In 2015, the Asian Economic Community (AEC) will take effect across our region's borders.
The aims of the AEC are to form a single regional market and production base, fair economic competition among Asean members, the integration and development of SMEs to accelerate progress of less-developed members, and full integration with the global economy.
Asia’s promising economic growth of the early 1990s collapsed because the financial system was not mature enough to handle the influx of capital investment. This led to the “asset-bubble burst” and the 1997 Asian financial crisis.
Taking lessons from this experience, Asean believes that a single-market approach will give the region a better chance of survival against growing competition from India and China.
What it means for business
By now, managers should at least understand the basic risks and opportunities the new community will bring.
Managers should revisit their key strategy objectives and long-term plans to ensure that they are still relevant come 2015. Can suppliers support the potential increase in demand? Can companies continue to provide goods and services to their customers? Will they remain relevant in the market when the AEC is launched? Some Thai companies for instance, are thinking ahead by making cross-border investments and acquisitions. Meanwhile, large companies in the Philippines are taking a different approach by forming joint ventures in other Asean countries to distribute their products. Several telecommunication companies are also looking forward by expanding their network-sharing arrangements.
Businesses should monitor how regulatory changes will affect their organisations not only in their respective countries but in other Asean nations, too. Is your corporate governance strong enough to adapt to the change? Will your business plans or forecast be affected? What are the financial implications of the changes?
Government should likewise start revisiting policies on specific industries. Government should also join with business and educators to create curricula that reflect AEC goals.
Managing risk, opportunities
The role of governance teams and internal auditors is basically to assess the potential risks and business opportunities that the AEC will bring. Risk management strategies need to be reassessed.
For instance, the free movement of labour under the AEC means companies should ensure their governance and corporate policies address cultural differences when hiring foreign personnel. On the other hand, they should also protect their local employees’ safety when sending them to neighbouring Asean nations. Travel, health and security protocols should be revisited. Procedures in acquiring goods must remain relevant and correct as goods and supplies become more easily commissioned. Supply chain strategies should be revisited to ensure that companies maximise the benefits of the AEC.
The governance team should ensure that their enterprise-risk-management can adapt to the AEC’s new conditions. Business continuity and disaster recovery plans should also be revisited given that companies will be operating on a wider geographic scale.
Management should also be confident that their policies and procedures will hold up under AEC-related agreements. Internal auditors and risk consultants can help management in identifying, monitoring and managing business risks that go with the significant changes.
The AEC will open up great opportunities and possibilities for Asean countries, both within the community and at a global level. Management can rely on internal auditors’ expertise to improve controls in key business processes, identify business risks and provide advice to minimise business risks. In turn, internal auditors need to expand their risk-management process to fully understand the impact and risks in their company’s control environment.
While some companies in Asia continue to see them as a provider of traditional assurance and consultation, auditors are increasingly being called upon to play a proactive role in organisations’ basic functions and give valuable, timely input to identify risks and recommend improvements.
Aldwin Gatchalian is a senior manager of Enterprise Risk Services at Deloitte Touche Tohmatsu Jaiyos.