With Asean’s aspirations for regional integration on track, employment patterns are shifting in unexpected directions
The Asean Economic Community (AEC) is envisioned as the goal for regional economic integration by 2015. The AEC was set up to envisage the following key characteristics:
- a single market and production base
- a highly competitive economic region
- a region of equitable economic development
- a region fully integrated into the global economy
In order to do this, the AEC areas of cooperation include human resources (HR) development and capacity building; recognition of professional qualifications; closer consultation on macroeconomic and financial policies; trade financing measures; enhanced infrastructure and communications connectivity; development of electronic transactions through e-ASEAN; integrating industries across the region to promote regional sourcing; and enhancing private sector involvement for the building of the AEC.
In short, the purpose of the AEC is to transform Asean into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.
The AEC in a sense represents the culmination of Asean’s aspirations toward regional integration. The AEC is the vision of an economically-integrated region by the end of 2015 between all 10 member countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
The plan is for a single market and production base in a highly competitive economic region with equitable economic development that is fully integrated into the global economy.
Asean economic cooperation, which has evolved into a gradual process of economic integration, has made the region attractive for the flow of foreign investments, capital and technology.
In the past five decades, under the umbrella of political and social stability provided by Asean, member states have made huge economic and social progress.
Forecasters see Asean as a key area for foreign direct investment based on a potential of an integrated region with a population of 600 million, a US$2 trillion gross domestic product (GDP) by 2016 which would account to upwards of 40% of global GDP.
Asean and leaders
The potential for this integration of the region has far-reaching consequences for businesses, their leaders and HR managers. Key to this is the potential for changing direction of the workforce and potential shifting of employment patterns in the region.
For example, in the Asean Business Outlook Survey 2015 report released by the American Chamber of Commerce which surveyed more than 500 executives representing small, medium and large US (United States) companies in Asean countries, there are some interesting insights on how business leaders are thinking about the opportunities for the region.
For 58% of those surveyed, they claimed that the region had been increasingly important for their organisations in the last two years in terms of the contribution of the region to their companies’ worldwide revenue.
In addition, the majority of those who took part in the survey added that Asean markets would become increasingly important to their companies and their global revenue in the next two years.
Therefore, many are planning to increase their exposure in the region, particularly in markets like Indonesia, Vietnam and Myanmar which are viewed as target markets for business expansion.
Opportunities and HR challenges
The opportunities in these markets do have their own challenges though, not least in the area of human capital where greater economic integration will mean a more mobile and diverse workforce.
This in turn will place a greater emphasis on organisations assessing how they will source, train and retain their internal talent pool.
They will need to understand the needs of their employees across their demographic base and take into account a variety of factors that may impact employee attraction and retention.
These comprise remuneration in each country in the region, attitudes to work-life challenges, cultural differences and the aspirations of different age groups of their employees.
The region is likely to be very fluid when it comes to talent in certain sectors, industries and functions. Therefore, organisations are going to have to react accordingly and move away from the more traditional employment relationships.
For such a diverse region, it is very difficult to have a blanket, one-size fits-all policy. The need for strong leaders and managers who have a more international mindset, who can understand the challenges of the region and can engage with their subordinates will become increasingly important to ensure employee retention and to drive the greater need for productivity in the region.
Challenges for SMEs
Small and medium-sized enterprises (SMEs) in certain countries could also face major challenges once the AEC plan comes into effect if they have not positioned themselves adequately to compete in the new marketplace. For instance in Vietnam, according to economic expert Pham Chi Lan, the challenge for many firms will be to get access to markets and capital, a limited management talent pool, lower labour qualifications versus other countries and a shortage of the latest technology.
In order to remain competitive, SMEs in countries like Vietnam are going to have to focus on their capacity and develop their HR as a priority in order for them to adapt in a changing regional landscape.
Likewise, it is also necessary for governments to assist SMEs to take advantage of the growing prospects in the region by simplifying areas such as access to bank loans, application and approvals for business registration, licence granting, capital borrowing and taxes.
An International Labour Organisation research paper in 2013 shows that labour productivity in Vietnam was among the lowest in the Asia-Pacific region. Productivity in Singapore was nearly 15 times the level in Vietnam, 11 times higher in Japan and almost 10 times higher in South Korea.
Even among its middle-income Asean neighbours, Vietnam’s productivity remained one-fifth the level in Malaysia and two-fifths the level in Thailand.
For these types of organisations, in countries like Vietnam, it is important that they recognise the potential importance of the Asean market rather than placing it as a lower priority to markets such as the US, Japan and Europe.
As the war for talent increases in the region due to organisations looking to capitalise on the growing HR potential to their company, the issues around compensation and benefits will become more of a priority.
It will be a delicate balancing act as organisations will face increased costs for doing business whether in raw materials, taxes, rents etc., whilst remaining an attractive proposition to current and future employees to help drive growth and maximise the potential for the region.
It is essential to understand how pay trends are changing in the region and the impact of changes in regulations when it comes to sourcing for talent outside domestic markets so that organisations can react accordingly.
Flexible additional benefits aside from basic salary and bonuses is certainly an area where companies can look to reward employees whilst still allowing them to keep control of costs and tailor packages to an increasingly diverse workforce.
Additionally, many organisations currently do not have a longer term focus when it comes to remunerating employees. This mindset has the potential to restrict longer term retention rates and therefore hinder the potential to increase productivity over time.
A recent Jobstreet.com survey of over 2,000 workers in the region across a variety of industries and positions reveals some of the concerns that employees have and the challenges that organisations may face.
For instance, over 80% of respondents declared a preference for working in Singapore under the integrated AEC. Sixty-seven percent felt they would have a better opportunity of finding a better paid job and 52% intended to look for a new job under the AEC, with one-third expecting a higher job turnover rate due to the borderless job market.
Likewise, employees also raised some concerns on the impact of AEC with 47% wondering if they may lose their jobs to workers from neighbouring countries.
How will we be affected
From a job growth prospect, it has been projected that the AEC will generate upwards of 14 million new jobs between 2015 and 2025 although these gains are unlikely to be evenly spread across the region. One of the factors that need to be considered is that different countries have different needs in terms of the level of skills that are required from workers.
Also, different countries are at different stages of demographic growth and have differing structural challenges such as age, development levels of the labour force and political stability.
However, fears of an overnight movement of the workforce are likely to be unfounded as the AEC targets more of the movement of “skilled labour” as opposed to “unskilled labour”. Also, the AEC will only allow temporary movement of “skilled” labour across companies within the region.
As yet, the permanent relocation of workers is not yet permitted. Certain categories of professional workers have been exempted from this: engineers, nurses, surveying service providers, architects, accounting service providers, medical practitioners, dental practitioners and tourism professionals.
These are estimated to affect less than 2% of the total workforce for Asean. As yet, the negotiations for these categories of workers have only been conducted on a bilateral basis and not as yet, on a region-wide basis.
Implementing this could prove difficult as several classifications of jobs such as teachers, lawyers or civil servants are usually meant only for national citizens.
The Southeast Asia region is positioned for growth and huge opportunities that will be brought about by AEC integration in 2015. But with this growth comes challenges as employers face rising costs and the ongoing war for key talent.
As the workforce demographics in Asean shift, it is going to be increasingly important for organisations to review their HR policies so they are both aligned with the strategic direction of the company, whilst still being a compelling offering to retain and attract talent.
Mark Ellwood created Ellwood Consulting with 18 years of specialised recruitment experience. As the former managing director of one of the world’s leading public-listed recruitment firms, Mark was responsible for the brand’s introduction and growth in Singapore, Malaysia, Greater China, Hong Kong, Indonesia, Taiwan, Thailand and Vietnam. With 15 of those years spent developing high performing teams and profitable offices in Asia, he has steered a global talent agency’s success and the recruitment needs of his clients through financial crises, talent shortages and political unrest. To connect with him, email firstname.lastname@example.org. For more Consulting Corner articles, click here.
Published in English daily The Star, Malaysia, 18 April 2015