the best-developed electronics supply base among the countries surveyed to support its strong base of large, preeminent, global electronics manufacturers. The overall costs of labor in China rank among the lowest of participating countries, the workforce is considered the most productive, and there is a nearly inexhaustible supply of unskilled workers, as well as new college and technical school graduates. The costs for buying land and building facilities are also the lowest of those surveyed. Weaknesses A few labor and management issues were identified as weaknesses. The study determined that employees may lack recognition of quality issues, requiring constant supervision and high levels of quality assurance. Labor regulations, which vary widely by location, can be onerous, burdening employers with heavy costs in the form of taxes, social welfare, severance pay and maternity leave. Perceived differences in business culture ­ in mindset, loyalty to company, and management philosophies ­ tend to make management more difficult. The study identified three additional areas for improvement. Universal quality standards and industrial certifi- cations are lacking, which results in inconsistent quality in the local supply base. Poor protection of intellectual property has lead to theft in some instances, and there is a general lack of government transparency. Opportunities Numerous opportunities were identified for FDI, including the potential for a low-cost research and development center for future China and Asia regional product development. In addition, three domestic market trends are expected to bolster foreign brands and services: 1) a lack of high-end products being produced by domestic original equipment manufac- turers (OEMs); 2) consumers' increasing focus on technology, brands, and higher quality products; and 3) Chinese firms' limited understanding of consumer requirements, especially the growing demand for after-sales service. Threats Major threats to foreign investment in large measure relate to global economic and competitive factors. A restructuring of the domestic economy could force the closing of under-performing local manufacturing facilities hit by increasing domestic and foreign competition. Current geopolitical instability could lead to a downturn in the global and Chinese economies. "Dumping" by state-owned enterprises may continue. 20 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r Many of the largest foreign firms contract for or manufacture/assemble at least one product line in China. r The largest foreign manufacturers in terms of FDI originate from Taiwan, Japan and the U.S. r FDI in the industry remains focused on manufacturing for export. r Chinese-owned firms ­ 22% of the market ­ rapidly are gaining market share and present a significant competitive threat in China and worldwide. r Legend Computer, the largest Chinese-owned company, is considered a world-class desktop computer manu- facturer. r Manufacturing electronics in China is seen as necessary to compete globally and to access the domestic market, and most major MNCs contract for or own one or more manufacturing operations. r Labor costs are relatively low and expected to remain competitive for at least a decade. r Quality is in many cases, world-class, and at least acceptable. r Former burdensome regulations on FDI have been largely removed, but it is still more difficult for foreign firms to invest and compete in the domestic market. r As operating costs in the major metro areas increase, companies will relocate manufacturing to lower cost, sec- ondary metro areas. r Intellectual property rights are not respected, and pirating is still rampant in the domestic market and spreading among exports. Country and Sector Findings 21 SNAPSHOT ASIA CHINA Shared Services Industry Strengths As in the electronics industry, the study concluded that in shared services China excels in its large and growing number of college graduates, who are proficient in English and motivated to learn. In addition, competitive telecommunications costs and China's stable government and society were identified as advantages for FDI in shared services. Weaknesses Most weaknesses revealed in the study relate to personnel requirements ­ language skills, salaries and management talent ­ and costs. Although English is becoming more prevalent as the second language in urban areas, China does not compete with Singapore, the Philippines, Malaysia, India and Australia in this regard. Consequently, most call centers in China serve the domestic population and rarely, the broader Asian or international markets. Salaries in the shared services industry were found to be among the highest of those surveyed, and second only to salaries in Malaysia in the costs of unskilled and skilled labor. The study concluded that China lacks local experienced management talent in this area, and that all personnel must be trained. As in the electronics industry, perceived dif- ferences in business culture ­ in mindset, loyalty to company and management philosophies ­ were identified as a burden to foreign management. In addition, office rental costs in China's major metro areas are the highest of the group. The study found statutory impediments to FDI in the shared services industry, notably the high registered capital requirements, and ownership structures requiring minority shareholding positions with Chinese partners for many services. Finally, the local legal system is still developing; the concept of the rule of law is not well understood throughout the economy. Opportunities The study suggested that China's vast physical size creates opportunity within the shared services industry. Companies are establishing RHQs, or shared support and call centers to centralize and coordinate their country-specific activities. Newly created incentives to locate RHQs in Shanghai mean more MNCs may consider China for their RHQ operations. Finally, WTO policy promises greater liberalization of most service sectors. Threats However, the study concluded that slow implementation of WTO reforms for the service sectors may cause foreign investors to view locations in China as less attractive, decreasing overall FDI potential. The other main threat revealed by the study is the perception that China lacks opportunities for RHQs, which tends to focus MNCs on locations in the Philippines, India and Malaysia. 22 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r China is such a large market that MNCs with multiple domestic operations are likely to support these with in- country shared services, such as call centers and centralized back-office functions. r Shared support services often include accounting, procurement and human resources functions. r Most shared support centers are located within a short distance of the main operations, and like call centers, rarely exist away from the main office unless the company has operations throughout China. r Third party, shared support services is a potential high-growth sector with an increasing number of foreign investors and Chinese recognizing this need for back-office operations. r Demand is growing for Chinese language call centers. r Due to a lack of proficiency in the English language, China is not usually considered a location for regional Asia/Pacific call centers and shared services, and does not compete with India, Australia and the Philippines for international call centers. r Shanghai is promoting tax incentives to attract RHQs, but concerns about government transparency and potential interference, and intellectual property rights protection have kept major MNCs in Singapore or Hong Kong. r Chinese consumers are beginning to value technical support and quality assurance, which will help move foreign companies to set up customer service and technical help centers to serve the domestic market. Country and Sector Findings 23 SNAPSHOT ASIA INDONESIA Electronics Manufacturing Industry Strengths The study found Indonesia competitive among those surveyed in several labor and cost factors in electronics manu- facturing, including the lowest salaries for skilled workers, and an ample supply of unskilled workers. Other labor costs are competitive with China and Vietnam. Indonesia also was noted for its availability of land, and its construction costs, which are lower than those of the other countries except China. Indonesia's strength in the industry is already apparent in the local presence of numerous electronics manufacturers that supply the large domestic market. Weaknesses Indonesia currently produces lower tech/added value electronics, rather than more sophisticated higher tech products. Several weaknesses cited in the study relate to the local supply of materials and tech workers, and the limited use of the latest technology among local firms, which weakens the supply base. Indonesia's poorly developed electronics sup- porting industries ­ for raw materials, intermediate and higher-tech components ­ mean manufacturers must bear the higher costs of imported materials and components. The limited supply of local technicians and managers requires intensive on-the-job training. Finally, the study noted the lack of standards and certification may negatively impact the quality and consistency of the local supply base. Opportunities The primary opportunity rests in Indonesia's large and underdeveloped domestic market for consumer electronics and slowly improving economic growth, despite political, economic, and social challenges. In addition, the study cited the trend of MNCs consolidating their Asian factories into lower-cost production sites as an opportunity for FDI in Indonesia. Threats The study concluded Indonesia is at risk from better-positioned competitors for FDI in electronics manufacturing. China is attracting firms to relocate from Indonesia due to its more productive and efficient labor pool, more sophis- ticated supporting industry supply base, and more stable political and social environment. Other participating IPIs are gradually, yet proactively targeting companies that might have considered setting up in Indonesia. In addition, cor- porate restructuring and the reorganization of plants on a global scale, a recent trend, have resulted in one major foreign electronics firm leaving Indonesia, and present a continued threat in this industry. 24 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r Indonesia has a large, underdeveloped domestic market for electronic products, especially consumer electronics. r Only 58% of households have televisions ­ an example of untapped market potential ­ leaving tremendous room for growth. r Many electronics goods, even kitchen blenders, are subject to varying rates of luxury tax, which likely hurts sales. r Indonesia's highly competitive labor costs and vast domestic market are attractive for electronics FDI. r The overall limited base of domestic suppliers/supporting industries requires that many raw materials and parts must be imported. r The industry apparently lacks suitable training or skill development centers, and government training centers are nonexistent. r Most training or skills upgrading is conducted by individual firms as opposed to collaborative efforts among firms (as seen in Penang, Malaysia.) r The manual cargo handling at Jakarta's port is less efficient and more costly than automated port facilities in other countries. Country and Sector Findings 25 SNAPSHOT ASIA INDONESIA Shared Services Industry Strengths Study findings indicate that Indonesia has the lowest unskilled worker salaries in the shared services industry among the countries surveyed. Weaknesses Shared services in Indonesia is in the early stages, and as might be expected, the study found the country has not yet developed some of the basic infrastructure and skills necessary to compete in this industry. Indonesia's lack of English and other major language proficiency relative to other countries surveyed, and the generally low education level, do not meet the requirements of many service industries. The study cited the limited availability of high bandwidth telecom- munications infrastructure, and high telecom costs due to limited competition as mitigating factors for FDI. High levels of government bureaucracy and corruption can make doing business more difficult, and labor regulations were found to be cumbersome. The study noted that Jakarta, the capital city and primary business center, lacks developed infrastructure and is seen as relatively less desirable in quality of life issues. Finally, Indonesia has a recent history of political and social instability, and acts of terrorism. Opportunities The study concluded that Indonesia has a large number of domestic customers, and a potentially large, future market of prospects for better services. In addition, Indonesia presents an opportunity for MNCs looking to relocate RHQs from higher-cost locations, such as Singapore and Australia. Threats The Philippines, India and Australia continue to dominate the Asia/Pacific region's shared services/call center business, and other countries surveyed are offering attractive incentives for RHQs. In addition, the study cited con- tinued acts of terrorism in Indonesia as a threat to attracting FDI. 26 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r Few companies locate RHQs in Indonesia, opting instead for RHQs in Australia, Malaysia or Singapore. r Some oil companies reportedly have RHQs that may be for local production on islands other than Java. r The call center concept is in its early stages, beginning about two years ago. r The few firms with a call center outsource the services to other companies, particularly telecommunications solution providers. r Although shared service operations are readily identifiable through databases, it is not yet a promoted category for FDI in Indonesia. r Indonesia is not yet competitive in attracting FDI in shared services ­ except for call centers serving domestic cus- tomers ­ due to relatively limited English language skills and its underdeveloped IT and telecommunications infra- structure. Country and Sector Findings 27 SNAPSHOT ASIA MALAYSIA Electronics Manufacturing Industry Strengths The study noted that Malaysia is viewed as a desirable manufacturing location throughout the global electronics industry. An existing base of world-class manufacturers across the supply chain ­ second only to China ­ spans a wide range of electronics sectors, from assembly and testing equipment to semiconductors, printed circuit board assembly, electronics subcomponents and final assembly. The study concluded that Malaysia has available, reliable utilities and infrastructure, and sufficient land and facilities for electronics manufacturing. Shipping costs from Malaysia to most major markets were determined to be competitive, and are lowest among the countries surveyed for shipping to Japan. Weaknesses Most weaknesses identified by the study involve labor costs and limitations. Malaysia's labor costs are the highest among the countries surveyed, and a shortage of unskilled local workers requires the importation of foreign labor. Government restrictions limit the total number of foreign laborers at any one time by country of origin, and cum- bersome regulations require companies to provide lengthy justifications of their needs in order to import labor. The study also determined that complex licensing regulations for raw materials create bottlenecks in quickly clearing goods. Finally, foreign investors view Malaysia's bureaucracy as not sufficiently responsive to their needs. Opportunities The study found opportunity for targeting incremental expansion FDI among Malaysia's large base of existing elec- tronics manufacturers. The decision to expand is often easier for investors to make than a "greenfield," or new location investment. There is also opportunity for Malaysia to move up the manufacturing value chain into R&D, especially given the availability of English-speaking, skilled workers. Threats The continued liberalization of the Chinese economy, which increases its attractiveness for FDI, is seen as a threat to Malaysia. The study cited rumors of a planned relocation from Malaysia to China of a company not interviewed for this project. The other primary threat identified in the study is the Malaysian government's inability to quickly react to a dynamic competitive landscape with the necessary statutory changes to counteract comparative weaknesses as a location for FDI. 28 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r Electronics manufacturing is the main engine that powers Malaysia's economy, accounting for over 6% of GDP, 18% of manufacturing output, and 30% of exports. r Electronics is the main contributor to manufactured exports, employment, paid-up capital and total fixed assets. r The industry is diverse ­ from electronics assembly and testing equipment to wafer fabrication, semiconductor manufacturing, assembly and testing, electronic components and final assembly of finished products. r The industry in Malaysia is oriented to exports, due to the relatively small size of the domestic market. r Malaysia's Multimedia Super Corridor initiative ­ launched in 1998 ­ aims to transform Malaysia from its rural economy into a high-tech, industrialized nation through technology transfer and an improved base of "knowledge workers." r Expansion of R&D facilities reflects advancement in the technical skills of the local labor force. r Malaysia has expanded into high value-added activities, including product enhancement, sales, and distribution. r Malaysia focuses on the expansion of high technology and capital intensive projects. r Malaysia is encouraging the development of electronics "clusters" with targeted incentives aimed at the semicon- ductor, digital electronics, professional equipment/instruments, and industrial equipment sectors. r Extensive supplier networks are key in attracting electronics manufacturers to Malaysia. Country and Sector Findings 29 SNAPSHOT ASIA MALAYSIA Shared Services Industry Strengths The study reported a wide range of strengths for Malaysia in shared services, especially for call centers serving domestic, regional and international customers. Foremost for call centers is the diversity of languages among Malaysia's residents, who speak English, Malay, Mandarin, Cantonese, Tamil and Hindi. Call centers can also affordably import agents from other countries to service regional and international customers. The study found Malaysia's domestic call center market is large because outsourcing call center services to third-party providers is prevalent, even within the public sector. Finally, the Multimedia Super Corridor's incentives are attractive to call centers and RHQs. In terms of general business and living conditions, Malaysia is seen as more politically stable than the Philippines, with better-developed, more reliable infrastructure. The quality of life for foreign management and workers is con- sidered good. Weaknesses Malaysia has the highest labor costs of all countries surveyed, except at the management level. The study also cited as weaknesses that 1) women are legally restricted from working night shifts without special government authorization, and 2) service businesses need majority Bumiputra (ethnic Malay) shareholding, especially to sell to the government. Finally, the study reported a lack of proactive marketing to potential investors in the shared services industry. Malaysia has lost business to Singapore, despite higher operating costs there. Opportunities The strong demand for low-cost call center facilities and burgeoning domestic market were cited as opportunities for FDI in an industry that is growing 100-200% annually. In addition, Malaysia can take advantage of its competitive position relative to higher-cost Singapore, reinforced in the study, which concluded that companies located in Singapore can easily relocate to Malaysia. Further, the study found opportunity in relatively less competitive pressure from China in shared services than in the electronics industry. Threats Although Malaysia is competitively strong in the region, potential competition from better-known call center locations in India, the Philippines, Australia and Singapore could hinder FDI growth. The study also noted that Malaysia has yet to identify and define its competitive strengths, and to target most likely investors, both seen as limiting factors in attracting FDI. Finally, political or social instability that forces the government to restrict the importation of multilingual skilled labor is seen as a potential threat. 30 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r The Multimedia Super Corridor aims to encourage multinationals to relocate their RHQs from Singapore, and has successfully attracted firms to Cyberjaya, one of two planned "intelligent" cities. r Transaction processing is a low-margin, high volume business, prompting banks with no economies of scale to outsource it. r A large domestic market for third-party, back-office or shared support services was created when Bank Negara Malaysia outsourced back office processing, payroll and some IT functions, and other Malaysian banks followed suit. r Malaysians speak English, Malay, Mandarin, Cantonese, Hindi and Tamil. r Malaysian call centers can affordably import agents from all over Asia to serve Southeast Asian customers. r Third-party call and customer contact centers ­ growing 100-200% annually as a sector ­ provide inbound and outbound customer contact services via voice, e-mail and fax. r Inbound services include answering customer product questions, resolving warranty issues, and providing technical support. r Outbound services include conducting customer satisfaction surveys and telemarketing. r Penang is the ideal location for a call center hub with its well-established Internet and telecom capabilities, and a sufficient pool of well-educated, multilingual, skilled professionals. Country and Sector Findings 31 SNAPSHOT ASIA THE PHILIPPINES Electronics Manufacturing Industry Strengths The study noted the Philippines' well-developed semiconductor industry, as well as several advantages related to labor, and to transportation infrastructure. The Philippines has one of the best-educated technical workforces in Asia, with reportedly the most effective management-labor relations of the group studied. In general, employee training is con- sidered manageable and easily accomplished, in part because translations from English manuals are not required. Shipping costs are competitive, and those to Japan rank lowest of all countries in the study, after Malaysia. The Subic/Clark industrial corridor, including Clark International Airport, Subic Freeport, and a planned new expressway connecting the two, serves as an air express, cargo and logistics hub for Southeast Asia. Weaknesses However, the study also concluded that the Subic/Clark area's development is an exception rather than the norm, and that the transportation infrastructure in the Philippines is considered underdeveloped in its overall quality and avail- ability. Similarly, utilities and government services infrastructure are considered insufficient in meeting investor requirements, and the study noted that customs procedures pose a particular challenge for electronics manufacturers. Specific to the utilities infrastructure, the Philippines has ample capacity to meet the demand for electricity, but struggles with transmission difficulties, resulting in power outages. Electricity costs in the Philippines are the highest of those surveyed. High relative costs are also evident in labor; overall labor costs rank second highest after Malaysia for unskilled, skilled and management employees. In addition, the statutory corporate tax rate is the highest of those surveyed. Finally, the study concluded that the Philippines has an inadequate base of suppliers for the electronics industry, ranking it just ahead of Thailand, which is considered the most deficient in this area. Opportunities The study found potential opportunity in the Subic/Clark industrial corridor for manufacturers requiring access and proximity to the air express, cargo and logistics hub facilities there. In addition, the high value-added product niches requiring advanced technical skills, e.g., semiconductor wafer fabrication and R&D, were identified as opportunities for targeted marketing to attract FDI. Threats The study reported potential competitive risks from China, which has emerged as a powerhouse in labor-intensive elec- tronics manufacturing. China, and to a lesser degree, Vietnam, are perceived as strong candidates for both regional expansion investment from manufacturers located in the Philippines, and for outright relocation FDI, given that many investors already have a large or growing presence in China. Increasing social instability in the South and the potential for terrorism are also considered threats for the Philippines in attracting electronics investment. 32 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r The Philippine electronics industry is export-oriented and primarily engaged in assembly and testing, and highly technical, labor-intensive activities such as the manufacture of semiconductors. r The industry accounts for about 1% of GDP, 3.5% of manufacturing output, and 33% of exports. r The Philippines' most attractive aspect for electronics companies is its large pool of low-cost engineers, who are fluent in English ­ a distinct competitive advantage over China, Thailand and Indonesia. r The power infrastructure has difficulty meeting the needs of high-tech facilities, forcing manufacturers to invest in their own on-site generators, and the cost of electricity is high compared to other Asian countries. r The majority of manufactured output is in traditional integrated circuit assembly and testing, and computer products, such as disk drives. r The hardware-manufacturing sector is growing as Filipino consumers and businesses move online and purchase individual personal computers, networking and routing systems to sustain their growing economy. r The Philippines is viewed as one of the best locations for semiconductor assembly and testing operations in Asia. r Local companies engaged in electronic assembly manufacturing provide facilities, manpower, utilities and admin- istrative services, while their customers provide process technology, and supply materials and equipment on con- signment. r A growing number of local companies can provide turnkey services, including component sourcing and software design. 33 Country and Sector Findings SNAPSHOT ASIA THE PHILIPPINES Shared Services Industry Strengths Reported strengths relate to the labor climate in the Philippines, where underemployment has encouraged the migration of highly skilled workers to the shared services industry. The Filipino workforce is considered one of the best educated in Asia, possessing well developed IT, back office (human resources, administration, accounting) and mana- gerial skills ­ all critical to RHQ, shared support and call center operations. Most of the educated population is pro- ficient in English, and although spoken as a second language, the Filipinos' light accent is easily understood worldwide. Weaknesses Other than English, there is a reported lack of facility in languages. The study noted other weaknesses related to fun- damental infrastructure: utilities, transportation, and telecommunications. Both telecommunications and electricity are considered unreliable, and there is a need for safe public transportation for commuters who work the night shifts. The study also noted a lack of government-funded training programs specific to the shared services industry. Opportunities For RHQs, call centers and shared support operations, the Philippines is viewed as a much less expensive alternative to Singapore or Australia. The third-party call center business is a growing sector in the Philippines; many local com- panies are capitalizing on the country's high-quality communications skills for their English-speaking customers. Threats The study reported that the continued emigration of skilled workers to Western countries ­ in search of higher pay and better quality of life ­ is a risk to the industry's workforce. In addition, India presents a competitive threat to the Philippines in this industry through its heavy overseas marketing, which is especially targeted to FDI in technical help centers and software development. Finally, the study noted that foreign investors continue to perceive political and social instability in the Philippines. 34 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r The Philippines is emerging as an attractive location for back-office functions, and there is growing demand for data encoding, voice and medical transcriptions, street digitization, and accounting, as well as call center services. r The Philippines has a competitive edge due to its low costs, excellent command of the English language, and high level of service skills. r Telecom costs are cost-effective for foreign investors due to a declining cost structure ­ about 50% per year the last two years ­ among the telecom service providers. r An abundance of underemployed university graduates with industrial and manufacturing skills means recruiters can easily staff white-collar call centers with well-educated, recent college graduates. r India presents the toughest competition for the Philippines in the outsourced call center business with its low operating costs and similar educational standards, and a larger pool of IT-trained and other technically skilled graduates. r The government fosters a favorable environment for FDI, and the deregulated telecommunications industry provides outsourcers with competitive prices and improved service. Country and Sector Findings 35 SNAPSHOT ASIA THAILAND Electronics Manufacturing Industry Strengths Thailand is very competitive in several key factors critical to the industry. Tax incentives for investors are the most favorable of those surveyed. The pool of available workers is sufficient, labor costs are competitive, and workforce pro- ductivity levels are considered high. Thailand has a good transportation and logistics infrastructure for electronics manufacturers, and the lowest electricity and sewer costs among the six surveyed countries. Finally, the study con- cluded that Thailand enjoys political and social stability and a welcoming culture, which is noted as particularly important to Japanese investors. Weaknesses Thailand's underdeveloped supply base requires the import of components, and the automation infrastructure and supporting services for higher precision operations are considered relatively weak. The study noted the shortage of engineering graduates, and concluded the higher education system is not turning out significant numbers of engineers to fuel industry growth. In addition, the study found that Thailand's outdated export processes hinder the development of just-in-time operations among electronics manufacturers. Lacking electronic data interchange (EDI) and WTO-compliant customs administrative procedures, OEMs must maintain high inventories, which increases their overheads. Finally, in spite of the Thailand's lead in favorable tax incentives for FDI, the study found that investment policies and incentives are not clearly defined or focused on attracting electronics investors. Opportunities Thailand has opportunity in its strategic location and potential to capture and dominate niches of the industry. By leveraging its location and well-developed transportation and logistics infrastructure, the study concluded Thailand could become the regional base for just-in-time electronics assembly operations. The study also determined a potential niche for Thailand in developing a base of higher value-added component manufacturing for China-based assembly operations. Threats Thailand faces inevitable risk from competitive countries, especially China, and the study concluded there is danger of facilities relocating from Thailand to China. Both Malaysia and China are reported to be attracting expansion investment intended for Thailand. Finally, the study noted pressure from the WTO to limit the use of tax and other fiscal incentives for investment promotion might destabilize Thailand's competitive position for FDI. 36 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r The export-driven electronics industry is a major contributor to Thailand's economy, employment and technology advancement, accounting for about 4% of GDP, 12% of manufacturing output and 19% of exports. r 80% of electronics manufacturers are located within 100km of metropolitan Bangkok. r The industry evolved from integrated circuit packaging and low-end assembly (electrical and electronic) to a diverse base of multinational, OEM contract and electronic end-product manufacturing. r OEM electronic manufacturing has a fairly good supporting service infrastructure, including production equipment sales and service, clean rooms, high-end assembly equipment, calibration services, and custom design/build capabilities. r The hard disk drive segment drives and leads technology development in both the public and private sectors. r Thailand's manufacturers import most discrete electronics components, and are starting to utilize Chinese com- ponent suppliers as distinct competitive advantages mature. r While developed and rural industrial sites have reliable, sufficient power and water resources, manufacturers in rural areas may encounter unscheduled utility interruptions, often due to road accidents damaging the distribution grid. r Advancement in IT and Internet usage has increased domestic demand for personal computers and electronic products. r The government embraces countrywide IT development, in spite of considerable shortfalls in knowledge, language and hardware outside Bangkok. r Thailand encourages investment in projects with high local value-added and/or R&D components. Country and Sector Findings 37 SNAPSHOT ASIA THAILAND Shared Services Industry Strengths Thailand's favorable geographic location at the heart of the Association of South East Asian Nations (ASEAN) is a clear advantage for investment in shared services ­ particularly RHQs ­ not easily offset by competitors. Several other com- petitive strengths relate to the quality of business and living conditions. Thailand is considered stable in its political and social environment, with generally high quality of life factors. The transport infrastructure is well developed for local/regional business travel and commuting. Cost considerations also play to Thailand's advantage in three areas: the lowest office and facilities lease costs among those surveyed, the lowest telecommunications costs for high bandwidth services, and declining utilities costs, a result of increasingly open competition in the utilities sector. Weaknesses The study found some labor-related deficiencies and challenges in Thailand. The lack of advanced English and other foreign language skills, and relatively lower overall educational qualifications in back office trades ­ IT, finance, human resources, accounting ­ than in competing markets, were cited as negatives in attracting FDI in shared services. In addition, it is increasingly difficult to obtain long-term visas and work permits for foreign nationals, should investors need to look beyond Thailand for the required skills. The study also concluded that the Alien Business Law, which restricts FDI in the services industry to minority shareholding, might act as a disincentive to attracting investment. Finally, the study noted a lack of clarity in Thailand's Board of Investment incentives geared to RHQs, and a bureaucracy in applying for these incentives. Opportunities The study found opportunity for Thailand as investors continue to reevaluate their presence in high-cost locations, such as Singapore and Australia, and become more receptive to proactive marketing on incentives for RHQs. Threats Thailand faces a crowded competitive market in Asia for FDI in centralized service operations, including India, Singapore, the Philippines, and to a lesser extent, Australia. The study noted a specific situation of a MNC (not among interviewed companies) moving some IT and finance services to a shared service center in Australia. 38 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r Thailand's location is strategic for RHQs serving Asian markets ­ in the Greater Mekong Sub-Region, and between India and China at the heart of the ASEAN bloc. r Thailand has been offering internationally competitive tax incentives for RHQs for about two years. r A wide range of non-tax incentives has been offered to international call centers to enhance potential in the sector. r The most common call centers have been centralized service operations for domestic fast food and telecommuni- cations companies, with few serving a broader regional or global market. r Thailand is relatively less competitive as a regional base for call centers, given the lack of advanced English language and IT skills required to service the global market. r Thailand has been slow to take advantage of outsourcing opportunities for back-office operations, particularly in the financial sector. r Software Park Thailand, a government-sponsored initiative, was built to attract software developers, further tech- nology transfer, and improve the base of IT-skilled, knowledge workers, but India has had faster growth in this sector. Country and Sector Findings 39 SNAPSHOT ASIA VIETNAM Electronics Manufacturing Industry Strengths The study noted Vietnam's strong basic work force, which is highly literate and relatively well educated, and the avail- ability of low cost, unskilled labor. Only China and Indonesia have lower salaries for unskilled workers among the six countries surveyed. The presence of a base of major industry players ­ prominent Japanese and Korean manufacturers ­ was cited as an advantage in attracting industries to support electronics manufacturing. Weaknesses In labor, the study concluded Vietnam has an overall shortage of management-level employees. The study also revealed policy-related issues, citing Vietnam's unclear government policy on the overall direction of the electronics manufacturing industry, especially in light of AFTA. There are also continuing concerns with the lack of transparency in policy making, and with too much bureaucracy and "red tape" for electronics firms trying to conduct business in Vietnam. Several other areas for improvement were noted, particularly related to transportation and utilities infrastructure and costs. Vietnam ranks among the highest of the surveyed countries in shipping costs. The study specifically noted inefficient customs procedures and high levels of import duties on parts and components. Vietnam's transportation infrastructure ­ rail, road, airport and port ­ is considered underdeveloped. The quality of the utilities infrastructure, particularly for telecommunications and electricity, is also viewed as inadequate, and the services provided are relatively high-cost compared to others surveyed for this study. Finally, the study concluded Vietnam lacks a sufficient base of industries supporting the manufacture of electronics. Opportunities Vietnam's large and growing domestic market of middle-class consumers is seen as an opportunity for FDI in elec- tronics. In addition, the study found potential in leveraging the existing base of electronics manufacturers to help build the necessary supporting industry. Threats Regional and global trade policy and competition from China are risks to Vietnam's attraction of FDI in the electronics manufacturing industry. The study concluded that AFTA, and to a lesser extent WTO policy, could threaten the viability of the entire industry in Vietnam. China's emergence as a powerhouse in labor-intensive electronics makes it increasingly more difficult for Vietnam to compete for FDI in the industry. The study also cited three areas where criminal and unfair practices may limit Vietnam's potential in this industry: continued smuggling, weak intellectual property rights protection, and continued double pricing in key utility areas. Double pricing makes overall production costs for manufacturing in Vietnam higher than they should be, and can skew per unit costs to less competitive levels relative to the other countries. 40 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r The Vietnamese electronics industry is largely driven by domestic demand for consumer products, including color TVs ­ an estimated one million-unit market. r Much of the market for color TVs is reportedly served with smuggled products. r The electronics industry in Vietnam is dominated by Japanese MNCs in joint ventures with local firms, and includes a number of Korean and Taiwanese firms that have entered the market in recent years. r Most electronics firms are located around Ho Chi Minh City. r The supplier industry is undeveloped ­ with the exception of cathode ray tubes and electron guns produced by a Korean joint venture ­ and there is no apparent government strategy to grow it. r A number of firms export small quantities of finished products to low-quality markets, and a few are considering exports of parts and components. r Challenges to FDI are the quality of locally supplied parts, import duties on imported materials, and shortages of higher-level managers and technicians. r AFTA will likely critically impact the overall industry in Vietnam, yet there appears to be no public sector strategy addressing the situation. Country and Sector Findings 41 SNAPSHOT ASIA VIETNAM Shared Services Industry Strengths Vietnam has a relatively well-educated and literate workforce from which to recruit basic skilled workers, and the study found that wages for skilled, technical and management employees in the shared services industry are the lowest of those surveyed. Vietnam also has the lowest statutory corporate income tax rates. Finally, the study cited the example of a small, but dynamic software development sector that is expanding rapidly through several high-growth firms that double in size every two or three years. Weaknesses The study concluded that Vietnam is a relatively higher-cost location for shared services in three areas: 1) office lease costs are the second highest after those of China; 2) telecommunications costs are the most expensive of those surveyed; and 3) Internet services are both very high cost, and of questionable quality. The study also reported some issues with regard to language skills, especially related to call centers, and concluded that Vietnam's business support service infrastructure is relatively less developed. Finally, the study found that inefficient government services, burdened by "red tape" and lacking transparency, are a relative weakness, specifically citing customs inspections of software imports/exports for improvement. Opportunities Vietnam has the ability to tap into its vibrant overseas community of Vietnamese nationals skilled in key IT and service areas to help fuel growth in the shared services industry. The study also cited the relative ease with which key buildings and locations could be wired for high-speed, broadband Internet services as an opportunity to help attract FDI in this industry. Threats The study concluded that Vietnam faces strong competition from India, and to a lesser degree, the Philippines and Malaysia, for the development of call centers and software development operations. Vietnam's potential in this industry is also threatened by a lack of understanding among government officials of the service sector's importance and role in the new global business environment. 42 Country and Sector Findings SNAPSHOT ASIA Insights at a Glance r The international call center sector in Vietnam is virtually nonexistent. r A British sport betting operation set up a call center in 2002, but high telecommunications costs and to a lesser extent, language issues, forced its closing. r A number of small local call centers service the domestic software and finance markets. r No international shared support centers were found in Vietnam. r A MNC operating a sort of local shared support center was part of this study, and the interviewee expressed reser- vations about the Vietnamese government's understanding of the industry's needs and requirements. r A dynamic, but small software development sector, reportedly dominated by returning Vietnamese nationals, has emerged around Ho Chi Minh City, and to a lesser degree, Hanoi. r These firms in software development are doubling in size every 2-3 years, with little apparent public sector support. r The government has not developed a strategy to attract shared services FDI, focusing instead on "bricks and mortar" projects. Country and Sector Findings 43 SNAPSHOT ASIA 44 Appendices 1. Acronyms and Abbreviations 2. Methodology Sequence and Description 3. Factors Used to Develop Operating Costs and Conditions Matrices 4. Methodology Assumptions and Resources ­ Phase I 5. Detailed Findings ­ Phase I 6. Detailed Findings ­ Phase II 7. Comparisons between Phase I and Phase II Findings Appendices 45 SNAPSHOT ASIA Appendix 1 Acronyms and Abbreviations AFTA ASEAN Free Trade Agreement ASEAN Association of South East Asian Nations EDI Electronic Data Interchange FDI Foreign Direct Investment GDP Gross Domestic Product IPI Investment Promotion Intermediary IT Information Technology MIGA Multilateral Investment Guarantee Agency MNC Multinational Corporation OEM Original Equipment Manufacturing OEMs Original Equipment Manufacturers R&D Research and Development RHQ Regional Headquarters SWOT Strength/Weakness/Opportunity/Threat WTO World Trade Organization 46 Appendices SNAPSHOT ASIA Appendix 2 Methodology Sequence and Description The project methodology mirrored the type of analysis corporations often conduct in deciding on a site location: first screening at the desktop level, then "due diligence" in the field. After the benchmarking was conducted in these two distinct phases, the conclusions were based on a synthesis of Phase I and Phase II results. Regional consulting groups, Tractus Asia and Brooker Policy Research, were contracted to assist MIGA in con- ducting the research. Both firms have good access to IPIs in the region, and it was considered important to use in- region consulting expertise to provide insights and contacts, strengthen the capacity-building nature of the project, and ensure locally available follow-up support. Phase I The team performed desktop research on eight key site location factors that companies consider when locating their operations. These include: r Market access r Labor r Real estate r Taxes r Living conditions r Utilities r Transportation and infrastructure r General business conditions Using publicly available, web-based and publication sources that a company might use, Phase I determined the best sources for comparative information, accessibility of information, and the most salient factors for each sector. The consultants were specifically instructed to develop a pool of credible sources that could be used again in the future. Phase I attempted to compare like information from the same resources for each country. Open communication between the teams allowed for sharing of information, especially when a source was discovered that contained infor- mation on all participating countries. However, in some cases the best resource for a particular factor did not cover the entire region. In those cases, researchers used a country-specific resource to fill in the missing data. These cases ­ most often related to Vietnam or China ­ are noted in Appendix 4, Methodology Assumptions and Resources: Phase I. A few factors, mostly qualitative, could not be researched until Phase II. Most of the data gathered is from a particular municipality in each country, specifically these major metropolitan areas: r China ­ Beijing (also Shanghai) r Indonesia ­ Jakarta r Malaysia ­ Kuala Lumpur (also Penang) r Philippines ­ Manila r Thailand ­ Bangkok r Vietnam ­ Hanoi (also Ho Chi Minh City) Appendices 47 SNAPSHOT ASIA Phase II The second phase started with the screening of companies to deliver a representative pool in each industry for interviews. The consultants contacted each country's IPI to request lists of companies, and to begin setting up interviews. A total of 64 companies (69 operating units) were chosen for interviews on the basis of 1) amount of initial investment, 2) reinvestment amount, and 3) year of initial operations. Larger multinational corporations with investment or reinvestment after 1997 were first choices. However, other companies with good IPI relations that were accessible and interested were also considered given the tight time frame of the project. (None of the participating companies are named in this document, and individual company data is proprietary.) Questionnaire. Using the factors researched in Phase I, a questionnaire for each of the two industries was designed for Phase II fieldwork. Questions were drawn from previous questions that have been tested in the field during other FDI projects, benchmarking studies and industry surveys. Three types of questions were included: 1) rating, 2) open-ended questions, and 3) multiple choice, with some choices requiring further elaboration from the inter- viewee. (See box for questionnaire topics by industry.) The consulting teams conducted detailed interviews with the 64 investing companies. Rating scale. Answers pertaining to qualitative issues were given a rating scale of 1 to 5 (where 1=poor and 5=excellent), and interviewees were asked to rate the criteria according to this scale. Definitions of these numeric weightings were described to the interviewees, and examples were explained for criteria that would receive each rating. After all the criteria for a particular factor had been rated, the interviewer reviewed the answers and discussed those for which the interviewee had selected either a 5 or a 1. The goal was to understand the criteria considered critical, excellent or highly satisfactory, and those considered very poor, not important at all or highly unsatisfactory from the investor perspective. Based on these interviews, the researchers were able to develop a more complete context for understanding the factors that are considered important to the location decision. Interviewees were asked to rate the most important factors for site selection, although they may not have been involved in the initial decision, and are not site selectors by trade. Their answers reflect the perspectives of operations managers who deal with the day-to-day implementation and effects of the location decision, but who may not have total information on the initial costs or considerations. Researchers concluded that this perspective is especially valuable in helping the IPIs retain and expand FDI from existing investors. Across the region as a whole, interviewees most frequently rated political/social stability, labor availability, and infra- structure/logistics as important factors for electronics operations. In shared services, the most frequently top-rated factors were political and social stability, labor skills and labor availability. (See Table 2-1: Importance of Site Selection Factors, Rated by Interviewees.) Questionnaire Topics Electronics Shared Services r Company profile r Company profile r Suppliers, customers, and access issues r Investment site selection process r Motivation behind locating in Asia r Labor issues r Labor issues r Infrastructure and the business environment r Infrastructure and the business environment r Access to capital and finance r Access to capital and finance r Living conditions r Living conditions r Future plans and other issues r Future plans and other issues r Cost benchmarks r Cost benchmarks 48 Appendices SNAPSHOT ASIA Table 2-1: Importance of Site Selection Factors, Rated by Interviewees Country Top Site Selection Factors for Electronics Manufacturing China Utility Availability; Political/Social Stability; Market Access Globally; Market Access Domestically; Utility Costs Indonesia Market Access Domestically; Labor Availability; Labor Costs; Real Estate Availability; Infrastructure/Logistics Malaysia Utility Availability/Reliability; Labor Costs; Labor Availability; Infrastructure/Logistics; Real Estate Costs; Utility Costs; Incentives Philippines Labor Availability; Incentives; Labor Regulations; Infrastructure/Logistics; Political/Social Stability Thailand Labor Availability; Labor Costs; Political/Social Stability; Labor Skills; Infrastructure/Logistics; Market Access Globally Vietnam Education Level; Political/Social Stability; Market Access Domestically; Infrastructure/Logistics; Labor Availability; Labor Regulations; Labor Skills; Living Conditions for Expatriates Country Top Site Selection Factors for Shared Services China Political Stability; Social Stability; Utility Availability; Incentives; Labor Skills Indonesia Political Stability, Social Stability; Labor Regulations; Incentives; Labor Skills; Education Level Malaysia Labor Cost; Political Stability; Labor Skills; Labor Availability; Social Stability Philippines Labor Availability; Utility Reliability; Labor Cost; Utility Availability; Labor Regulations Thailand Infrastructure/Logistics; Labor Availability; Social Stability; Political Stability; Labor Skills; Education Level Vietnam Labor Cost; Labor Skills; Labor Availability; Education Level; Labor Regulations Appendices 49 SNAPSHOT ASIA Benchmarking Analysis. The benchmarking analysis required several steps to put the data into a model that delivered comparable, quantitative values: 1) All quantitative and qualitative information gathered from Phase II ­ the raw data values on costs and conditions ­ was compiled for the subcategories of each factor. (See Appendix 3: Factors Used to Develop Operating Costs and Conditions Matrices.) 2) Quantitative raw data was converted to a 1-6 (1=worst; 6=best) average ranking for each industry factor at the country level in order to benchmark the six countries against each other; the same was derived for qualitative factors by averaging ratings given by all respondents in interviews. 3) Factor rankings for both costs and conditions were assigned a weight, or subjective, ascribed importance in the FDI location decision, based on MIGA's Foreign Direct Investment Survey released in January 2002. (See below: Factor Weighting.) 4) An average score for costs was derived from all cost-related factors, as was an average score for all conditions, by country for each industry. 5) A final score was derived by applying the final weighting ­ one weight is an average reflecting the influence of all costs, the other reflects all conditions ­ and adding the results. 6) Weighted and unweighted scores were charted on matrices. The benchmarking process distilled all quantitative and qualitative information from eight factors and myriad sub- category data sets into two scores ­ one for costs and one for conditions ­ to help illustrate how the factors influence each country's overall competitiveness position based on their assigned subjective importance. This exercise was not intended to determine an absolute competitiveness perspective for the six surveyed countries. When both weighted and unweighted rankings were charted on matrices that correlate costs and conditions by country, the resulting com- parisons reflect the relative trade-offs between the two types of factors, and the range of possible outcomes based on how companies weight the factors. (See also: Section I, Figure 3: Operating Costs and Conditions Matrices.) Factor Weighting. Assigning relative importance to factors that influence the site selection decision is a highly sub- jective determination based on individual company goals and objectives. To assign weightings to the data that reflected typical company location decision making, researchers turned to the Foreign Direct Investment Survey, a study con- ducted by MIGA in January 2002 that determined the most critical site selection factors among a global cross-section of large and transnational companies in both manufacturing and services. 1 (See Table 2-2: Top 20 Critical Location Factors ­ Percent Cited as "Very Influential".) IPI Participation. During Phase II, two interactive activities were planned with each participating IPI: 1) a briefing session of about two hours by the consulting team on the status and methodology of the project during the main country visit in Phase II, and 2) a one-half day overview session on the outcomes of the project, jointly presented by the consulting team and a representative from MIGA to each IPI. These two activities were designed to ensure the maximum benefit to the participating IPIs. 1 The survey questionnaire was initially mailed to 3,000 companies, approximately 1,500 from the United States and 1,500 from all other countries. The mailing included the top 100 transnational businesses based on foreign assets, and the largest companies in each of the industry sectors based on sales, and from proprietary company databases. The response rate was 6 percent. 50 Appendices SNAPSHOT ASIA Table 2-2: Top 20 Critical Location Factors ­ percent cited as "very influential" Access to customers 77 Stable social and political environment 64 Ease of doing business 54 Reliability and quality of infrastructure and utilities 50 Ability to hire technical professionals 39 Ability to hire management staff 38 Level of corruption 36 Cost of labor 33 Crime and safety 33 Ability to hire skilled laborers 32 National taxes 29 Cost of utilities 28 Roads 26 Access to raw materials 24 Availability and quality of university and technical training 24 Available land with all services in place 24 Local taxes 24 Access to suppliers 23 Labor relations and unionization 23 Air service 23 Source: Foreign Direct Investment Survey, MIGA ­ January 2002. Note: See also Foreign Direct Investment Survey, Appendix 2, Detailed Findings Regarding Site Selection Factors, for factor influences by manu- facturing or services sector. Appendices 51 SNAPSHOT ASIA Appendix 3 Factors Used to Develop Operating Costs and Conditions Matrices Factors were selected based on a combination of the team's experience, the critical site selection factors identified by the respondents, and findings on factor influences from MIGA's Foreign Direct Investment Survey from January 2002. Quantitative data sets used: r Taxes (both industries) corporate; privilege rate; VAT r Labor costs (both industries) unskilled; skilled; technical; management; benefits r Real estate (electronics) land acquisition; building construction; facilities lease r Real estate (shared services) office lease r Utility costs (both industries) electricity; water; sewer; telecommunications; Internet Qualitative data sets used: r General business conditions (both industries) political/social stability; government transparency; ease of doing business; quality of government services; taxation rates; customs procedures; grants and incentives r Labor conditions (both industries) competitive wages; labor regulations; quality/productivity of labor; government training programs; labor/management relations r Labor availability (both industries) unskilled; skilled; technical; management; benefits r Transportation and infrastructure (electronics) port access; rail access; highway access; quality of roads; air cargo access; cost of air transport; cost of shipping Two sets of matrices were created: r One using unweighted selection factors r One using weighted selection factors based on an ascribed relative importance of the factors as influences in the selection decision. (See also Appendix 2: Methodology Sequence and Description.) 52 Appendices SNAPSHOT ASIA Appendix 4 Methodology Assumptions and Resources ­ Phase I Labor Costs Labor costs were measured by the average salary or wage per month by skill level specified, and are not specific to industry. In general, the types of employment positions included in each category are: Management: Entry-level manager, middle-level manager, senior manager. Technical: Programmer, system analyst, engineer; factory manager (Indonesia), factory supervisor (Indonesia); accountant (Malaysia and Vietnam.) Skilled: Skilled workers; (for Vietnam ­ skilled labor includes entry-level manager.) Semi-skilled: Not specified. Unskilled: Receptionist, typist, clerk, driver, messenger, general worker, and janitor. r Benefits were defined as employer contribution rate as a percentage of payroll. r Costs were very difficult to compare between countries due to the different definitions provided as skilled, semi- skilled, and unskilled. Semi-skilled is usually not included as a definition in Asia. r Resources: ASEAN Secretariat (for all costs except benefits); American Chamber of Commerce and various country resources/Social Security Programs throughout the World (benefits). Availability r Market availability is based upon approximate percentage of the civilian labor force or actual number of workers within the skill group (unskilled, skilled, technical, management). There was no sole resource for all this infor- mation; therefore, different sources were used. Scattered information found in separate resources was then added together to form a complete labor survey that was comparable by country. Information concerning labor availability is not concrete information and changes monthly. r Indonesia's labor force breakdown was extremely difficult to find. r Civilian Labor Force and Unemployment by Industry were also included as additional information. r Resources: ASEAN, worldbank.org (China), ADB Key indicators 2002. Appendices 53 SNAPSHOT ASIA Labor Market Conditions r Productivity is measured by GDP produced per employee per hour in US$. (Vietnam was not included in the survey, but is believed to be high.) r Resource: IMD World Competitiveness Report, 2002. r Labor Relations were determined through rankings that measured the level of cooperation between workers and employers; lower number indicates a higher level of cooperation. r Resource: WEF Global Competitiveness Report, 2001-2002. r Regulations were measured by the ease of obtaining overtime labor with minimum additional costs; lower number indicates ease in cutting back hours and obtaining overtime. r Resource: WEF Global Competitiveness Report, 2001-2002. r Technical Training is defined by ranking the quality of IT training available in the country; lower number indicates higher quality training. r Resource: WEF Global Competitiveness Report, 2001-2002. Real Estate Availability r Availability of land is measured by number of industrial parks or vacancy of industrial land. This factor was researched in Phase II; it is extremely difficult to measure through desktop research. r Availability of buildings is measured by the approximate vacancy rate in the metropolitan area as well as the recent change in vacancy of office space. According to real estate professionals, office and industrial real estate avail- ability are linked. r Resources: JLL, Thailand (Change in vacancy rate), www.colliers.com(vacancy rate). Costs r Purchase costs and construction costs are compared between cities, not between countries (costs in US$/m2). In China, Shanghai was used in comparing cost to build; Beijing was used in the rest of the factors. r Some countries do not allow wholly foreign-owned entities to own land. r Actual costs to purchase a building per square meter were not readily available. r Resources: www.cbre.com.hk (China land lease); Brooker Databases (land lease other countries), CB Richard Ellis (land costs), Davis Langdon & Seah International; www.ridersyd.com.au (cost to build), SERI Penang Malaysia (building lease costs). 54 Appendices SNAPSHOT ASIA Market Access Access to Customers r Ranking: Based on qualitative rankings of market access. The lower the number, the better the access. r Number: Access is defined by the amount of $US billions exported to other countries in the electronics industry. r Resources: WEF Global Competitiveness Report, 2001-2002; www.mti.gov.sg; www.vietrade.gov.vn (Vietnam only). Access to Suppliers r Ranking: Access to suppliers is based upon availability of local components and parts vs. imported. The lower the number, the more components sourced locally. r Resources: WEF Global Competitiveness Report, 2001-2002. Shipping Costs r Shipping costs were measured by the cost of shipping one container from the US West Coast to respective Southeast Asian main cities. (Minimum charge + additional one cubic meter + free insurance.) r Resources: www.discount-shipping.net Trade Agreements r Trade Agreements were measured in Phase I by the number of bilateral trade agreements by country. Some resources report different numbers of agreements. Questions concerning barriers to entry were included in the Phase II questionnaire. r Resources: U.S. Commercial Service-Country Commercial Guide. www.usatrade.gov; www.thaimain.org (Thailand). Appendices 55 SNAPSHOT ASIA Appendix 5 Detailed Findings ­ Phase I The tables below reflect the compiled findings from Phase I desktop research, which relied on publicly available publi- cation and Internet sources in five categories: labor costs, labor availability, labor conditions, real estate and market access. (For detail on the sources, see Appendix 4: Methodology Assumptions and Resources ­ Phase I.) Table 5-1: Labor Costs Priority for Priority for Division Breakdown China Indonesia Malaysia Philippines Thailand Vietnam Call Center Manufacturing Unskilled Critical Critical US$/month 100-150 60-80 139-357 244-433 185-396 58-138 Skilled Labor Critical Critical US$/month 300 100-600 211-1,735 382-433 277-423 138-173 600-1,500 578-1,837 138-276 Technical Critical Critical US$/month 2,000 (Factory Manager/ 500-1,250 274 (Accountant) (Accountant) Supervisor) Management Critical Critical US$/month 1,500 1,000-2,500 1,063-3,844 1,465-6,788 497-1,057 138-359 % of employee Benefits Critical Critical 20-25% 13% 14% 7% 3% 20% salary 56 Appendices SNAPSHOT ASIA Table 5-2: Labor Availability Priority for Priority for Division Breakdown China Indonesia Malaysia Philippines Thailand Vietnam Call Center Manufacturing Civilian Important Important Number 751,000,000 99,000,000 10,000,000 34,000,000 33,000,000 43,800,000 Labor Force Unskilled Important Critical Number 428,070,000 N/A 4,999,200 10,639,000 8,192,100 N/A Labor Less Less Skilled Labor Number 60,080,000 N/A 2,040,800 124,780,000 18,327,200 N/A Important Important Less Less Skilled Labor Percentage 8% N/A 20% 29% 56% 4% Important Important Technical Important Important Number 15,020,000 N/A 2,110,000 801,000 1,165,100 N/A0 Technical Important Important Percentage 2% N/A 21% 1% 4% 12% Management Critical Critical Number 172,730,000 N/A 570,000 3,373,000 2,333,900 N/A Management Critical Critical Percentage 23% N/A 6% 7% 7% 8% Unemploy- Less Less Percentage 10% 15% 3% 10% 4% 25% ment Important Important Civilian Labor Force-% Total Percentage 55% 43% 43% 58% 53% 48% Population Appendices 57 SNAPSHOT ASIA Table 5-3: Labor Conditions Priority for Priority for Division Breakdown China Indonesia Malaysia Philippines Thailand Vietnam Call Center Manufacturing Very Very Productivity1 US$ 0.80 0.69 4.15 1.11 1.73 N/A Important Important Less Very Relations 2 Ranking 45 60 10 41 29 18 Important Important Very Very Regulations 2 Ranking 17 31 7 38 14 36 Important Important Technical Less Very Ranking 63 55 38 32 36 70 Training2 Important Important 1 GDP produced per employee per hour in US$. Source: IMD World Competitiveness Report, 2002. BETTER WORSE 2 Based on qualitative rankings of labor conditions among 75 leading global economies. RANKING 1 75 Source: WEF Global Competitiveness Report, 2001-2002. 58 Appendices SNAPSHOT ASIA Table 5-4: Real Estate Priority for Priority for Division Breakdown China Indonesia Malaysia Philippines Thailand Vietnam Call Center Manufacturing Office Building Critical Important Availability 17-25% 21% 23% 17% 29% 22% Vacancy Rate Land Purchase Critical Important US$/m2 109.00 98.00 120.00 200.00 45.00 N/A Cost Cost Critical Important US$/m2 149.00-224.00 550.00 132.00-211.00 370.00 176.00-226.00 45.00 to Build Building US$/m2 Critical Important 5.38­21.52 8.60 8.49-17.00 20.70 20.28 7.00-18.00 Lease Cost gross/month Appendices 59 SNAPSHOT ASIA Table 5-5: Market Access Priority for Priority for Actual Division China Indonesia Malaysia Philippines Thailand Vietnam Call Center Manufacturing Breakdown Access to Less Critical Ranking 33 34 26 59 28 58 Customers 1 Important Access to Less Critical US$ B 43.5 7.3 52.4 9.7 21.6 0.73 Customers Important Access to Very Important Ranking 3 42 48 65 37 61 Suppliers 2 Important Shipping Costs from Very US$/m3 + 540 580 740 500 550 660 Important US Important fixed fee to Shanghai to Jakarta to Kuala to to to (US$/TEU) 3 Lumpur Manila Bangkok Ho Chi Minh Number of Trade Very Very Bilateral >50 52 68 36 31 41 Agreements Important Important Agreements 1 Based on ranking of access to international markets among 75 leading global economies. Source: WEF Global Competitiveness Report, 2001-2002. 2 Based on ranking of availability of locally sourced com- BETTER WORSE ponents and parts among 75 leading global economies. Source: WEF Global Competitiveness Report, 2001-2002. RANKING 1 75 3 TEU (20 ft. container equivalent unit.) 60 Appendices SNAPSHOT ASIA Appendix 6 Detailed Findings ­ Phase II The tables below reflect quantitative and qualitative findings from interviews conducted during Phase II fieldwork. Interviewees were queried on twelve categories of costs and conditions: labor costs, labor availability, labor conditions; real estate costs, real estate conditions; market and transportation access (for electronics), transportation and infra- structure (for electronics); taxes; utility costs, utility conditions; general business conditions and living conditions. Table 6-1: Labor Costs (Quantitative) China Indonesia Malaysia Philippines Thailand Vietnam Electronics Salary $/month, % of salary Unskilled Worker 82 77 152 126 118 84 Skilled Worker 130 116 321 295 162 135 Technical Worker 200 277 612 312 315 206 Management 300 540 1,122 901 889 393 Benefits and Insurance 28% 20% 20% 30% 20% 20% Shared Services Salary $/month, % of salary Unskilled Worker 242 84 355 226 104 100 Skilled Worker 726 238 846 496 208 166 Technical Worker 605 378 1,234 527 695 251 Management 1,250 1,007 1,027 1,527 1,391 488 Benefits and Insurance 20% N/A 15% 27% 20% 20% Appendices 61 SNAPSHOT ASIA Table 6-2: Labor Availability (Qualitative) China Indonesia Malaysia Philippines Thailand Vietnam Electronics Unskilled 5 4 4 5 4 5 Skilled 4 3 4 4 4 4 Technical 4 3 4 5 3 4 Management 4 3 2 4 3 3 Shared Services Unskilled 5 4 3 1 5 5 Skilled 4 2 3 4 4 4 Technical 3 3 4 5 4 4 Management 3 3 3 3 3 2 BETTER WORSE RATING 5 1 Table 6-3: Labor Conditions (Qualitative) China Indonesia Malaysia Philippines Thailand Vietna Electronics Competitive Wages 4 3 4 4 3 3 Labor Regulations 4 2 3 4 3 3 Quality and Productivity of Labor 4 3 3 4 4 4 Government Training Programs 1 1 3 2 3 2 Labor/Management Relations 4 3 4 5 3 3 Shared Services Competitive Wages 2 5 4 4 4 4 Labor Regulations 3 3 3 3 3 4 Quality and Productivity of Labor 4 4 3 4 4 4 Government Training Programs 3 3 3 3 3 2 Labor/Management Relations 4 4 4 5 4 4 BETTER WORSE RATING 5 1 62 Appendices SNAPSHOT ASIA Table 6-4: Real Estate Costs (Quantitative) China Indonesia Malaysia Philippines Thailand Vietnam Electronics Land Acquisition (US$/m2) 35.11 66.00 60.00 61.00 52.00 N/A Building Construction (US$/m2) 96.74 221.25 282.00 1,022.00 329.00 N/A Facilities Lease N/A 6.71 N/A 4.50 1.85 3.00 1 (US$/m2 ­ Gross/month) Shared Services Office Lease 25.00 10.50 11.57 7.00 5.39 12.25 (US$/m2 ­ Gross/month) 1 Includes land acquisition costs and building costs in combination long-term lease. Table 6-5: Real Estate Conditions (Qualitative) China Indonesia Malaysia Philippines Thailand Vietnam Electronics Availability of Land 4 4 4 4 4 3 Availability of Offices/Plants 5 4 4 4 4 3 Cost of Land/Building 4 4 4 4 3 2 Shared Services Availability of Land 4 N/A 5 3 4 3 Availability of Offices/Plants 4 4 4 4 4 3 Cost of Building Lease 3 4 5 4 3 3 BETTER WORSE RATING 5 1 Appendices 63 SNAPSHOT ASIA Table 6-6: Market and Transportation Access ­ Electronics (Quantitative) China Indonesia Malaysia Philippines Thailand Vietnam Average % Exported 79% 48% 82% 100% 82% 72% of Goods Manufactured Top Two Export US and Middle East Japan and N. America SE Asia Middle East Countries/Regions Japan and SE Asia EU and EU and Japan and Africa % Local Suppliers 78% 43% 53% 29% 24% 38% Used in Manufacturing Cost of 20 ft. Container $4,200 $4,640 $4,755 $4,640 $4,640 $5,075 to US West Coast in $ 1 Shanghai Jakarta Klang Manila Laemchabang HCMC2 Cost of 20 ft. Container $450 $425 $275 $350 $620 $550 to Japan (Yokohama) in $ 1 Shanghai Jakarta Klang Manila Laemchabang HCMC2 1Maersk full tariff rates, TEU (20 ft. equivalent unit). 2HCMC abbreviates Ho Chi Minh City. Table 6-7: Transportation and Infrastructure ­ Electronics (Qualitative) China Indonesia Malaysia Philippines Thailand Vietnam Port Access 4 4 4 4 3 3 Rail Access 4 2 4 2 2 2 Highway Access 4 3 5 2 4 2 Quality of Roads 4 3 4 1 3 2 Air Cargo Access 4 4 4 4 3 3 Cost of Air Transport 3 4 4 3 3 2 Cost of Shipping 3 4 4 3 3 2 BETTER WORSE RATING 5 1 64 Appendices SNAPSHOT ASIA Table 6-8: Taxes ­ Both Industries (Quantitative) China Indonesia Malaysia Philippines Thailand Vietnam Corporate Income Tax 30% 30% 28% 32% 30% 25% (Industry Dependent) Maximum Privilege Rate 0% 30% 0% 0% 0% 10% VAT/Sales Tax 17% 10% 5-10% 10% 7% 10% Incentives 2-year None reported Multimedia 6 years Tax Tax Holiday up Income tax (Not Applicable for Every manufacturing by the com- Super Corridor Holiday to 8 years at reduction to Location within the Country) income tax panies 0% corporate at 0% 0% 10% for 4 years exemption tax for 5 years, followed by Machinery and 6 years of 15% Equipment starting duty-free from first profitable year. Service industries pay full tax. Table 6-9: Utility Costs ­ Both Industries (Quantitative) China Indonesia Malaysia Philippines Thailand Vietnam Electrical Cost (US$/KwH) 0.08 0.07 0.07 0.10 0.06 0.07 Water Cost (US$/m3) 0.21 0.59 0.51 0.21 0.31 0.25 Sewer Cost (US$/m3) 0.18 0.80 0.66 0.19 0.17 N/A Telecom Cost (US$/minute to US) 0.25 1.00 0.24 0.30 0.56 1.30 Internet Cost 1 for T1 5,452 4,863 4,388 5,452 4,283 7,497 Line Equivalent 2 (US$/month) 1 This number is an estimated cost due to the range of service packages used by Phase II interviewed companies. 2 T1 Line equivalent means 2,044 Mbps. Not available in China without permission from the government. Appendices 65 SNAPSHOT ASIA Table 6-10: Utility Costs and Conditions ­ Both Industries (Qualitative) China Indonesia Malaysia Philippines Thailand Vietnam Availability/Reliability of Electricity 4 3 4 4 4 3 Cost of Electricity 3 3 4 2 3 2 Availability/Reliability of Telecom 3 3 4 4 3 2 Cost of Telecom 4 3 3 4 3 2 Availability/Reliability of Water 4 3 4 3 4 4 Cost of Water 3 3 4 2 3 4 BETTER WORSE RATING 5 1 Table 6-11: General Business Conditions ­ Both Industries (Qualitative) China Indonesia Malaysia Philippines Thailand Vietnam Political/Social Stability 4 2 4 3 4 5 Government Transparency 3 2 3 2 3 2 Ease of Doing Business 3 2 3 4 3 3 Quality of Government Services 3 2 3 2 3 2 Taxation Rates 3 2 3 4 3 3 Customs Procedures 2 3 3 3 3 2 Grants and Incentives 3 2 4 4 4 3 Regulations on Hiring 4 3 4 4 3 3 Foreign Workers Presence and Quality of 3 3 4 4 3 2 Business Support Services BETTER WORSE RATING 5 1 66 Appendices SNAPSHOT ASIA Table 6-12: Living Conditions ­ Both Industries (Qualitative) China Indonesia Malaysia Philippines Thailand Vietnam Cost of Living 3 4 4 4 4 3 Crime and Safety 5 2 4 3 4 4 Health Care 3 3 3 4 4 3 Expatriate Housing 4 3 3 3 3 2 International Schools 4 4 4 4 4 3 Culture and Recreation 4 4 4 4 4 3 BETTER WORSE RATING 5 1 Appendices 67 SNAPSHOT ASIA Appendix 7 Comparisons between Phase I and Phase II Findings Researchers compared findings between Phase I and Phase II to determine the degree of congruence, or overall alignment, between Phase I and Phase II results. The tables below show these comparisons among data sets for both industries (except as noted) in ten categories: labor costs, labor availability, labor conditions; real estate costs; market access (for electronics), transportation infrastructure (for electronics); taxes; utility costs, utility reliability; and general business conditions. The importance of the data set to the location decision is indicated as 1) critical, 2) important, or 3) less important. In assigning the degree of congruence, it was often necessary to evaluate values from different forms of data (i.e., for Phase I, mostly rankings of countries; for Phase II, ratings from interviewees.) Thus, the degree of congruence is a non-absolute type of comparison. For cost-related factors, the degree of congruence between the phases is noted for each data set as either 1) congruent, 2) Phase II lower, or 3) Phase II higher. For con- dition-related factors, the degree of congruence between the phases is noted for each data set as either 1) congruent, 2) Phase II better, or 3) Phase II worse. For specifics on data sources other than those mentioned in the footnotes, see Appendix 4. The 1-5 rating scale used for Phase II interviewee responses (see Appendix 6) was reversed to 1=Best/5=Worst in order to more easily compare the rankings used for Phase I data, which are reported on a 1-75 basis of 1=Best and 75=Worst, reflecting the 75 countries included in the report. Consequently, Phase II rating data in Appendix 7 tables, while retaining the exact quantitative meaning, will appear as the reverse of the same Phase II rating data shown in Appendix 6. Appendix 7 does not include a table for comparison of living conditions between Phase I and Phase II data, due to the subjective quality of factors that influence living conditions and the lack of comparable published data that adequately quantifies lifestyle factors by country. (See Table 6-12 for interviewee ratings on living conditions.) Table 7-1: Labor Costs ­ Electronics Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Unskilled Worker ($/month) Critical Phase I 100-150 60-80 139-357 244-433 185-396 58-138 Phase II 82 77 152 126 118 84 Phase II Phase II Phase II Congruence Lower Congruent Congruent Lower Lower Congruent Skilled Worker ($/month) Critical Phase I 300 100-600 211-1,735 382-433 277-423 138-173 Phase II 130 116 321 295 162 135 Congruence Phase II Phase II Phase II Lower Congruent Congruent Lower Lower Congruent (Continued on next page) 68 Appendices SNAPSHOT ASIA Table 7-1: Labor Costs ­ Electronics (Continued) Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Technical ($/month) 600-1,500 Critical Phase I 2,000 (Factory Manager/ 578-1,837 500-1,250 274 138-276 Supervisor) (Accountant) (Accountant) Phase II 200 277 612 312 315 206 Congruence Phase II Phase II Phase II Phase II Lower Lower Congruent Lower Higher Congruent Management ($/month) Critical Phase I 1,500 1,000-2,500 1,063-3,844 1,465-6,788 497-1,057 138-359 Phase II 300 540 1,122 901 889 393 Congruence Phase II Phase II Phase II Phase II Lower Lower Congruent Lower Congruent Higher Benefits (% of Salary) Important Phase I 20-25% 13% 14% 7% 3% 20% Phase II 28% 20% 20% 30% 20% 20% Congruence Phase II Phase II Phase II Phase II Phase II Higher Higher Higher Higher Higher Congruent Appendices 69 SNAPSHOT ASIA Table 7-2: Labor Costs ­ Shared Services Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Unskilled Worker ($/month) Critical Phase I 100-150 60-80 139-357 244-433 185-396 58-138 Phase II 242 84 355 226 104 100 Phase II Congruence Phase II Phase II Phase II Higher Higher Congruent Lower Lower Congruent Skilled Worker ($/month) Critical Phase I 300 100-600 211-1,735 382-433 277-423 138-173 Phase II 726 238 846 496 208 166 Phase II Phase II Phase II Congruence Higher Congruent Congruent Higher Lower Congruent Technical ($/month) 600-1,500 Critical Phase I 2,000 (Factory Manager/ 578-1,837 500-1,250 274 138-276 Supervisor) (Accountant) (Accountant) Phase II 605 378 1,234 527 695 251 Congruence Phase II Phase II Phase II Lower Lower Congruent Congruent Higher Congruent Management ($/month) Critical Phase I 1,500 1,000-2,500 1,063-3,844 1,465-6,788 497-1,057 138-359 Phase II 1,250 1,007 1,027 1,527 1,391 488 Congruence Phase II Phase II Phase II Phase II Lower Congruent Lower Congruent Higher Higher Benefits (% of Salary) Important Phase I 20-25% 13% 14% 7% 3% 20% Phase II 20% N/A 15% 27% 20% 20% Congruence Congruent N/A Phase II Phase II Phase II Higher Higher Higher Congruent 70 Appendices SNAPSHOT ASIA Table 7-3: Labor Availability Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Civilian Labor Force (population in millions) Less Important Phase I 751 99 10 34 33 43.8 Electronics Phase II Not Measured Shared Services Phase II Not Measured Congruence Not Measured Unskilled Labor Total Pool Number Critical Phase I 428,070,000 N/A 4,999,200 10,639,000 8,192,100 N/A Electronics Phase II 1 2 2 1 2 1 Rating Shared Services Phase II 1 2 3 5 1 1 Rating Congruence 1 Congruent N/A Congruent Congruent Congruent N/A Skilled Labor % of Labor Pool Phase I 8 N/A 20 29 56 4 Critical Electronics Phase II 2 3 2 2 2 2 Rating Shared Services Phase II 2 4 3 2 2 2 Rating Phase II Phase II Congruence 1 Better N/A Congruent Congruent Congruent Better (Continued on next page) BETTER WORSE 1 Congruence determined using Electronics rating RATING 1 5 example only. Appendices 71 SNAPSHOT ASIA Table 7-3: Labor Availability (continued) Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Technical % Labor Pool Critical Phase I 2 N/A 21 1 4 12 Electronics Rating Phase II 2 3 2 1 3 2 Shared Services Rating Phase II 3 3 2 1 2 2 Phase II Phase II Phase II Congruence 1 Better N/A Congruent Better Better Congruent Management % Labor Pool Important Phase I 23 N/A 6 7 7 8 Electronics Rating Phase II 2 3 4 2 3 3 Shared Services Phase II 3 3 3 3 3 4 Rating Phase II Phase II Congruence 1 Worse N/A Congruent Congruent Congruent Worse Unemployment % Labor Pool Less Phase I 10 15 3 10 4 25 Important Electronics Phase II Not Measured Shared Services Phase II Not Measured Congruence Not Measured BETTER WORSE 1 Congruence determined based on Shared Services example RATING 1 5 only. 72 Appendices SNAPSHOT ASIA Table 7-4: Labor Conditions Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Productivity Index 1 Less Phase I 0.80 0.69 4.15 1.11 1.73 N/A Important Electronics Phase II 2 3 3 2 2 2 Rating Shared Services Rating Phase II 2 2 3 2 2 2 Congruence Phase II Phase II Phase II Better Better Worse Congruent Congruent N/A Labor Relations Ranking 2 Important Phase I 45 60 10 41 29 18 Electronics Phase II 2 3 2 1 3 3 Rating Shared Services Phase II 2 2 2 1 2 2 Rating Congruence Phase II Phase II Phase II Phase II Better Better Worse Better Congruent Congruent Labor Regulations Ranking 2 Important Phase I 17 31 7 38 14 36 Electronics Phase II 2 4 3 2 3 3 Rating Shared Services Phase II 3 3 3 3 3 2 Rating Congruence Congruent Congruent Phase II Phase II Worse Congruent Worse Congruent Technical Training Less Ranking 2 Phase I 63 55 38 32 36 70 Important Electronics Phase II 5 5 3 4 3 4 Rating Shared Services Phase II 3 3 3 3 3 2 Rating Congruence Congruent Congruent Congruent Congruent Congruent Phase II Better 1 GDP produced per employee per hour in US$. BETTER WORSE Source: IMD World Competitiveness Report, 2002. 2 Based on qualitative rankings of labor conditions among RANKING 1 75 75 leading global economies. Source: WEF Global Competitiveness Report, 2001-2002. RATING 1 5 Appendices 73 SNAPSHOT ASIA Table 7-5: Real Estate Costs Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Land Acquisition ­ Electronics (US$/m2) Important for Phase I 109 98 120 200 45 N/A Electronics Phase II 35 66 60 61 52 N/A Phase II Phase II Phase II Phase II Phase II Congruence Lower Lower Lower Lower Higher N/A Building Construction ­ Electronics (US$/m2) Important for Phase I Electronics 149-224 550 132-211 370 176-226 45 Phase II 97 221 282 1,022 329 N/A Congruence Phase II Phase II Phase II Phase II Phase II Lower Lower Higher Higher Higher N/A Facilities Lease ­ Electronics (US$/m2 ­ gross/month) Important for Phase I Electronics Not Measured Phase II N/A 6.71 N/A 4.50 1.85 3.00 1 Congruence Not Measured Office Lease ­ Shared Services (US$/m2 ­ gross/month) Important for Phase I 5.38-21.52 8.60 8.49-17.00 20.70 20.28 7.00-18.00 Shared Services Phase II 25.00 10.50 11.57 7.00 5.39 12.25 Congruence Phase II Phase II Phase II Phase II Higher Higher Congruent Lower Lower Congruent 1 Includes land acquisition costs and building costs in combination long-term lease. 74 Appendices SNAPSHOT ASIA Table 7-6: Market Access ­ Electronics Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Access to Customers (A) Access to International Markets ­ Ranking 1 Critical Phase I 33 34 26 59 28 58 % of Product Exported Phase II 79 48 82 100 82 72 Congruence Phase I and Phase II Not Comparable Access to Customers (B) Value of Electronics Phase I 43.5 7.3 52.4 9.7 21.6 0.73 Exports (US$ B) Critical Top Countries/ Regions US and Middle East Japan and North America SE Asia and Middle East for Export Phase II Japan and SE Asia EU and EU Japan and Africa Congruence Phase I and Phase II Not Comparable Access to Suppliers Ranking 2 Important Phase I 3 42 48 65 37 61 % of Suppliers Local Phase II 78 43 53 29 24 38 Congruence Congruent Congruent Congruent Congruent Phase II Worse Congruent 1 Based on qualitative ranking of market access among 75 leading global economies. Source: WEF Global Competitiveness Report, 2001-2002. 2 Based on ranking of availability of locally-sourced BETTER WORSE components and parts among 75 leading global economies. RANKING 1 75 Source: WEF Global Competitiveness Report, 2001-2002. Appendices 75 SNAPSHOT ASIA Table 7-7: Transportation Infrastructure ­ Electronics Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Port Access Ranking 1 Important Phase I 51 59 15 70 36 69 Rating Phase II 2 2 2 2 3 3 Congruence Phase II Phase II Phase II Phase II Phase II Better Better Worse Better Congruent Better Rail Access Ranking 1 Less Phase I 34 45 29 63 38 54 Important Rating Phase II 2 4 2 4 4 4 Congruence Phase II Phase II Phase II Phase II Better Worse Congruent Better Worse Congruent Highway Access Important Phase I Not Measured Rating Phase II 2 3 1 4 2 4 Congruence Not Measured Quality of Roads Ranking 1 Important Phase I 48 66 15 74 12 71 Rating Phase II 2 3 2 5 3 4 Congruence Phase II Phase II Phase II Phase II Phase II Better Better Worse Congruent Worse Better (Continued on next page) BETTER WORSE 1 Based on qualitative rankings of the quality and reliability of RANKING 1 75 transportation infrastructure among 75 leading global economies. RATING 1 5 Source: WEF Global Competitiveness Report, 2001-2002. 76 Appendices SNAPSHOT ASIA Table 7-7: Transportation Infrastructure ­ Electronics (Continued) Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Air Cargo Access Ranking 1 Important Phase I 62 58 23 61 30 69 Rating Phase II 2 2 2 2 3 3 Congruence Phase II Phase II Phase II Phase II Phase II Better Better Congruent Better Worse Better Cost of Air Transport Critical Phase I Not Measured Rating Phase II 3 2 2 3 3 4 Congruence Not Measured Cost of Shipping (US$/TEU) 2 Critical Phase I 3 540 580 740 500 550 660 US-Shanghai US-Jakarta US-Kuala Lumpur US-Manila US-Bangkok US-HCMC4 450 425 275 350 620 550 Phase II 5 Shanghai-Japan Jakarta-Japan Klang-Japan Manila-Japan Laemchabang-Japan HCMC4-Japan 4,200 4,640 4,755 4,640 4,640 5,075 Phase II 5 Shanghai-US Jakarta-US Klang-US Manila-US Laemchabang-US HCMC4-US Congruence Phase I and Phase II Not Comparable 1 Based on qualitative rankings of the quality and reliability of transportation infrastructure among 75 leading global economies. Source: WEF Global Competitiveness Report, 2001-2002. BETTER WORSE 2 TEU (20 ft. container equivalent unit). 3 US to Asian cities reflects shipping costs for component RANKING 1 75 shipping from the US. 4 HCMC abbreviates Ho Chi Minh City. RATING 1 5 5 Maersk full tariff rates. Appendices 77 SNAPSHOT ASIA Table 7-8: Taxes Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Corporate Income Tax (% ­ Range if Industry Dependent) Less Phase I 1 5-35 10-30 28 32 30 25 Important Phase II 30 30 28 32 30 25 Congruence Congruent Congruent Congruent Congruent Congruent Congruent Maximum Privilege Rate (%) Important Phase I Not Measured Phase II 0 30 0 0 0 10 Congruence Not Measured VAT/Sales Tax (%) Less 1 17 10 10 0-20 Important Phase I 5-25 7 Phase II 17 10 5-10 10 7 10 Congruence Congruent Congruent Congruent Congruent Congruent Congruent 1 Phase I data based on sources of published tax rates widely available in the public domain, e.g. www.asiatradehub.com and www.rowbotham.com 78 Appendices SNAPSHOT ASIA Table 7-9: Utility Costs Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Electrical Cost (US$/KwH) Phase I1 0.03 0.03 0.06 0.09 0.06 0.07 Critical Phase II 0.08 0.07 0.07 0.10 0.06 0.07 Congruence Phase II Phase II Higher Higher Congruent Congruent Congruent Congruent Water Cost (US$/m3) Less 1 0.02-0.12 0.39 0.47-0.50 0.16-0.34 0.22-0.37 0.42 Important Phase I Phase II 0.21 0.59 0.51 0.21 0.31 0.25 Congruence Phase II Phase II Phase II Higher Higher Congruent Congruent Congruent Lower Sewer Cost (US$/m3) Less Not Measured Important Phase I Phase II 0.18 0.80 0.66 0.19 0.17 N/A Congruence Not Measured Telecom Cost (US$/minute to US) Critical Phase I1 0.01 0.01 0.02 0.01 0.07 0.02 Phase II 0.25 1.00 0.24 0.30 0.56 1.30 Congruence Phase II Phase II Phase II Phase II Phase II Phase II Higher Higher Higher Higher Higher Higher Internet Cost (US$/month/T1 Line equivalent) 3 Critical Phase I Not Measured Phase II2 5,452 4,863 4,388 5,452 4,283 7,497 Congruence Not Measured 1 Based on data from country IPIs and other third-party sources, e.g. ASEAN Facts and Figures, Cost of Investing and Doing Business in ASEAN, 2000. 2 This number is an estimated cost due to the range of service packages used by Phase II interviewed companies. Appendices 79 SNAPSHOT ASIA 3 T1 Line equivalent means 2,044 Mbps. Not available in China without permission from the government. Table 7-10: Utility Reliability Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Electrical Reliability Critical Phase I N/A Rating Phase II 2 3 2 2 2 3 Congruence Not Measured Water Reliability Important Phase I N/A Rating Phase II 2 3 2 3 2 2 Congruence Not Measured Sewer Reliability Less Phase I Not Measured Important Phase II Not Measured Congruence Not Measured Telecom Reliability Ranking 1 Critical Phase I 49 59 36 60 34 64 Rating Phase II 3 3 2 2 3 4 Congruence Phase II Phase II Phase II Phase II Phase II Better Better Better Better Congruent Better BETTER WORSE RANKING 1 75 1 Based on qualitative ranking of telecom reliability among 75 leading global economies. RATING 1 5 Source: WEF Global Competitiveness Report, 2001-2002. 80 Appendices SNAPSHOT ASIA Table 7-11: General Business Conditions Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Access to Local Finance Ranking 1 Less Phase I Important 60 48 41 47 51 69 Phase II N/A Congruence Not Measured Red Tape "Ease of Doing Business" Ranking 1 Important Phase I 58 59 8 44 72 41 Rating Phase II 3 4 3 2 3 3 Congruence Phase II Phase II Phase II Phase II Better Congruent Worse Better Better Congruent Hidden Import Trade Barriers (Customs) Ranking 1 Less Phase I 61 67 33 66 41 73 Important Rating Phase II 4 3 3 3 3 4 Phase II Congruence Phase II Phase II Congruent Phase II Better Better Congruent Better Better Difficulty in Starting Business Ranking 1 Less Phase I 23 42 28 43 17 22 Important Phase II N/A Congruence Not Measured Political Stability Ranking 1 Important Phase I 35 47 25 43 26 N/A Rating Phase II 2 4 2 3 2 1 Congruence Phase II Better Congruent Congruent Congruent Congruent N/A (Continued on next page for table and ranking/rating scale.) 1 Based on qualitative rankings of business conditions among 75 leading global economies. Source: WEF Global Competitiveness Report, 2001-2002. Appendices 81 SNAPSHOT ASIA Table 7-11: General Business Conditions (Continued) Importance Phase China Indonesia Malaysia Philippines Thailand Vietnam Social Stability Ranking 1 Important Phase I 16 39 4 30 29 N/A Rating Phase II 2 4 2 3 2 1 Congruence Congruent Phase II Phase II Phase II Worse Worse Worse Congruent N/A Government Transparency Corruption Index 2 Important Phase I 3.5 1.9 4.9 2.6 3.2 2.4 Rating Phase II 3 4 3 4 3 4 Congruence Phase II Phase II Phase II Congruent Better Better Congruent Congruent Better Costs of Corruption Ranking 1 Important Phase I 56 54 50 65 39 59 Phase II N/A Congruence Not Measured Grants and Incentives % of GDP Important Phase I 1.48 3.58 1.42 0.27 0.38 N/A Rating Phase II 3 4 2 2 2 3 Congruence Phase I and Phase II Not Comparable 1 Based on qualitative rankings of business conditions among 75 leading global economies. BETTER WORSE Source: WEF Global Competitiveness Report, 2001-2002. 2 Based on index of 102 countries where 10=Best and RANKING 1 75 1=Worst. Source: Transparency International Corruption Perceptions RATING 1 5 Index, 2002. 82 Appendices SNAPSHOT ASIA About the Research Companies . . . Tractus Asia Limited provides corporate strategy and implementation assistance to multinational manufacturing companies looking to establish a presence or improve their business in Asia's developing economies. Headquartered in Hong Kong, Tractus has offices in Shanghai and Bangkok to serve the needs of clients in Greater China and Southeast Asia. Tractus and its senior management also serve as advisors to Asian regional governments on economic development and investment attraction issues. Through the offices in China and Thailand, Tractus has worked on behalf of numerous multinational, regional and local Asian companies. The China operations also function as a business incubator. Brooker Policy Research Company Limited. Founded in January 2003 as a spin-off from the Brooker Group Public Co., Ltd., Brooker Policy Research Co., Ltd. provides a wide range of policy research services to the public sectors in Thailand and East Asia. Major areas of research include: regional cooperation and economic development; private sector development; science and technology development; trade and investment policy research (including investment promotion advisory services and training programs); institutional capacity building and human resource development; and social sector development. In August 2003, Brooker Policy Research Co., Ltd. renamed itself Asia Policy Research Co., Ltd. www.miga.org