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AN EMPIRICAL DEDUCTION OF STRATEGIC CONNIVANCE FOR IMPENDING ASEAN-INDIA BUSINESS

COMPETITIVENESS

AUTHORED BY:

DR (MRS) TWINKLE PRUSTY

ASSOCIATE PROFESSOR

FACULTY OF COMMERCE

BANARAS HINDU UNVERSITY

Email: [email protected]

# 08874200866

AND

CO-AUTHORED BY:

MR. JIVITESH PATRA

DEPUTY MANAGER

AXIS BANK

Email: [email protected]

# 09900558391

AN EMPIRICAL DEDUCTION OF STRATEGIC CONNIVANCE FOR IMPENDING ASEAN-INDIA BUSINESS

COMPETITIVENESS

Dr.Twinkle Prusty, Associate Professor, BHU, Faculty of CommerceMr. Jivitesh Patra, Deputy Manager, Axis Bank

ABSTRACT

We estimate a dynamic export demand model of India-ASEAN competitiveness that explains the

India's exports to jth ASEAN country as a function of imports of buyer country and India’s unit

value of exports relative to domestic price level of buyer country. The research identifies the

structure within which improvement of connectivity of India’s technical expertise could be

extended to ASEAN for comprehensive and wide-ranging economic cooperation.

The study’s inferences contribute in entailing how the ASEAN community recognizes the need

to provide necessary capacity building and initiate reforms for enhancing their business

competitiveness and to upgrade their national enterprises at a more sophisticated level

determining their future competitiveness. On the one hand, it seems that economic integration

will remain the key to ASEAN competitiveness in the face of fiercer competition in the global

market place. On the other hand, the trade and investment relations of the ASEAN with other

countries, particularly with developed economies, will also foster their investment development

path and prosperity. In addition to the possibilities of India-ASEAN integration other challenging

efforts for governance would narrow the development gaps among ASEAN economies. This

would corroborate opportunity for India to build a firm basis for involvement with ASEAN

economic framework that eventually congregate with. We take the findings to imply that

economists pay much more attention in identifying other sources of permanent and Asian

country-specific real changes to explain economic fluctuations in ASEAN economies.

Key Words: Competitiveness, Integration, Economic Cooperation, Governance

INTRODUCTION

The rapid growth of emerging market economies in Asia has been a notable feature of the global

economy in recent years. This growth has been led most noticeably by China and India, but

several other Asian countries play an important and vibrant role as well. For the next few

decades economic policy decisions in Asia, and in particular in the ASEAN community, will

have profound effects on East Asia’s economic integration and on the global economy. The

ASEAN region has experienced remarkable economic dynamism and is actively engaged in an

ambitious scheme of regional integration.

Fig: 1: Global Business Competiveness

Source: Global Competitveness Report 2013-2014

As ASEAN governments place greater emphasis on strengthening their domestic economies, the

market is likely to continue to expand dynamically. There are the advantages of the tremendous

growth opportunities, dynamism, and stability of a unified ASEAN bloc. ASEAN’s agreement to

create a unified market by 2015 is an extremely ambitious project, going well beyond anything it

has attempted in the past. Indeed, the ASEAN Economic Community (AEC) promises to

establish free flows of goods, services and FDI, as well as freer flows of skilled labour and cross-

border capital. The goals are so ambitious that to be successful, this project to deepen regional

integration will require a tremendous amount of political backing from both internal and external

sources. Individually, ASEAN countries possess much strength that has been crucial to their

progress. Perhaps never in ASEAN’s history has the alignment of political and economic

aspirations been as strong as can be observed now. This alignment of interests allows ASEAN’s

members to pool their strengths in the pursuit of common goals.

OBJECTIVES OF THE STUDY

1. To assess the potency of the competitiveness of ASEAN and India integration.

2. To appraise the determinants of India’s export flows to individual ASEAN economies.

3. To identify the thrust areas embedding growth of business competitiveness bridging the

gap between India & South-East Asian countries.

REVIEW OF LITERATURE: ASEAN BUSINESS COMPETITIVENESS

Competitiveness determines the productivity with which a country or region uses its land, labor,

capital and other resources. Productivity sets the standard of living through returns on factors of

production (wages, rent, etc.) that a country can sustain. To attain competitiveness and

prosperity, it is not type of industries that a country or region chooses to compete in but how

productively it competes in those industries.

Competitiveness factors can be grouped under macro, micro, meso & meta level.

Fig.2: Four levels of systemic competitiveness

At the meta-level, the capability of development oriented patterns of political and

competitive economic systems at the local, regional, national or even supra-national level

to create favorable conditions for industrial dynamism and encouraging learning and

change is addressed.

At the macro-level, specific policies to stabilize competition oriented macro-economic

political and legal framework conditions are embarked upon through exchange rate

policy, monetary policy, budgetary policy, fiscal policy, anti-trust policy, trade policy and

consumer protection act.

At the meso-level, targeted policies (such as technology policy, industrial policy, and

environmental policy and education policy) and the economic promotion of firms’

competiveness are strengthened and addressed there into.

At micro-level, productivity rest on three interrelated areas: the sophistication of firms’ –

domestic or foreign affiliates – operation and strategy; the quality of the microeconomic

business environment in which they operate; and the state of development of clusters

Intra firm EfficiencyFormal & Informal CooperationNetwork alliances

Targeted PoliciesExport PromotionEconomic Promotion

Stable macro-economic policiesPolitical & Legal frameworkForeign Exchange rate

Development-oriented patternsCompetitive Economic SystemValue & Strategies

META LEVEL

MACRO LEVEL

MICRO LEVEL

MESO LEVEL

The economic performance of local, regional or national economy reflects interaction between

factors at all four levels, which can create predominantly virtuous circles or vicious circles.

Three main stages of development are considered-

Fig 3: ASEAN Countries and Stages of Development

i. Factor-driven economies compete on their factor endowments, primarily labour and

natural resources. Firms compete primarily on the basis of price and supply of basic

products and commodities, with their low productivity reflected in low wages.

ii. Efficiency-driven economies characterized by more efficient production processes and

better product quality. Technology comes through licensing, joint ventures, FDI and

imitation. At this stage, nations assimilate foreign technology but also begin to develop

the capacity to improve technology themselves.

iii. Finally, as economies move into the innovation-driven stage, they are able to maintain

higher wages & the associated standard of living only if their firms are able to compete

with new and unique products. At this stage, firms must compete through innovation,

producing new & different goods using the most sophisticated production processes.

Factor-driven economies

Efficiency-driven economies

Innovation-driven economies

CambodiaIndonesiaPhilippinesVietnamLaoMyanmarBrunei

MalaysiaThailand

Singapore

ASEAN ECONOMIES COMPETITIVENESS PERFORMANCE

1. Profile of the ASEAN Region

ASEAN is home to 592 million people with a combined GDP of US$1.49 trillion in 2012 at

current market prices. Put in perspective, ASEAN’s population is half that of China or India (the

world’s two most populous nations) and its GDP is about one-fifth that of the US (the world’s

largest economy). The labor force is predominantly youthful given that 28 percent of population

is below 15 years of age & only 5.7 percent are in post-retirement age group of above 65 years.

Fig 4: ASEAN Endowments- Natural Resources

Source: Central Intelligence Agency (2012). The World Fact-book 2012.

ASEAN is strategically located in Asia at the crossroads of world shipping and air routes within

an economically vibrant region that is bounded by India in west, China, Japan and Korea in the

northeast & Australia and New Zealand in the south. As much as 60 percent of the world’s

maritime trade passes through ASEAN waters. With a land area of 4.4 million sq km, ASEAN is

rich in a diversity of unique natural resource endowments (Figure 4).

2. Prosperity

The competitiveness of a country or region determines the economic outcomes it achieves. One

successful economic outcome is an increase in prosperity of the country or region. The central

measure of prosperity is Gross Domestic Product (GDP) per capita adjusted for purchasing

power parity. GDP per capita is determined by both population and output. ASEAN’s population

increased at a compound annual growth rate (CAGR) of 1.7 percent in the pre-Asian financial

crisis period from 1990-1997 and 1.4 percent CAGR post-Asian crisis from 1997-2012. These

rates were higher than that of the world average (1.5 percent and 1.2 percent respectively). Over

the same two periods, ASEAN’s GDP growth rates were 7.1 percent and 3.7 percent CAGR

respectively (which compared with 2.7 percent and 3.4 percent CAGR for the world).

Fig 5: ASEAN Endowments- Natural Resources

Source: Central Intelligence Agency (2012). The World Fact-book 2012

3. Inequality

Income inequality in ASEAN appears to be relatively high, with five of eight ASEAN countries

having a Gini coefficient above 0.4. Singapore has the highest level of income inequality,

followed by the Philippines and Thailand. The key reasons often cited for rising income

inequality are technological change providing higher returns to talented individuals and more

open markets creating greater opportunities for entrepreneurs to leverage their capabilities across

larger markets. Inequality is lower in ASEAN than China but higher compared with India.

Fig 6: Income Inequality, ASEAN Countries, China & India


4. Poverty

Poverty shows the extent to which growth generated has failed to reach all echelons of a

country’s or region’s population. A common indicator of poverty is the percentage of population

below the income poverty line of US$1.25 per day. Four ASEAN countries have about a fifth or

more of their population living below the income poverty line, which is higher than China’s 15.9

percent share. Cambodia (40.2 percent) and Laos (44 percent) have a much higher proportion of

abject poor than the other ASEAN countries for which data are available; this proportion is

comparable to India’s. Thailand (0.4 percent) and Malaysia (0.5 percent) have among the lowest

level of poverty in ASEAN (Singapore does not have an official poverty line).

Fig 7: Poverty Rates: ASEAN Countries, China & India


5. Quality of Life

Beyond an income measure, it is as important that a country’s or region’s competitiveness is

determined by the broader concept of “quality of life”. The UNDP Human Development Index

(HDI) provides the most established attempt to measure such a quality. Based on sub-indices on

life expectancy, education and GDP, the latest HDI shows that ASEAN as a whole ranks above

India but below China on human development and quality of life. Four ASEAN countries have

better levels of human development than China, while eight ASEAN countries rank above India.

Among the ASEAN countries, there is a large gap in HDI with Singapore being the most

developed and Myanmar the least.

Fig 8: Human Development Index: ASEAN Countries, China & India


6. Labor Productivity

Labor productivity reflects how well the region utilizes its resources to produce output. It is

driven by employee skills, capital stock and total factor productivity, which are the many factors

that influence how well inputs are used. Labor mobilization is attributable to a combination of

factors. The demographic profile of the population determines the share of people of working

age. Labor productivity in ASEAN is relatively low, as is the case with most developing

countries.

Fig.9: Labor Productivity Level and Growth: ASEAN and Selected Countries


7. Exports

ASEAN’s annual share of world export of goods and services has been two to three times higher

than its share of world GDP over the years, which reflects the region’s dependence on exports as

a source of economic growth. However, despite the importance of exports, ASEAN has not made

much inroad in increasing its share of world exports in the last ten years, as its share has hovered

around 6 percent. Among ASEAN countries, Singapore has strongest presence in global markets.

ASEAN has strong clusters in a number of industries such as information technology (IT), oil

and gas products, agricultural products, metal, mining and manufacturing, transport and logistics.

Fig.10: Exports by Clusters: ASEAN Countries


THE EXPORT DEMAND MODEL-INDIA & ASEAN

The specification of demand functions in foreign trade first determines total demand for imports

of buyer country, and then independently allocates demand among competing sources of supply.

We specify India's exports to jth ASEAN country as a demand function, so that it may be called

the import function of jth ASEAN country for India’s exports. Thus, the system can be seen as

an allocation model that explains the India's exports to jth ASEAN country as a function of

imports of buyer country and India’s unit value of exports relative to domestic price level of

buyer country.

The specification of bilateral export demand function is as follows:

Xj = a + b Mj + c (UVX /PYj) + Uj----------------------------- (i).

Where, j = 1,2,3,4 and 5 (five ASEAN countries: Indonesia, Malaysia, Philippines, Singapore

and Thailand).

Xj = Exports of India to jth ASEAN country in million US Dollars at constant price.

Mj = Aggregate imports of jth ASEAN country in million US dollars at constant price.

UVX = India’s Indices of unit value of exports in terms of US dollars. (2005=100)

PYj = GDP deflator of jth ASEAN country in US dollar term. (2005=100)

Uj = Error term

Here, the assumptions are:

i) b is positive implying higher world imports of jth ASEAN country would increase

India's exports to that country, and lower imports would decrease India's exports to that

country.

ii) c is negative implying higher India's export prices relative to domestic price of jth

ASEAN country would decrease India's exports to that country and vice-versa.

To get a direct measure of elasticity, the final form of equation to be estimated has been assumed

in log-linear form of equation (i) in real term:

Log (Xj/UVX) = µ + Log (Mj/PYj) + Log (UVX/PYj) + Vij --------- (ii).

Where,

: Elasticity of India's exports to jth ASEAN country w.r.t total imports of that country.

: Elasticity of India's exports to jth ASEAN country w.r.t India's unit value index of exports

relative to domestic price level in that country (to represent cost of production of buyer country).

A. Database, Methodology and Data Analysis

The time series data required for the estimation are based on bilateral exports of India to

individual ASEAN country, the aggregate imports of individual ASEAN country, unit value of

exports of India, GDP deflator of individual ASEAN country, and the exchange rates of five

ASEAN countries and India. The data on former two variables has been collected from IMF’s

Direction of Trade Statistics-Year Book, various issues. The series of unit value index of exports,

exchange rates and GDP deflator with base at 2005 have been taken from IMF’s International

Financial Statistics Year Book, 2012. All data on quantity variables are measured in million US

dollars. For transformation of variables from nominal to real term, we have proceeded in

following manners:

Dividing unit value of exports in local currency by exchange rate of India, we get India’s

unit value of exports in dollar while domestic price deflator of jth ASEAN country in

dollar is obtained dividing domestic price deflator in local currency by the exchange rate

of the concerned ASEAN country.

India’s real export to jth ASEAN country is obtained dividing India’s nominal exports in

dollars by unit value of exports in dollars.

Real imports of jth ASEAN country is obtained dividing nominal import in dollars by

domestic price deflator in dollar while India’s relative unit value of export in dollar term

is obtained dividing India’s unit value of exports in dollar by domestic price deflator of

jth ASEAN country in dollar.

The most general method of estimating single equation is ordinary least square (OLS) method.

However, the application of OLS to a time series regression provides spurious regression if the

data series are found to be non-stationary (Dickey and Fuller 1979). In most of the cases, the

time series data suffers from the problem of non-stationarity. As we deal with time-series data in

this study, we have tested the unit root test for all the variables, namely India's bilateral exports

to individual ASEAN economies, India’s relative export price, and import bill of ASEAN

economies. The total number of variables is fifteen.

Table 1- Unit Root Test for Variables

(Dickey-Fuller statistics-DF and Augmented Dickey-Fuller statistics-ADF)

India's Exports Bilateral Real

Exports (Xj/UVX)

Real Imports of

Buyer Country

(Mj/Pyj)

India's Relative

Exports Price Index

(UVX/PYj)

DF ADF DF ADF DF ADF

Indonesia -2.014 -1.805 -2.192 -3.489 -3.167 -3.373

Malaysia -2.112 -2.091 -1.930 -1.582 -2.884 -2.740

Philippines -2.904 -2.681 -2.304 -2.201 -2.655 -2.345

Singapore -2.589 -2.845 -2.989 -3.159 -1.953 -2.007

Thailand -2.087 -1.845 -2.780 -2.294 -2.487 -2.872

95 % critical value for the ADF statistics = - 3.621.

Note:

i) All variables are measured in natural logarithm.

ii) Unit root tests have been performed using Microfit 4.0 (Pesaran and Pesaran 1997).

The Table 1 displays the Dickey-Fuller (DF) and the augmented Dickey-Fuller (ADF) statistics

for testing the unit root hypothesis together with the associated critical values. It is clear from the

table for all fifteen variables in the study; neither DF nor ADF statistics accept the stationarity in

data. The unit root hypothesis cannot be rejected for all the variables at conventional significance

levels. In other words, all the variables under consideration are non-stationary on their levels.

Therefore, the application of OLS (Ordinary Least Square) method to the regression model will

give spurious relationship.

Consequently, equation (ii) will be estimated using the fully modified OLS method proposed by

Phillips-Hansen's Fully Modified (FM) Method, which takes into account the non-stationarity in

the data as well as potential endogeneity of the right hand variables and autocorrelation of the

error term (Phillips and Hansen, 1990 and Phillips and Loretan, 1991). The computation of this

estimator involves a semi-parametric procedure which is asymptotically equivalent to maximum-

likelihood approach, and allows us to estimate the long-run elasticities and in equation (ii)

using co-integrating regression but correcting the estimates to take account of possible

simultaneity and serial correlation effects. The precondition for applying FM technique is that

the dependent variable and the regressors are integrated of order 1, i.e. they have unit roots.

In order to apply FM technique, the testing procedure described above, we first need to

determine whether all variables employed in the model are integrated of order one. The unit root

tests employed are Dicky-Fuller (DF) and Augmented Dicky-Fuller (ADF) tests. The results

obtained by applying these tests to the series of data set for all the variables in their first

difference have been presented in Table 2. The unit root tests confirm that all the series

employed are integrated of order one. Therefore, the precondition for Phillips-Hansen's FM

method is satisfied.

Table 2-Unit Root Test for Variables in First Difference

(Dickey-Fuller statistics-DF and Augmented Dickey-Fuller statistics-ADF)

India's Exports Bilateral Real

Exports (Xj/UVX)

Real Imports of

Buyer Country

(Mj/PYj)

India's Relative

Exports Price Index

(UVX/PYj)

DF ADF DF ADF DF ADF

Indonesia -5.254 -2.986 -3.370 -3.479 -4.765 -3.030

Malaysia -5.202 -4.450 -3.084 -3.146 -5.591 -2.746

Philippines -6.830 -4.913 -3.313 -3.021 -4.456 -3.272

Singapore -4.669 -3.425 -3.256 -3.309 -4.974 -3.390

Thailand -5.016 -3.900 -3.159 -3.236 -5.721 -3.630

95 % critical value for the ADF statistics = - 2.985.

Note: 1) All variables are measured in natural logarithm.

2) Unit root tests have been performed using Microfit 4.0 (Pesaran and Pesaran 1997).

B. Regression Inferences

The regression results of FM estimates for the model (equation ii) are reported in Table 3 using

the Microfit 5.0 for Windows commercial (Pesaran and Pesaran 2009). The sample period ranges

from 2003 to 2013. The table shows that two explanatory variables bear expected sign in all the

cases. The coefficient of real import of an ASEAN country has been found to be statistically

significant at 1 per cent level for all the five cases. Further, India's export price relative to

domestic price of an ASEAN country bears expected negative sign with statistical significance at

1 per cent level in all the cases. As the variables in the regression equation (ii) are measured in

logarithm, the corresponding coefficient gives the direct measure of elasticity of India's export

with respect to price and imports.

In case of India's exports to Indonesia, it has been found to be elastic with respect to both India's

export price and total imports of buyer. However, the import elasticity is less than price

elasticity. In case of exports to Malaysia, India's export has been found to be slightly inelastic

with respect to both variables. India's export to Philippines has been found to be elastic with

respect activity variable as well as price variable, particularly the former. On the other hand,

India's export to Singapore is inelastic with respect to import while it is elastic with respect to

price. In case of Thailand, the reverse is true. In this case, India's export is elastic with respect to

total import while it is inelastic with respect to price.

Table 3-Phillips-Hansen's Fully Modified Estimates

(Parzen weights, truncation lag = 1, Trended case)

Dependent variables

India's Real exports to jth

ASEAN country (Xj/UVX)

Co-efficient of independent variables

(Figure in parenthesis shows tabulated 't' value)

Real imports bill

of jth ASEAN

country (Mj/ PYj)

India's export price

relative to domestic

price of jth ASEAN

country (UVX / Pyj)

Intercept

(µ)

Exports to Indonesia (XIN) 1.764*

(6.103)

-1.838*

(-2.480)

-11.534

(-2.614)

Exports to Malaysia (XML) 0.954*

(18.009)

-0.983*

(-2.883)

-4.764

(-5.633)

Exports to Philippines (XPH) 2.044*

(7.814)

-1.807*

(-3.081)

-14.848

(-6.533)

Exports to Singapore (XSN) 0.772*

(3.304)

-1.520*

(-4.008)

-4.882

(-5.860)

Exports to Thailand (XTH) 1.323* -0.812* -8.112

(25.648) (-3.379) (-17.280)

Note: 1) All variables are measured in natural logarithm.

2) The value in the parentheses below each co-efficient give estimated `t’ ratio for

the corresponding coefficient.

3)*: Denotes that the respective co-efficient is significant at 1 % level.

C. Statistical Findings

The elasticity of import in three cases out of five exceeds unity. The elasticity of India's

exports with respect to Philippines' import has been found to be highest. The lowest one has been

observed in case of India's exports to Singapore. The estimated activity elasticity reveals that a

one percentage point increase in ASEAN imports leads to 1.764 percentage point increase in the

demand for India's exports to Indonesia, 0.954 percentage point increase in the demand for

India's exports to Malaysia, 2.044 percentage point increase in the demand for India's exports to

Philippines, 0.772 percentage point increase in the demand for India's exports to Singapore and

1.323 percentage point increase in the demand for India's exports to Thailand.

The relative price elasticity for three out of five ASEAN countries exceeds unity. The

highest one has been found in case of India's exports to Indonesia, while the lowest one has been

found in case of India’s exports to Thailand. The estimated price elasticity reveals that a one

percentage point decline in India’s relative export price would leads to 1.838 percentage point

increase in the demand for India's exports to Indonesia, 0.983 percentage point increase in the

demand for India's exports to Malaysia, 1.807 percentage point increase in the demand for India's

exports to Philippines, 1.520 percentage point increase in the demand for India's exports to

Singapore and 0.812 percentage point increase in the demand for India's exports to Thailand.

D. Implications

The consideration of individual countries in the study shows that there exist significant

differences in export demand elasticity’s in the ASEAN countries with different levels of

economic development when explaining their behavior as importers from a common trade

partner, India. As regards to the results of the trade model, it can be said that it has performed

very well in terms of sign and significance of the explanatory variables. The result of this study

reveals valuable insight for policy purposes. The expenditure – effect on India's export to

ASEAN has found to be positive. In other words, the demand for India's exports is influenced by

the growth of ASEAN imports. Therefore, it can be inferred from this study that economic

growth in ASEAN region would be transmitted to Indian economy through trade channel.

SUMMARY OF FINDINGS AND INFERENCES

ASEAN firms need to improve the sophistication of their operations and strategies. In this

respect, government may play an important role by increasing the internal and external

competition and by improving the context of firms’ activity (e.g. corruption, intellectual

property, etc.). Since institutions play an important role in increasing the competitiveness of

firms and national economies, a deeper analysis of their role in the specific case of ASEAN

countries would help to identify some of the specific drivers and brakes of the economic

development process.

Table 4: Top-Three Areas of Relative Strength within Each ASEAN Country

Countries Relative Strengths

Singapore Administrative Infrastructure

Context for Strategy & Rivalry

Logical Infrastructure

Brunei Macroeconomic Policy

Rule of Law Human Development

Malaysia Supporting & Related Industries & Clusters

Capital Market Infrastructure

Organization Practices

Thailand Macroeconomic Policy

Internationalization of Firms

Supporting & Related Industries &

Clusters

Indonesia Supporting & Related Industries & Clusters

Strategy & Operational Efficiencies


Vietnam Supporting & Related Industries & Clusters


Political Institutions

Cambodia Context for Strategy & Rivalry

Political Institutions Logical Infrastructure

Table 5: Top-Three Areas of Relative Weakness within each ASEAN Country

Countries Relative Weakness

Singapore Supporting & Related Industries &

Clusters


Strategy & Operational Efficiencies

Brunei Administrative Infrastructure


Supporting & Related Industries &

Clusters

Malaysia Human Development

Rule of Law Communication Infrastructure

Thailand Political Institutions Rule of Law Human Development

Indonesia Administrative Infrastructure

Communication Infrastructure

Human Development

Philippines Administrative Infrastructure


Political Institutions

Vietnam Macroeconomic Policy

Administrative Infrastructure


Cambodia Communication Infrastructure

Human Development

Rule of Law

The ability of ASEAN community to continue to reform and enhance their business environment

and to upgrade their national enterprises to a more sophisticated level will determine their future

competitiveness. On the one hand, it seems that economic integration will remain the key to

ASEAN competitiveness in the face of fiercer competition in the global market place. On the

other hand, the trade and investment relations of the ASEAN with other countries, particularly

with developed economies, will also foster their investment development path and prosperity.

RECOMMENDATIONS:

Embryonic Integrated India-ASEAN Viability:

Services prove to be a very good starting point to enhance cooperation further between India &

ASEAN. However, there are several political as well as organisational obstacles that have to be

resolved before India and ASEAN can take their cooperation to the next level. On the one hand,

an agreement on services trade would be well advised, since it might help to overcome the bias

in benefits from the current agreement towards ASEAN states. On the other hand, ASEAN states

need to come to terms with the direction in which ASEAN integration will head. If this question

remains unsolved, it is unlikely that ASEAN states will be able to represent themselves as one

body in global negotiations. Nevertheless, given their different levels of development, India will

have to engage with the ASEAN states with due consideration to their economic conditions.

In addition to the possibilities that India can find within the services sectors of the respective

ASEAN member states, there are other extents for cooperation. These areas include capacity

building and the improvement of connectivity through infrastructure development. India’s

technical expertise can be extended to ASEAN by cooperating in disaster forecasting and

management. Indeed, India’s engagement with ASEAN should be comprehensive and wide-

ranging. Nevertheless, the question of how this involvement will be executed depends on the

framework that is selected. The two options that are possible are ASEAN+4 and ASEAN+6.

Since there are political barriers that may have to be overcome in accessing these regional

architectures, it would be to India’s advantage to initiate its engagement with ASEAN member

states on a bilateral basis. This will provide India the opportunity to build a firm basis for

involvement with ASEAN regardless of the framework that eventually emerges.

Governance Challenges to ASEAN Integration:

Economic opportunity in the ASEAN community is enormous and so potentially also is the

potential risk. We need to ensure governance frameworks and practices are unto the task so that

the global business can continue to prosper. Nevertheless the corporate governance structures

represent the main channel through which the country’s firms’ strategic decisions may be

influenced by their national and international environment and without effective governance, the

economy may not allocate additional resources efficiently nor it introduce retrenchment and

restructuring of resources.

As such no consistent governance strategy performance relationships have yet been established.

Firms in different countries face contextual variations in geography, climate, language, culture as

well as more clearly- identifiable institutional variations due to which the emerging research

areas as identified in the context of global economic crisis could deploy de-diversification, the

contraction of business groups, new ownership structures and sources of finance to synthesise

causation for international business considerations.

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