EU nations change strategy after being slow off the mark

HEADING EAST
* Racing into Asia ——————

* Better late than never. This seems to be the attitude of European investors as they rush – belatedly – to Asia’s booming economies.

GO East.

This is fast becoming a catchphrase for investors around the world as they scramble to Asia’s burgeoning economies to snatch a slice of the action there.

Europe is no exception. The 12-member European Union (EU) recently re-thought its strategy towards Asia, which it now sees as a growing market for European exports and investments.

The list of European firms eyeing East Asia is growing by the day. China, Hongkong and Asean are the top draws, and there is also growing interest in the Indochinese countries, especially Vietnam.

This interest in Asia was shown clearly in a landmark European Commission (EC) report released in July.

The paper, Towards A New Strategy For Asia, recommended that Europe increase political, security, economic and development links with the region.

Among other things, it also suggested that the EU countries coordinate more closely on their Asia policy, strengthen their economic presence in Asia, and identify clear priorities in terms of countries and sectors.

But compared to investors from America and Japan, the EU has been slow off the mark in latching on to East Asia’s economies.

For years, the EU’s priority was on Africa and Latin America, mainly because of the union’s political and economic links with those regions.

The French Trade Commissioner to Singapore, Mr Regis Baudoin, noted that EU-Asia ties were at a “historical low” in the late 1970s and early 1980s, when most of the economies in Asia were underdeveloped.

But with Asia’s growing economic clout, the EU had to revise its strategy.

“It is one of the most attractive regions of the world in terms of growth rates, which makes it hard for Europe to ignore it,” he declared.

The German Ambassador to Singapore, Dr Karl Spalcke, said that European countries were preoccupied with internal problems in the last few years and were not prepared to get involved in the Asian market.

“This attitude has changed. The EU now wants to be one of the key players in Asia in the long run,” he said.

Associate Professor Chia Siow Yue of the NUS Economics and Statistics Department noted that at one point, there was “a lot of euphoria” in Europe over East Europe.

“But East Europe has not been able to provide the same kind of economic dynamism as East Asia,” she said.

The renewed interest in this region is taking place against a backdrop of an economically-weakened Europe and a rising Asia.

Said Europe specialist Trond Gilberg of the National University of Singapore: “Europe is stagnating with a host of problems. Looking to Asia might just drag it out of its doldrums.”

Indeed, Asia has become the largest market for European goods.

Two-way trade between both regions last year was worth over US$220 billion (S$325.6 billion) higher than the EU’s trans-Atlantic trade.

Germany, which holds the current EU presidency, has been instrumental in Europe’s drive towards Asia. Bonn has made no bones that Asia’s dynamism holds the key to Europe’s efforts to reduce its high unemployment.

Last year, German Chancellor Helmut Kohl visited India, Singapore, Indonesia, Japan, South Korea and China with the specific aim of encouraging his businessmen to invest in these countries and work out strategic alliances.

His push paid off when Chinese Premier Li Peng paid a return visit to Germany in July and concluded US$3.5 billion worth of contracts with German companies.

Not to be left behind, French Prime Minister Edouard Balladur went to Beijing in April this year.

This trip also paid handsome dividends for French investors, when Chinese President Jiang Zemin visited France five months later and sealed deals worth US$3.8 billion.

Mr Badouin felt that China was “the focal point” of European interests in Asia because of its “growing and opening economy”.

Next to China, Vietnam is high on investors’ targets. For example, Germany’s industrial giant, Daimler-Benz, plans to set up a plant to assemble commercial vehicles in Ho Chi Minh City.

France’s Peugeot and Germany’s Volkswagen, not to be outdone, have also indicated that they want to set up factories in the communist state.

At the governmental level, the EU has asked for a dialogue relationship with the Asia-Pacific Economic Co-operation (Apec) forum as part of its move to maintain closer links with the region.

Asia, on its part, has welcomed Europe’s new initiative.

“We value the new thrust of the EU, which has long been overdue,” said Asean secretary-general Datuk Ajit Singh.

He pointed out that at the 11th Asean-EU foreign ministerial dialogue in Karlsruhe, Germany, last month, Asean and the EU agreed to put their rather acrimonious past behind them and start afresh.

The two groups promised to work towards a “partnership of equals”, moving away from the former aid-donor beneficiary ties.

Businessmen from both regions were also encouraged to team up to expand into emerging markets such as China, Myanmar, India, Cambodia and Vietnam.

Said Datuk Ajit Singh: “Asia can benefit by attracting investments from European countries, which have so far been limited to a few countries.”

But observers say EU investors face practical problems as they enter Asia’s new markets.

Dr Gilberg noted that EU investors had to fight competition from companies which already have a foothold in the new economies.

“They are a late entry, so they have to compete against the established companies,” he said.

A Singapore Foreign Affairs Ministry spokesman felt another problem was that European companies, in particular small and medium-sized enterprises, were ignorant of Asia.

“They do not have enough knowledge of Asia. There is a perception that they know the marketplace. But the fact of the matter is that they don’t,” he said.

He suggested that Europeans set-up business councils with Asian countries to bridge this information gap.

Such councils would provide a forum for businessmen to meet, network and work out new joint ventures for mutual benefit.

The need for more information on Asia’s market was echoed by his European counterparts.

Said Mr Peter Ford, the Commercial Councillor at the British High Commission in Singapore: “We need reliable information to operate more effectively in the region.

“Some of the Asian economies are not transparent enough.”

Meanwhile, the EU realises that it cannot afford to sit on the sidelines and watch American and Japanese investors latch onto the world’s fastest growing economic region.

But, concluded Assoc Prof Chia: “Europe may be a little late in their interest.

“But it is not too late because the cake is growing for everybody to get a bite.”