The economies of the Association of Southeast Asian Nations, or ASEAN, have remained resilient in the wake of the 2008 global financial crisis.
Having recovered from the 1997-98 Asian currency crisis, the 10-nation bloc had built up its foreign currency reserves and signed currency swap deals with other countries, strengthening the sturdiness of ASEAN's financial system.
Therefore, ASEAN was able to absorb the 2008 shockwaves and promptly resume stable growth as advanced countries continued to struggle to gain traction.
Seeking to advance beyond BRIC (Brazil, Russia, India and China) economies, leading global companies have been increasing their presence in ASEAN.
They are motivated by four factors: 1) ASEAN's potential as a production base after China; 2) rapid expansion of consumption and infrastructure buildup; 3) ample natural resources; and 4) reform and opening up by ASEAN's less developed members. In 2011, foreign direct investment (FDI) in ASEAN rose 25.7 percent year-on-year to reach a record-high of $116.5 billion.
ASEAN's importance to the export-driven Korean economy waned after the 1997 Asian currency crisis as China's growth and demand soared.
But since the 2008 global financial turmoil, Korean exporters have turned more and more toward ASEAN to compensate for suppressed demand in the US and eurozone countries.
The share of Korea's exports to ASEAN increased from 11 percent in 2010 to 13 percent in 2011 and to 14 percent in 2012, making ASEAN Korea's second-largest export market. Korea's outbound FDI to ASEAN countries exceeded that to China in 2010 and beyond. In 2012, the Korean government established a diplomatic mission in ASEAN to strengthen relations with its member countries.
ASEAN's economic and population growth rates will turn it into a more vital destination for Korean companies. The International Monetary Fund forecasts ASEAN GDP will increase to $3.8 trillion by 2017 and population will rise to 660 million. That will mean per capita GDP of $5,782, suggesting a significant rise.
Competition in ASEAN will intensify as the advanced members like Singapore and Thailand try to solidify their position and the poorer members attempt to catch up.
In labor-intensive industries, ASEAN's competitiveness has already surpassed China's. ASEAN countries offer an ample supply of young, low-cost workers.
The working-age population is expected to show rapid growth until 2025 and the "demographic bonus" ― the size of working age population growing substantially relative to dependent population ― will continue in the next 30 years.
In contrast, China is shedding its role as the No. 1 workshop of global companies. Rising wages and appreciation of the Chinese yuan are pushing up production costs. China-to-Indonesia wage ratio increased to 3-to-1 in 2012 from 2-to-1 in 2005, with the Economist Intelligence Unit projecting a rise to 4.5-to-1 by 2015.
Several manufacturers already have shifted operations from China to ASEAN, perpetuating a decades-long pattern of going where labor is the cheapest.
For example, Japan's clothing and textile makers have transferred production bases to late-comer ASEAN countries, such as Vietnam. In the 1970s, Japanese companies had plants in Korea and Taiwan and then went to ASEAN emerging economies such as Thailand in the mid-1980s, and to China in the 1990s.
Now they are relocating to the late-comer ASEAN countries to escape China's wage inflation.
In capital-intensive industries, including electronics and automobiles, leading global companies are building production base into ASEAN for risk diversification and market entry. Major Japanese carmakers including, Toyota, Nissan, Honda and Mitsubishi have begun a "China+1 strategy" by building factories in Thailand and Indonesia to secure production capacity.
To accommodate the manufacturers and other types of companies, the more open ASEAN economies continuously promote a business-friendly environment. According to the World Bank's "Ease of Doing Business" index, Singapore (ranking No.1) and Thailand (18th) rank on par with advanced countries, while Vietnam (99th) and Indonesia (128th) are on a level with the BRIC countries.
ASEAN countries are also providing various incentives to foreign companies investing there to facilitate job creation and establish their industries.
However, ASEAN members need to improve their infrastructure and stabilize their labor market to replace China as a global factory. Roads and reliable energy supply are behind China's level and conditions for parts and raw materials procurement are weak.
Reform and opening up has ignited investment and growth in Cambodia, Laos, Myanmar and Vietnam, the so-called CLMV countries.
They account for less than 10 percent of the aggregated ASEAN economy but they have expanded at an annual average rate of 6.1 percent since the 2008 global financial crisis.
Their total population – 28 percent of ASEAN's total -- makes the four nations attractive markets for consumer goods suppliers; their strategic position between China and the Indian Ocean supports a pan-Asian infrastructure buildup; and the Mekong River running through the nations has the potential to generate 30,000 megawatts of power.
Still, foreign companies entering the CLMV countries cannot expect a smooth landing.
Political risks and underdeveloped institutional frameworks to handle foreign businesses interests can easily upend plans.
A comparison of worldwide governance indicators show that systemic risk in CLMV countries is higher than that in Middle East and North Africa, and they have yet to establish a stable market economic system.
Vietnam, the first mover of the CLMV, has excessive investments, financially troubled state-owned companies and an unstable banking sector. There is also higher policy volatility, lack of skilled labor and a weak infrastructure in Cambodia, Laos and Myanmar.
ASEAN economies should become increasingly attractive despite the risks. A strategy that focuses on specific areas and sectors will raise efficiency as it will be difficult to catch up to Japan in official development assistance and investment.
In devising their approach, companies will need to consider the wide range in economic development, income levels and business environment among the member nations.
Late-comers Cambodia, Laos, Myanmar and Vietnam will have high growth but also high risks.
The Korean government and companies can frame themselves as solution providers in a collaboration that would produce win-win results for themselves and the CLMV countries.
This strategy should support reducing the economic gap with the more advanced ASEAN member countries and strengthening inter-region connectivity. As such, the Korean government and companies need to prioritize forming partnerships based on infrastructure investment and mutual support. This will help gain a foothold for manufacturing plants and entry into CLMV domestic markets.
The first-mover member states, including Indonesia and Thailand, have the potential to become the next BRICs, and their vast domestic demand market should be targeted.
Korean companies should shift their manufacturing investment strategy in ASEAN from assembling for exports to producing finished goods for domestic demand to tap the rapidly growing consumer market.
By promptly responding to the consumption trends of younger generations and Muslims, new markets should be explored while expanding advancement into industrial and social infrastructure, which are expected to see fast growth.
Finally, the government can examine making bilateral free trade deals with major ASEAN countries, which has greater market opening effects than the current Korea-ASEAN free trade agreement.