A new wave of competition is sweeping Thailand's Eastern Seaboard Industrial Area, which aims to be the "Detroit of the Orient.'' Near a joint car plant of Ford and Mazda, work is under way to build a GM factory. Around these sites are scores of parts factories. In a neighboring industrial area stands a billboard for BMW, which will soon set up shop there.

　As Southeast Asia recovers from financial and economic crisis, the trade and investment climate in the region is changing dramatically. The policies now in place call for stepped-up trade liberalization, stronger measures to promote investment and industrial agglomeration. All this is spurring competition among nations as well as companies in the region.

　As a result, the rate of national economic growth is likely to vary widely. Therefore, in mapping out investment strategies for Southeast Asia, Japanese companies must drop their lock-step mentality and pursue efficient "dispersion and concentration.''

　Car manufacturing in the region has been a typical example of industries protected by trade barriers. Key ASEAN members have imposed high tariffs on cars and parts, and foreign companies have invested in those states while taking such trade restrictions into account.

　However, ASEAN is set to introduce the Asian Free Trade Area (AFTA) in 2002. In addition, the local rules that set fixed ratios of parts procurement by foreign-affiliated makers were to be abolished in 1999 under the agreement on "Trade-Related Investment Measures'' (TRIM) concluded during the GATT-sponsored Uruguay Round. This has also prompted changes in local investment promotion policies.

　Thailand, which is the largest car market in Southeast Asia and is relatively advanced in technology, holds a predominant position in the production of motor vehicles. Annual car exports are expected to reach about 200,000 units, thanks to an export boom in small trucks.

　Beginning in 1999, the Thai government will raise the tariff on automotive parts to 33 percent from 20 percent while pegging the tariff on finished vehicles imported from outside the ASEAN region at 80 percent. This is to promote investment by foreign parts producers.

　The Philippines has cut tariffs on both parts and finished vehicles by a wide margin. This indicates the nation has given up on promoting investment by assembly makers and plans instead to concentrate on parts production.

　Indonesia, which has also announced tariff cuts, is likely to step up efforts for import liberalization. Malaysia has maintained high tariffs on both finished units and parts, but it will find it difficult to keep high tariffs amid growing regional moves toward free trade.

　The pattern of factory site selection is also changing among export-oriented manufacturers of electric machinery and electronics. Corporate agglomeration is important in such industries as machinery manufacturing, where efficiency can be raised through sophisticated inter-company division of work.

　Agglomeration of indigenous companies in Southeast Asia is limited both in scale and degree. However, some areas of Thailand and Malaysia are beginning to reap tangible benefits of agglomeration as a result of the entry of foreign-affiliated enterprises.

　Agglomeration in a given area, once it exceeds a certain level, leads to further agglomeration. An initial advantage in agglomeration, however slight, could make a big difference in the long run. So importance is attached to far-sighted government measures.

　This recent policy of industrial agglomeration is reflected not only in Thailand's Eastern Seaboard Industrial Area, but also in Malaysia's Cyberjaya Scheme. The passive policy of protecting immature industries by trade barriers is now clearly changing to a positive policy of ``creating'' industrial agglomeration.

　Southeast Asian nations are constantly aware of their giant neighbor, China. China probably wants to lure more foreign firms by joining the World Trade Organization. In reality, industrial agglomeration is already well under way around Shanghai and in southern China. Enterprises in Hong Kong, Taiwan and Singapore have invested in these areas, forming integrated corporate networks that include indigenous enterprises.

　In Southeast Asia, the involvement of indigenous companies in agglomeration is limited both in degree and scale, compared with that in China. The "chummy, lock-step'' approach to regional development no longer holds in these fast-changing times.

　Japanese companies, too, must adapt to changes in the policy environment. Instead of dispersing investments broadly throughout Southeast Asia, they should develop corporate strategies that will allow them to choose between dispersion and concentration as required, depending on the type of product.

　Given the development of Southeast Asian companies, there is no assurance that Japanese companies will continue to enjoy a position of "absolute superiority'' in the region.

　The Japanese government, if it attaches strategic importance to Southeast Asia, should consider concluding investment agreements with ASEAN states or creating a free trade area.

　It is increasingly important to promote government-level economic cooperation in under-developed parts of the region, considering that tightened international rules are making it difficult to protect infant industries.

The TRIM agreement
　It was concluded to remove "trade-distorting investment measures,'' such as requirements for local parts procurement and demands for balanced exports and imports.

　Many developing nations have been trying to develop parts industries by, for example, giving incentives to foreign companies that purchase local parts at specified prices. However, these measures were to be abolished in 1999.

The Cyberjaya scheme
　It refers to a program to build a computer-based "cybercity'' as the base of the information industry on the outskirts of Kuala Lumpur.

　The program, now under way, forms the nucleus of the "Multimedia Supercorridor,'' the national project of Malaysia, whose goal is to join the ranks of advanced nations by 2020. Companies associated with information and communications are invited to invest in the area.

　The incentives include the exemption of corporate taxes. About 240 firms are planning to expand into the area. NTT is the first Japanese firm to announce such plans.