'Opportunities for S'pore' with Asean free trade zone (The Straits Times)

SINGAPORE is poised to play a greater role as an exporter of services and skills once the Asean Economic Community (AEC) is up and running, a global management consultancy expert says.

“Already, Singapore is home to a lot of headquarters for companies in the region,” McKinsey & Company Asia chairman Kevin Sneader told The Straits Times in a recent interview.

“It has a strong base of expertise and knowledge of best practices, and it’s where people can come to learn capabilities and skills,” he said.

“If the AEC delivers what it’s supposed to deliver, and trade tariffs come down, there is going to be more opportunities (and demand) for Singapore to bring its expertise to other parts of the region.”

The AEC, a free trade zone covering the Asean nations, is expected to take effect by the end of this year.

Mr Sneader, who is based in Hong Kong, was here last week to speak at the Singapore Business Leaders Programme, a week-long conference organised by the Human Capital Leadership Institute.

Mr Sneader said Singapore stands out among the Asean countries as “a highly productive, highly developed and sophisticated market”, especially with its strengths in the shipping and logistics industries.

“But for the rest of Asean, the reality is that productivity has not improved to the extent it needs to improve to, to become more competitive as a region.”

The average annual manufacturing output of a Vietnamese worker, for instance, is US$3,800 (S$5,080) – a far cry from that of a Chinese worker, at US$57,100, going by data from the McKinsey Global Institute.

“What the AEC should achieve is to remove some of the obstacles to improving productivity and help best practices spread across the region,” said Mr Sneader.

He added that the AEC could open up significant opportunities for intra-regional trade, which stands at only 24 per cent today.

This is only about half the intra-regional trade in North America, at 40 per cent, and just more than one-third that in the European Union, which is at 59 per cent.

“The AEC will be about closing that gap (with other trading blocs) and, in closing that gap, it will create opportunities for businesses here.”

Mr Sneader singled out the Philippines and Vietnam as markets that likely house “the greatest near-term growth prospects” among the Asean countries, with “strong returns”.

He also said the firm is seeing more companies from the digital industry express interest in building up their Asean business.

“The explosion of the digital industry, including e-commerce, has opened doors for companies,” he said, noting that although Asean has high usage rates for Internet services as a whole, there is still very poor infrastructure and broadband access in many countries.

“There’s so much happening right now, as more businesses try to do new things and innovate. It’s going to be critical to the success of the AEC.”