Non-Equity Modes of Trade in ASEAN

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Promoting new forms of trade between
Japan and ASEAN

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2021

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Paper 1 / September 2021 / Non-Equity Modes of Trade in ASEAN: Brunei Darussalam
Promoting new forms of trade between Japan and ASEAN

Non-Equity Modes of Trade in ASEAN
Promoting new forms of trade between
Japan and ASEAN

PAPER 1SEPTEMBER

2021

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NOTESThe terms “country” and “economy” as used in this study also refer, as appropriate, to territories orareas. The designations employed and the presentation of the material do not express any opinion
whatsoever on the part of the ASEAN-Japan Centre (AJC) concerning the legal status of any country,
territory, city or area; or of the authorities; or of delimitations of frontiers or boundaries.
The tables use the following symbols:• Two dots (..) indicate that data are not available or are not separately reported.
• A dash (-) indicates that the item equals zero or its value is negligible.
• Use of an en dash (–) between dates representing years, e.g., 2015–2016, signifies the full period
involved, including the beginning and end years.
• Reference to “dollars” ($) means United States dollars, unless otherwise indicated.

The series includes 10 papers in total. Nine (Cambodia, Indonesia, Lao People’s Democratic
Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam) have been
published. This is the last paper in this series.
Paper 1. Brunei Darussalam
Paper 2. Cambodia (published in August 2019)
Paper 3. Indonesia (published in March 2021)
Paper 4. Lao People’s Democratic Republic (published in March 2020)
Paper 5. Malaysia (published in July 2021)
Paper 6. Myanmar (published in March 2020)
Paper 7. Philippines (published in March 2018)
Paper 8. Singapore (published in July 2021)
Paper 9. Thailand (published in April 2020)
Paper 10. Viet Nam (published in December 2018)

Prepared by Masairol Masri, Hasnol Alwee, Nazlida Muhamad and Quazi Sakalayen (UBD
School of Business and Economics, Universiti Brunei Darussalam) under the directionof Masataka Fujita (AJC). The manuscript was edited by Tora Estep and typeset by Sarah
Legrand. Errors and omissions are only those of the authors and should not be attributed totheir organizations.

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CONTENTS
Key messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
1. Introduction: Overview of the Economy of Brunei Darussalam . . . . . . . . . . . . . . . 1
2. Characteristics of Non-Equity Modes in Brunei Darussalam. . . . . . . . . . . . . . . . . . 3
2.1 Scale and Scope of NEMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Brunei Darussalam NEMs by Type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Opportunities and Challenges for NEMs in Brunei Darussalam. . . . . . . . . . . . .  18
3.1 Business Continuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
3.2 Characteristics of NEMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
3.3 Capacity Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
3.4 Initiatives and Local Embeddedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
4. Policy Implications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1 Enhancing the Capability of Local Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4.2 Enhancing Basic Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.3 Promoting Integration into Global Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
4.4 Developing STI Infrastructure and Promoting Connectivity and
Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.5 Mainstreaming Sustainable Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5. Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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KEY MESSAGES• Brunei Darussalam relies heavily on the oil and gas industry, which accounts for 90 per cent of its
total exports. However, due to the decrease in the demand for and price of oil and gas, the tradevolume dropped drastically by 60 per cent in 2020. To diversify the economy, the Government ofBrunei Darussalam introduced and implemented various initiatives to reduce reliance on the oiland gas industry.
• Over the last 10 years, foreign direct investment stock increased significantly by 80 per cent inBrunei Darussalam. However, interest in transnational corporations (TNCs) to engage in nonequity modes (NEMs) of trade with their Bruneian counterparts has been considerable. The low
tariff rates make NEM exports from Brunei Darussalam attractive.
• Bruneian firms are involved in various types of NEMs, including franchising, outsourcing/subcontracting and licensing. The type of NEM varies by industry.
• The food and beverage (F&B) industry is flourishing in Brunei Darussalam. International F&B
largely dominates the franchise mode of investment in Brunei Darussalam. Manufacture of F&B
products contributed between Brunei dollar (BND) 29.2 million ($22 million)1 and BND25.5 million($19.2 million) (at constant prices) to the country’s gross domestic product (GDP) over the past
five years. Members of Generation Z are more likely to consume international F&B brands. As aresult, F&B franchising in Brunei Darussalam normally earns at least 50 per cent to 60 per centof gross profit.
• The textiles and garments industry in Brunei Darussalam flourished in the late 1990s, employing morethan 1,500 people and exporting products mostly to North America. However, the country started tolose out to the People’s Republic of China and other ASEAN countries due to their comparatively morecompetitive labour markets. In the last five years, Bruneian textiles and garments manufacturing has
fluctuated between contributing BND34.2 million ($25.7 million) and BND38.6 million ($29 million)(at constant prices) to the country’s GDP. The typical subcontract awarded to local NEMs is for cut,
make, trim where the main international contractor supplies materials. This has enabled local
NEMs to generate at least 15 per cent to 50 per cent in gross profits.
• The automotive industry in Brunei Darussalam is flourishing due to the high per capita incomeof the population. TNCs give local automobile dealers licensing rights to sell cars. Despite the
COVID-19 pandemic, sales of automobiles in Brunei Darussalam increased by 5 per cent in 2020
compared with the same period in 2019.
• Engaging in NEMs provides many opportunities for both local NEMs and TNCs, such as theprovision and creation of jobs for locals. Such activity also contributes to the transfer of knowledge
to local NEMs in terms of management know-how. For example, local NEMs learn international
standard operating procedures for managing firms. Nevertheless, engaging in NEMs also createssome challenges for local NEMs where local customs, regulations and requirements might not besuited to the TNC strategy, which could affect the longevity of the relationship.
• To maintain and further attract NEMs in Brunei Darussalam, the capability of local firms shouldbe improved by leveraging technology and innovation, upskilling the labour force through training
and re-training and promoting research and development and intellectual policy.
• Infrastructure also plays an important role in attracting TNCs to award local NEMs. Improving
logistics systems through infrastructure development and modernization will be imperative,
especially for exporting NEMs. An efficient and cost-effective logistics system will be beneficial
for local NEMs and enhance their competitiveness.
1

This paper uses an exchange rate of $1 for BND1.33.

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1. INTRODUCTION: OVERVIEW OF THE ECONOMY
OF BRUNEI DARUSSALAM
Blessed with natural oil and gas resources and with a population of approximately 460,000, Brunei
Darussalam has one of the highest gross domestic products (GDPs) per capita in the region at
Brunei dollar (BND) 39,989 ($30,000) and an overall GDP of BND18.4 billion ($13.8 billion) in 2019
(Department of Economic Planning and Statistics 2019). Economically, the country is generally
viewed as stable, as its limited exposure to toxic assets and adequacy of capital and large structuralliquidity during the global downturn in 2008 reflects (International Monetary Fund 2010). Brunei
Darussalam also benefits from its human development capacity, as exemplified by its literacy rateof 97 per cent in 2018 (World Bank 2021). Brunei Darussalam ranked 47th globally in the Human
Development Index at 0.838 in 2019, among the highest in ASEAN (United Nations Development
Programme 2020).
At the national level, the country is currently pursuing Brunei Vision 2035 (Wawasan Brunei 2035),
which has three main goals:
Goal 1: Educated, highly skilled and accomplished people
Goal 2: High quality of life
Goal 3: Dynamic and sustainable economy
Goal 3 (dynamic and sustainable economy) encompasses numerous strategies, including thecreation of economic opportunities beyond the oil and gas industry. Prior to COVID-19, oil andgas accounted for more than 90 per cent of total exports. However, in March 2020, a year-on-year
decline occurred, as major exports of oil and gas decreased by more than 60 per cent (Departmentof Economic Planning and Statistics 2020), which highlights the need to diversify the economy amid
concerns of fluctuating oil prices. In this context, the Brunei Economic Development Board (BEDB),a statutory board created in 2001, was tasked with developing and diversifying the economy in linewith Brunei Vision 2035. Within the board’s purview, it has identified five main clusters, namely,
downstream oil and gas, manufacturing and other services, food, tourism and information andcommunication technology (ICT).
The FDI [foreign direct investment] Action and Support Centre was created to facilitate thedevelopment of these five main clusters, tasked with attracting investment to Brunei Darussalamby highlighting the country’s favourable tax regime and protection for intellectual ownership andhighlighting Brunei Darussalam as a credible partner. From a trade perspective, Brunei Darussalam
has strived to improve its performance on the Ease of Doing Business index, ranking 66 out of
190 economies in 2020, by significantly improving its score of 69.6 (adjusted) in 2019 to 70.1 in 2020,
placing Brunei at fourth place among ASEAN countries. Nevertheless, in the index category ofEasiest in Getting Credit, it maintained its first place for 2020 (World Bank Group 2020).

Towards a Dynamic and Sustainable Economy: Economic Blueprint for Brunei Darussalam (2020;
henceforth Brunei Economic Blueprint) notes the emphasis on FDI, highlighting that FDI stock
has significantly increased in Brunei Darussalam from BND5.3 billion ($3.9 billion) in 2010 to
BND9.6 billion ($7.1 billion) in 2019, an 80 per cent increase in the last 10 years (Ministry of Financeand Economy 2020).
However, FDI is distinct from non-equity modes (NEMs) of investment as the latter does not require
equity contributions from transnational corporations (TNCs). NEMs refer to establishing contractual
relationships that are conducted without any equity involvement from TNCs. In contrast, FDI relates
to cross-border financial transactions between countries and TNCs that involve a minimum degree

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2of equity (normally 10 per cent or more) and control on the part of the TNCs. In 2011, the United
Nations Conference on Trade and Development (UNCTAD) noted that, from a policy perspective,
if TNCs want to “pursue the integration of developing economies into global value chains, it is nolonger enough to focus on attracting FDI and TNC affiliates, on the one hand, or to promote arm’slength trade on the other. Policymakers need to consider a myriad of alternative networked forms of
TNC operations” (UNCTAD 2011, p. 124).
In Brunei Darussalam, despite the emphasis on FDI (BEDB 2020), TNCs have been consistently
interested in being involved in the food and beverage, automotive and textiles and garments
industries. Favourable tax incentives, such as no personal tax, no value added tax and a low corporate
tax rate of 18.5 per cent, have aided this development. Import duties vary depending on the nature of
the goods. In general, basic foodstuffs and goods for industrial use are exempt from import duties.
Motor vehicles are subject to import duty depending on the vehicle’s capacity. Furthermore, exports
leaving Brunei Darussalam do not incur tariffs.2
All countries, including ASEAN countries, have varied NEM-related interests, thus NEMs develop
in varying forms. Table 1 shows the three primary forms of NEM that are of particular interest to
Brunei Darussalam, which subsequent sections will describe further.

Table 1. Examples of NEMs in Brunei Darussalam
Types

Description

Typical Industries

Company Examples

Franchising

An international firm (franchisor)
allows a host country firm
(franchisee) to run a businessfollowing the franchisor’s system in
return for a fee or mark-up on the
goods and services provided.

Food andbeverages

Gloria Jean’s Coffee (UnitedStates), Pretzels (United States),
Sushi Tei (Singapore), Ochado(Singapore), Gongcha (Taiwan
Province of China), Burger King
(United States)

Licensing

An international firm (licensor)
Automotive
allows a host country firm (licensee)
to utilize an intellectual property(e.g., copyrights, trademarks) inreturn for a royalty fee.

Maju Motors (Volkswagen,Germany),
Happy Motoring (Honda, Japan),Grand Motors (Mazda, Japan)

Outsourcing

An international firm seeks a hostcountry firm to produce or manage
services/processes related to theinternational firm’s development of
product(s).

Famous Textile (Brunei
Darussalam), Nazmi Textile (Brunei
Darussalam), Madison Textile(Brunei Darussalam)

Textiles andgarments

Source: Authors.

The food and beverage industry is a popular franchising industry in Brunei Darussalam thatcomprises local and international outlets. According to the United States Department of Commerce,
U.S. food brands, notably fast foods, are well-received in Brunei Darussalam, with many U.S. food andbeverage franchises already operating in the country, such as Auntie Anne’s Pretzels, McDonalds,
KFC, Pizza Hut and Dairy Queen. More recently, in 2014, Starbucks and Burger King joined the rangeof U.S. franchises and have now expanded to four and six outlets respectively. In 2016, Wayback
Burgers also entered the market, highlighting the perceived profitability of food franchises in the
country (Department of Commerce 2021b).

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Due to the lack of public transport, Bruneians have an insatiable appetite for cars, which are soldthrough licensing agreements (Table 1), which has contributed to mitigating the spread of COVID-19
in the country. The ASEAN Automotive Federation (n.d.) indicates that 5,388 units were sold in Brunei
Darussalam in the first five months of 2020, compared with 4,966 units, an 8.5 per cent increase.
This contrasts with other ASEAN countries, which saw a 43 per cent decrease in the same year,
mostly due to coronavirus lockdowns (Khan 2020). According to the ASEAN Fuel Economic Roadmap
for Transport Sector 2018–2025, Brunei Darussalam is the only ASEAN country that has reached
100 per cent saturation, indicating high vehicle ownership (ASEAN Secretariat 2019).
Another NEM-related industry is the textiles and garments industry through subcontracting (Table 1).
Although the economic downturn in 2002 affected the textile industry, some initiatives occurred in
the garment industry with international institutions outsourcing the production of branded garments
to manufacturing-based garment companies in Brunei Darussalam (Wong 2019).

2. CHARACTERISTICS OF NON-EQUITY MODES IN
BRUNEI DARUSSALAM
NEMs are contractual relationships without equity between TNCs and partner firms in othercountries. As in the case of equity investments, the motivations of TNCs relative to NEMs mostly
surround three categories: resource seeking (usually joint ventures for both FDI and NEMs),
efficiency seeking (contract manufacturing, subcontracting or outsourcing for NEMs) and market
seeking (brand licensing, product licensing, process licensing, franchising, etc., for NEMs). TNCs
influence their partner firms in the host countries based on bargaining power, which varies by mode
(UNCTAD 2011). In this defining context, the characteristics of NEMs in Brunei Darussalam alsovary, as NEMs are practised to low to moderate degrees in some sectors and are still emerging inother sectors. The following systematically discusses NEMs in Brunei Darussalam.

2.1 Scale and Scope of NEMs
TNCs aiming to expand business internationally increasingly use NEMs to enter foreign countries.
NEM operations entail low risk because they are less demanding in terms of investment requirement
and control from headquarters (Krusei and Zamborsky 2016). NEM operations include trademodalities such as contract manufacturing and exporting, franchising, licensing, contract farming,management contracts, concession agreements and any other forms of contractual relationshipsthat enable TNCs to manage and influence the activities of partner firms in host countries. However,to some extent, NEMs can be associated with FDI from the TNC’s motivational perspective. NEMs
are intersecting subsets between FDI and trade as they appear either as substitutes for or ascomplementary to FDI operationalization in contributing to the value chain of TNCs.
Cross-border NEM activity in the sphere of FDI is where TNCs’ internalized and externalized strategies
play pivotal roles. TNCs activate internalized systems of affiliates in host countries when they needto operationalize within a controlled corporate network, while the externalized system works when
TNCs do not control partner firms. TNCs that do not control partner firms enter into reasonable
contractual agreements in the cross-border trade with host country partner firms that fall directly
into the NEM category. In 2010, total global cross-border trade under NEMs was estimated at about$2 trillion (UNCTAD 2011), which has grown rapidly since because of enhanced trade liberalization,
globalization and regional cooperation. As an oil and gas rich economy, Brunei Darussalam attracts

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FDI mostly in the energy sector; however, other areas such as exporting manufactured goods andmachinery and transport equipment have also attracted reasonable FDI. Export gains through FDI
in the economy provide the momentum and motivation for NEMs. Usually, high tariffs reduce exports
generated from FDI (Rugman 1985). This is not the case in Brunei Darussalam as the country
maintains low, in some cases negligible, tariff rates for exports associated with FDI, especially inindustrial parks, which inspires exports. Table 2 illustrates the FDI inflows to and exports from
Brunei Darussalam in recent years.

Table 2. FDI inflows and exports of Brunei Darussalam by commodity, 2014–2018 ($ millions)
2014

2015

2016

2017

2018

FDI inflows

568

173

-150

460

382

Crude materials export

13.0

9.4

17.4

16.7

19.1

Mineral fuels export

9,082.6

5,919.9

4,364.2

5,046.2

5,898

Chemicals export

439.6

138.3

237.2

204.8

243.1

Manufactured goods export

49.6

53.7

37.8

24.7

64.5

Machinery and transportationequipment export

133.2

182.2

241.2

141.2

169.4

Source: Commonwealth Secretariat (2019); Department of Economic Planning and Statistics (2014, 2019).

Several industrial parks have been slated for export production and to accommodate FDI in Brunei
Darussalam (Department of Commerce 2021a), including• Sungai Liang Industrial Park (SPARK) for gas-based petrochemicals;• Pulau Muara Besar for oil and gas downstream and supporting activities;• Salambigar Industrial Park for food, pharmaceuticals, cosmetics and light industries;• Rimba Digital Junction for higher-order technology industries and data center services;• Bukit Panggal Industrial Park for energy-intensive industries;• Telisai Industrial Site for aquaculture and mixed industries and• Anggerek Desa Technology Park (ADTP) (phase 3) for ICT-related industries.
In addition to FDI and FDI-geared, export-oriented peripheral NEMs, other primary forms of
NEMs are also gaining a foothold in Brunei Darussalam. For instance, contractual agreements
and contract farming in aquaculture recently emerged on a limited scale. Service-oriented firms
or TNCs establish NEM operations in Brunei Darussalam because the service-based products
are mostly people intensive, demand less control from headquarters and require less fixed
investment. Besides the peripheral NEMs connected to FDI, the primary and dominant forms of
NEMs in Brunei Darussalam are franchising, licensing and subcontracting, which the latter partof this section will discuss.
In general, NEMs volume in Brunei Darussalam stays low to moderate because of the small
population, or, in other words, due to a small domestic consumer base. However, this small size
allows the consumer base to rapidly become familiar with business products under NEMs, whichconsequently may achieve recognition. High disposable incomes and living standards in Brunei
Darussalam also form a good ground for NEMs operations’ growth.

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In terms of ensuring a friendly business environment, inclusive policy and country strategy is pivotal
for maximizing the benefits from NEMs. For instance, promoting NEMs in national policy and assisting
domestic businesses to become involved in NEMs provide an enabling and transparent legal andinstitutional charter to ensure fair competition, protect labour rights and the environment, address
risk factors posed by NEMs and enhance the negotiating power of domestic NEM business partners(OECD 2009; UNCTAD 2015; Krusei and Zamborsky 2016). More importantly, establishing agencies
to facilitate and attract TNC partners are critical for reaping the benefits from NEMs for a country.
In the 2020 Ease of Doing Business annual rating by the World Bank, Brunei Darussalam ranked
66 out of 190 economies, indicating that the country is a reasonably good place for business (WorldBank Group 2020). Generally, full ownership by foreign companies through licensing is possible in
Brunei Darussalam without finding a local partner to enter the market. In some instances, TNCs
are required to find a local licensing partner to enter the market. However, no specific legislation
covers franchised operations in Brunei Darussalam besides contract law and commercial law (Wongand Chew 2018). The Business Licenses Act of Brunei is also applicable to franchising businesses.
Other laws such as the Trade Marks Act, Unfair Contract Terms Act and Companies Act apply to
Bruneian franchising operations. Any franchise in Brunei Darussalam must register with the Officeof Registrar of Companies according to Chapter 39 of the Companies Act.
The following is an overview of the dominant forms and features of NEMs in Brunei Darussalam.

(1) Franchising
As a contractual relationship between a franchisor (a TNC) and a franchisee (host country firm),
franchising refers to running a business that follows an already established business model
developed by the franchisor in return for a fee (UNCTAD 2011). Capturing the market is the primary
motivation of franchising. Franchising is also an efficient marketing and distribution tool for products
and services (Wong and Chew 2018). It spreads with the increasing economic growth and market
size of a nation, the people’s purchasing power and the congenial business atmosphere of a country.
Franchising takes different forms in various sectors such as retail (high-street retail of luxury
brands, retail in shopping malls and grocery), restaurants (fast food and beverages), hotel chainsand other services sectors (ranging from education to personal care services). Consumer goods andretail, including food and beverages, are the most common sectors where franchising grows rapidly.
As a NEM operation, franchising permits TNCs to focus on core activities and allows outsourcing
of non-core activities (UNCTAD 2011). Consequently, franchising benefits TNCs, allowing them toaccess markets through specialization and economies of scale.
The worldwide franchising market was estimated at $2.5 trillion in 2010; out of this $330–350 billion
comprised the contribution from cross-border franchising. In the same year (2010), sales from
franchising were estimated at $170 billion in Asia, and cross-border franchising contributed about$42.5 billion or 25 per cent (UNCTAD 2011). Globally, franchisors mostly come from developed
countries. The franchising market in Brunei Darussalam indicates a mixed perspective. On the
one hand, in proportion to its market size, Brunei Darussalam has a relatively large number offranchises, which is dominated by the food and beverages sector, though some retail (apparel) is
also present. On the other hand, every year Bruneians spend a large amount of money abroad on
products and services, much of which could be retained in the country as demonstrated during the
COVID-19 pandemic, indicating further growth opportunities for NEMs.
Existing franchises currently operating in Brunei Darussalam are from the food and beverages sector,
including Auntie Anne’s Pretzels, Dairy Queen, Burger King, McDonalds, KFC, Pizza Hut, Starbucks
and Natural Health Farm. Brunei Darussalam is fertile ground for food chain franchises for several
reasons. The travel experiences of the country’s increasing affluent class shows a growing demand
for franchised food outlets, as they are exposed to a wide range of international food franchises and6

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products. Also, about a half of the Bruneian population is young (under the age of 24) and frequently
consumes international food products. Franchised food chains are also attractive for tourists coming
to Brunei Darussalam. Such opportunities transfer the service experience and operating knowledge
and model from TNCs to local businesses.
Worth noting is that some local food businesses have grown to a level that could easily expand
through franchising in foreign countries, especially in the ASEAN region. Implementation of thesingle market concept such as through the ASEAN Economic Community (AEC) and the recently
signed Regional Comprehensive Economic Partnership Agreement among 15 Asia-Pacific nations,
including ASEAN member states, will further lower trade barriers (ASEAN Secretariat 2008, 2020),
paving the way for NEM operations such as franchising. Local Bruneian food businesses such as
Excapade Sushi, Fratini’s Italian Restaurant, Tasconi’s Pizza and Mochi Yogurt House have either
franchised or are planning to franchise overseas. A local coffee shop, Roasted Sip, has immense
potential to franchise overseas. Bruneian halal foods and goods such as halal medical and cosmetic
products of Faceshop and Simpor Pharmaceuticals form a niche business domain that could be
gradually built into an indigenous franchise industry. Recently, the state-owned Brunei Darussalam
Holdings made efforts to build a Bruneian brand in the United Kingdom for halal foods and products,
but a dedicated agency could further support local businesses to franchise overseas.

(2) Licensing
Licensing is one of the vehicles through which TNCs enter a host-country market. Transfer ofintellectual property and contract protection are two critical elements in licensing (Erramilli etal. 2002; Majocchi et al. 2013). Licensing refers to a contractual relationship between a licensor(for example, an international firm or a TNC) and a licensee (for example, a host country firm),
where the licensor permits the licensee to utilize an intellectual property in exchange for a royalty
fee. In other words, a firm can acquire a licence from another firm (in-licensing) or a firm can sell
intellectual property to other firms (out-licensing) (UNCTAD 2011). Intellectual property denotes
trade secrets, copyrights, patents, trademarks and industrial design rights. NEM operations throughlicensing are eventually transferred as intellectual property to a host country and drive increasing
availability of sophisticated partners in emerging markets.
UNCTAD (2011) estimated that about $340–360 billion in sales were generated globally throughcross-border, NEM-related licensing in 2010. In Brunei Darussalam, business investments throughlicensing are promoted. A foreign company or its branch or its agent needs to get a licence byregistering under the Company Act before commencing the business in Brunei Darussalam. In
addition, other pieces of legislation that govern investment through licensing include the Investment
Incentive Order (2001) and the amended Income Tax Order (2001). Activities that are incentivizedthrough licensing under the Investment Incentive Order generally include construction, building andheavy equipment, environmental technologies, ICT, industrial equipment, marine technology, metal
manufacturing and some services sector activities such as consultancy and research, automotive
and ground transportation, education, finance, media and entertainment and travel.
Prominent businesses that provide services through licensing in Brunei Darussalam include a branchof the Standard Chartered Bank in finance; Maju Motors, Happy Motoring (a branch of Honda) andGrand Motors (a branch of Mazda) in the automotive industry and the Institute of Brunei Technical
Education (IBTE) and the Jerudong International School in education. In the automotive industry,
Maju Motors Sdn. Bhd. is licensed as a branch of Volkswagen, Singapore, and is the sole distributorof Volkswagen vehicles in Brunei Darussalam. Happy Motoring Co. Sdn. Bhd. is registered as a
private limited liability company and is the exclusive distributor of Honda vehicles. The Standard
Chartered Bank Brunei and the Hongkong Shanghai Banking Corporation have been licensed toprovide banking and financial services in Brunei Darussalam.

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7(3) Outsourcing/subcontracting
Outsourcing or subcontracting, or contract manufacturing, to a host country firm is a popular formof NEM that TNCs engage in worldwide. This form of NEM refers to a contractual relationship where
an international firm seeks a host country firm to produce goods or manage services or processelements in its global value chain. Taking advantage of globalization and trade liberalization, TNCs
outsource their non-core activities and business support functions to external providers to reduce
internal costs or bring efficiency to the value chain. UNCTAD (2011) estimated that TNCs’ outsourcing
or contract manufacturing services contributed about $1.1–1.3 trillion in global sales in 2010.
Recently, Brunei Darussalam has attracted several TNCs that engage in outsourcing or contract
manufacturing activities. In fact, Brunei Darussalam is a strategically valuable location as amanufacturing base in the Borneo region. Its location in the Brunei Darussalam, Indonesia, Malaysia,
Philippines–East ASEAN Growth Area (BIMP-EAGA) is ideal for manufacturing businesses suchas foods, food ingredients, pharmaceuticals and petrochemicals. In recent years, the contribution(in current prices) of manufacturing to the GDP of Brunei Darussalam was BND2,120.0 million($1,594 million) with 12.5 per cent share in 2017, BND2,574.2 million ($1,935 million) with 13.8 per centshare in 2018 and BND2,499.4 million ($1,879 million) with 13.4 per cent share in 2019 (Departmentof Economic Planning and Statistics 2019). Although only gradual improvements occurred, thegarments industry and training for the local workforce involved in manufacturing have gone throughsubcontracting experiences in Brunei Darussalam. For example, Bruneian Famous Textile recently
exported garments to Disney, Hard Rock and Universal through a subcontracting arrangement.
Table 3 presents textiles and garments exports for Brunei Darussalam by country in 2018.

Table 3. Main Bruneian textiles and garments exports by country, 2018
Country

Exports ($ thousands)

United Arab Emirates

3,709.96

United States

3,430.85

Singapore

1,115.49

Malaysia

810.15

Philippines

662.42

Hong Kong, China

432.32

United Kingdom

159.50Viet Nam

24.96

France19.98

People’s Republic of China

10.79

Germany

10.52

Australia

6.80

Source: WITS (2021).

In another instance, a joint venture of PTAS Aker Solutions Sdn. Bhd. is providing local employeesof Brunei Shell Petroleum training on execution capability based on Aker Solutions’ international
expertise in transferring values to the local partner. In pharmaceuticals, Vivapharm (Brunei) Sdn.
Bhd. produces halal pharmaceutical and nutraceutical products for a Canadian firm that targets thegrowing halal market overseas. Vivapharm also focuses on exporting halal-certified natural healthproducts and drugs to Asia-Pacific regional markets, the Middle East, Western Europe and the United

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States. In petrochemicals, SPARK is a good example of partnership in contract manufacturing between
Japan and Brunei Darussalam. The SPARK methanol plant is an export facility that is connected by asubsea pipeline system established by the BEDB. To facilitate the export of methanol via tankers, themethanol export facility that is commonly referred to as Single Point Mooring is connected throughthe subsea pipeline system to a loading buoy. In another instance, the Korean household electronic
company Cuckoo has a strong water purifier market in Brunei Darussalam. The after-sales servicesof Cuckoo filters have been outsourced to an agent company in Brunei Darussalam.
In addition to these three dominant types of NEMs, contract farming has just started evolving in
Brunei Darussalam. Within the contract farming mode, services outsourcing has also been identified.
In aquaculture, a Taiwanese seafood company, Golden Corporation Sdn. Bhd., has established its
operational headquarters in Brunei Darussalam in partnership with a Bruneian company, Semaun
Marine Resources Sdn. Bhd. This partnership recently signed two memoranda of understanding
with other two Bruneian marketing companies, Unima Distribution and Aqua Star Pty. Ltd., to export
blue shrimp to EU and Australian markets, respectively. This is an example of marketing services
outsourcing by a TNC lead in partnership with a host country firm. In another instance, Hong Kong–based Pure Fresh and Bruneian state-owned Ghanim International Corporation have started a
project to invest about BND400 million ($300 million) over five years to develop an export-oriented
supply chain aquaculture in Brunei Darussalam targeting blue shrimp as their flagship product.

2.2 Brunei Darussalam NEMs by Type
Many foreign firms and TNCs do business with local partners in the form of NEMs in various
industries. The ways they are involved in NEMs and their contributions to the national economy
vary by modality and industry. This section examines the franchising, subcontracting and licensing
modes through case studies of industries that rely on them.

(1) Franchising: Food and Beverages
Several international franchise food and beverages (F&B) companies have mushroomed in the
country in recent years (Box 1). This growth also helps international franchise development by
increasing the awareness of international brands among members of Generation Z.
Box 1. International F&B franchise in Brunei Darussalam
Various modes of franchise agreement are commonly practiced in Brunei Darussalam:
1. Direct franchise agreement (Figure 1),
2. Joint-venture franchise agreement from overseas master franchisee (Figure 2) and3. Master franchise agreement with a fully owned foreign subsidiary (Figure 3).
Some TNCs appoint a local corporation from a particular ASEAN country to be their masterfranchisee. Due to small markets, most of the international franchises in Brunei Darussalam
would usually go through the regional master franchisee (see Figure 2). Nevertheless, in someinstances the TNC awards a direct franchise agreement (see Figure 1). The remaining franchisecompanies are a result of direct investment by the master franchisee.3 Box figure 1.1 shows someexamples of franchise F&B companies in Brunei Darussalam.
.../

3

Source: Feedback from an interview with an F&B business owner who previously managed an international
franchise company in Brunei Darussalam.

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9Box 1. International F&B franchise in Brunei Darussalam (Concluded)
Box figure 1.1. Examples of F&B franchises in Brunei Darussalam

Source: Author photos.

Over the last five years, the F&B industry in Brunei Darussalam has contributed steadily to thecountry’s GDP, from BND29.2 million ($22 million) to BND25.5 million ($19.2 million) between 2015
to 2019 (Department of Economic Planning and Statistics 2019). Numerous F&B franchises from
Australia, Japan, Malaysia, Republic of Korea, Thailand and United States can be found in Brunei
Darussalam. U.S. brands such as Starbucks (Box 2) and Burger King entered the Bruneian market
in 2014 and have expanded to four and six outlets, respectively. Other F&B franchise companies in
Brunei Darussalam include Gong Cha from Taiwan Province of China and Ochado Drinks and Pezzo
from Singapore, to name a few. This industry remains quite attractive to local NEMs as the grossprofit margin can range from 50 per cent to 60 per cent.4

4

An interviewee who is an owner of a local F&B company and used to manage an international F&B franchise in
Brunei Darussalam provided this range. The owner’s family also runs and owns other international F&B franchises
in Brunei Darussalam.

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10Various types of franchise arrangements are practised in Brunei Darussalam. The simplest form isthe direct franchise agreement, under which the franchisee can either be awarded to open a single
franchise unit or multiple franchise units. Franchisees that are awarded multiple franchise units
will receive a schedule that determines when the franchisee is expected to open the units. Figure 1
illustrates this form of arrangement.

Figure 1. Direct franchise agreement (E.g., Burger King)

Home Country(United States,
Taiwan Provinceof China, Japan)

Host Country(Brunei Darussalam)FranchiseFranchisor

Sub-Franchise
Direct franchise
agreement

Sub-Franchise

Source: Author.
Note: Blue color indicates NEM relationship.

Figure 2. Joint-venture franchise agreement from overseas master franchisee(E.g., Starbucks)

Home Country(United States)

Master FranchiseeHome Country(Malaysia)

Host Country(Brunei Darussalam)FranchiseFranchisor

Source: Author.

MasterFranchisee (80%)

Joint Venture

Local Firm
(20%)

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Box 2. Starbucks in Brunei Darussalam
Starbucks Brunei, which is operated by
Berjaya Food Supreme Brunei Sdn. Bhd.,
is a joint venture between the masterfranchisee in Malaysia, BFI Sdn. Bhd., andDeluxe Daily Food Sdn. Bhd.
On 7 October 2013, Berjaya Food
(International) Sdn. Bhd. (“BFI”), a wholly
owned subsidiary of BFood, entered a joint
venture, with shareholders’ agreement, with
Photo from the authors.
Deluxe Daily Food Sdn. Bhd. (“Deluxe”) for
80 per cent equity interest in Berjaya Food Supreme Sdn. Bhd., a Brunei Darussalam incorporated
company, to operate a Starbucks Coffee chain of cafes in Brunei Darussalam for a total cash
consideration of about BND2.40 million (or $1.8 million). Deluxe underwrote the remaining 20 per
cent.
On 16 February 2014, Starbucks opened its first store in Brunei Darussalam at the Mabohai
Shopping Complex. The store features a traditional coffee bar also known as “slow bar”, whichallows customers to savour their coffee using the “pour over” brewing method. On 7 September
2014, Starbucks opened its first drive-through concept store in Beribi. As of 30 June 2019, four
Starbucks stores are operating in Brunei Darussalam.
Source: https://www.berjaya.com/berjaya-food/corporate-profile.php

Figure 3. Master franchise agreement with a fully owned foreign subsidiary (E.g., KFC)

Home Country(United States)

Master FranchiseeHome Country(Malaysia)

Host Country(Brunei Darussalam)FranchiseFranchisor

MasterFranchisee (80%)

Subsidiary(100%)

Source: Author.

As per Figure 2, the Starbucks franchise in Brunei Darussalam took the form of a joint venture with
the Malaysian master franchisee in which the master franchisee owned 80 per cent of the share.
This is quite different from the case of KFC where the Bruneian KFCs are 100 per cent owned by the
Malaysian master franchisee.5

5

Source: Feedback from an interview with an F&B business owner who previously managed KFC in Brunei
Darussalam.

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Other forms of franchise agreements may be practiced in Brunei Darussalam. However, whatever theform of agreement, the local franchisee still needs to pay the franchise fee for using the franchisor’s
brand name, product and intellectual property. Franchise fees typically start with an initial payment
due to the franchisor at the signing of the franchise agreement. Franchise fees are usually used to
pay for the marketing, technical and operational support of the franchisees. Other fees might also
be involved, such as the royalty fees that are usually a certain percentage of the franchisee’s grossor net revenue.
Franchise contracts provide various benefits to the country’s economy. A franchise is a platform
for local firms to understand international standard operating procedures for running a business,
especially in F&B. Management know-how, capacity building and technology transfer are some of
the knowledge that international franchisees can expect to acquire during their period of contract.
Experiential learning is the best way to develop new skills and knowledge that the country’s existingeducational system might need to adopt. Thus, the franchisee and its workforce would learn what
is required to run a business locally and internationally. In some instances local firms used theknowledge and skills gained to open their own business brands. For example, a former manager of
an international franchise now owns two branches of successful restaurants. For TNCs, franchising
is the most inexpensive way to expand their business and brand recognition without directly investingin the host country.

(2) Subcontracting: Textiles and Garments Manufacture
According to the Brunei Darussalam yearly statistics book, from 2015 to 2019 textiles and garments
contributed an estimated 0.2 per cent of the total GDP of Brunei Darussalam annually, or between
BND34.2 million ($25.7 million) and BND38.6 million ($29 million) (BDYSB 2019).
In the textiles and garments industry in Brunei Darussalam, subcontractors are hired by a project’s
general contractor, which is responsible for completing the whole project. Most TNCs use firms
from ASEAN states as subcontractors to perform parts of the textiles and garments manufacturing
process. In Brunei Darussalam, the common subcontract awarded is for CMT, which is the easiest,
but has low value added (see Box 3). This type of arrangement typically results in an expected grossprofit margin that ranges from 15 per cent to 50 per cent.6

Box 3. Subcontracting apparel businesses for garment export
Apparel businesses that subcontract for garment exports typically apply one of the following fourmodes of export.
1) CMT (cut, make, trim)
CMT is the easiest export method in the apparel industry and has the lowest value added. Under
this method, TNCs offer all the inputs for production including raw materials, transportation,
designs and specific requirements, while manufacturers carry out only the stages of cutting,sewing and trimming the products. Businesses working under this export method need only abasic understanding of design patterns and the ability to produce finished products.
2) OEM (original equipment manufacturing)
OEM entails buying raw materials and producing and selling final products and creates higher
value added than CMT. Unlike CMT, local firms buy necessary material inputs instead of being
supplied with them directly from their buyers.
.../

6

Feedback from the owner of a local garment NEM.

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13

Box 3. Subcontracting apparel businesses for garment export (Concluded)
3) ODM (original design manufacturing)
ODM entails purchasing fabric and materials, cutting, sewing, finishing, packaging and shipping
products. The ability to design reflects a higher level of knowledge by the providers and brings
higher added value for products. ODM businesses create designs, finish products and sell them tobuyers, which are most of the world’s major brand owners.
4) OBM (original brand manufacturing)This production method is an improvement over OEM, as manufacturers are responsible for theirown designs and sign domestic and foreign goods supply contracts for their own brands. Under
the OBM method, manufacturers in developing economies distribute products mainly in theirdomestic market and neighbouring countries’ markets.
Source: ASEAN-Japan Centre.

The first and one of the largest garment factories in Brunei Darussalam is Brutex Manufacturing.
Brutex, located near the town of Muara, was established in the late 1990s and employs more than
1,500 employees. It produces around 60,000 pieces of children’s clothing per month and then exports
them to North America.7 However, the textiles and garments industry faced direct competition withthe low cost of labour and materials from the People’s Republic of China. Currently, only one local
firm managed to survive and secure contracts to manufacture apparel for a TNC. Famous Textile
is currently the only local firm subcontracted by a TNC to produce garments and clothing. The
company was incorporated in Brunei Darussalam in 2003. The initial reason for its establishment
was to take advantage of the Bruneian quota-free status, cheap energy costs, comparatively
inexpensive labour, no import duties, low inflation and political stability.8 The good reputationof Brunei Darussalam in terms of its labour standards and ranking 46th in the Environmental
Performance Index by Yale and Columbia Universities has proved to be an added value for local
NEMs in being awarded a contract by TNCs.
Famous Textile has actively brought in other small local garment companies in Brunei Darussalam tobe part of its supply chain. One such company is Cerita Fabrikku. Cerita Fabrikku was established by
the company’s former i-Ready scheme employees (Box 4). Famous Textile also extended its assistanceto help the Government of Brunei Darussalam develop and provide a two-month sewing operator
course for vocational students (Box 5). The company also issues a conditional offer of employment to
100 trainees with the condition of simply completing the course. This programme has benefited local
garment companies in terms of knowledge and skills transfer to the Bruneian work force.

Box 4. TNC subcontracting garments manufacturing to Bruneian firms
i-Ready trainees launch startup manufacturing garments for export9
Through a subcontract with Brunei’s biggest textiles producer, the all-local team of Cerita Fabrikku
has produced 5,000 shirts for Hard Rock and Universal Studios.
.../

7
8
9

https://textilevaluechain.in/2020/08/22/fashion-in-brunei/
http://www.splaopdr.com/BRUNEI/FAMOUS-TEXTILE-SDNBHD-BRUNEI.html
https://www.bizbrunei.com/2019/12/i-ready-trainees-launch-startup-manufacturing-garments-for-exportcerita-fabrikku/

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Box 4. TNC subcontracting garments manufacturing to Bruneian firms (Concluded)
Out of luck in searching for jobs related directly to their academic
backgrounds, a group of six Bruneian graduates in science,engineering, technology and linguistics arrived at the doorstep ofBrunei’s biggest textile production facility located in Jerudong in
the final quarter of 2017. Led by its owner Stephen So, Famous
Textile (FT) produces some 250,000 shirts monthly – almost entirelyfor export and supplied to renowned brands including Disney, Hard
Rock and Universal. FT’s 42,000 square feet factory with 360
sewing machines and 200 employees has been a well-oiled
Source: Stephen So, MD of FT.
machine since setting up in 2003 as an extension of its parent
company, Hong-Kong based Booma Fat Garment. But it’s role inmentoring the six Bruneian graduates – who entered FT under the government-sponsoredi-Ready apprenticeship programme – that’s set to make local headlines. “They (the i-Readytrainees) have decided to set up their own garment manufacture company called Cerita Fabrikku,”
said So. “It will be locally run, locally owned with 100% local sewers, which I think might be a firstfor the garment industry in Brunei.” Since setting up at the Ministry of Culture, Youth and Sports’(MCYS) Youth Development Centre (YDC) two months ago, Cerita Fabrikku has made over 5,000
shirts for Hard Rock and Universal Studios sub-contract supply agreement with FT. «When FT
started in Brunei nearly 20 years ago we began with 400 staff, about 10% were Bruneians,” said
So. “Within a week they had left. But now we are starting to see a (gradual) shift, and Cerita
Fabrikku is at the centre of that change.”
Building local competency - If Nurul Fatini Hj Abdul Malik had to guess what her first formal
apprenticeship would be after graduating from the UK three years ago, it would be working
inside a laboratory and not a factory. The diminutive MSc in Medical Molecular Microbiology and
Immunology graduate from the University of Aberdeen’s response to being unemployed was
to keep an open mind and upskill through taking a short sewing course making baju kurung(traditional Malay dress) at IBTE. On September 11, 2017, she got her opportunity, submitting an
i-Ready application to be a production supervisor trainee at FT through JobCentre. Eight days later
she began her first day with five other Bruneians, not knowing that she would go onto start andlead her own garment company two years later. “It was what I (initially) expected; there was no
air-conditioning and we sat for hours on the sewing machines learning all the basic processes,”said Nurul, who is now the CEO and product development officer of Cerita Fabrikku. “What madethings challenging wasn’t just the learning curve (at FT) but the fact that not many around me(friends and family) understood why I would put up working in a factory; something entirely outsidewhat I had studied in university. But it was necessary for us to function effectively as supervisors,and looking back it was even more important for us because without it there would be no way we
could have started our own garment company.” After Fatini’s batch, other four i-Ready graduates
arrived as trainee supervisors, designers and programmers. Collectively, they were the first batchof Bruneians to work at FT in several years, and their rapid development renewed discussions
amongst FT’s management if locals could be trained not only as supervisors but also as sewers.
Six months after the i-Ready trainees began, So entered discussions with the Centre of Capacity
Building (PPK) – who provide vocational training to secondary school leavers – to develop a twomonth sewing operator course for Bruneian youth. Then, put pen to paper and committed 100
conditional offers of employment (COE) to FT for those who completed the course. FT would alsolease machinery to PPK for the training and develop the course’s content that is today delivered
today by the six founders of Cerita Fabrikku.
Source: BizBrunei, reprinted with permission.

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Box 5. Brunei initiates training program to boost garment sector10
The Brunei Industrial Development Authority (BINA), an agency
under the Ministry of Industrial and Primary Resources, Governmentof Brunei Darussalam, is working with Famous Textile, a local
textile company to initiate a garment training programme forindustry professionals in the country, according to the Brunei
Times. The pilot project is still in its initial stages, and its complete
details, as well as eligibility criteria for the training, are yet to be
Source: Photo courtesy of
finalized, states the report. Announcing the proposed training
Famous Textile.
programme, BINA said it would identify and guarantee buyers forthe apparel made by the entrepreneurial programme participants.
As part of the programme, Famous Textile would look for sponsors to encourage and nurture
young entrepreneurs to venture and become successful entrepreneurs in Brunei’s clothing
industry. The company would guide and help those who take part in the training programme intheir first business transaction from the process of design, submission, and execution to delivery,
invoicing and receiving payment. The programme would allow young entrepreneurs to be creative
while assisting them in successfully launching their enterprises. The programme would also
include seminars on applying embellishment to readymade garments using techniques such as
screen printing, embroidery, sublimation, and batik designing.
Moreover, young entrepreneurs taking the course would be asked to create designs featuring
various aspects of Bruneian culture and the country’s picturesque sights like coral reefs andrainforests. Famous Textile Sendirian Berhad is a manufacturer of a complete range of garments
and clothing items for men, women and children. With over two and a half decades of expertise in
the industry, the company specializes in offering high quality manufactured knit and woven wear.
Source: Fibre2fashion.com, reprinted with permission.

For the past few years, the Government of Brunei Darussalam has designed and run various
initiatives with the assistance of a local textiles and garments firm to revive the country’s industry. As
Bruneian labour cost is still considered high among the ASEAN member states, current and future
local firms are expected to compete on other factors such as health and safety, international labour
standards, responsible sourcing, product safety and product footprint. These are some examples ofareas that TNCs look at when evaluating firms that apply for subcontracts.
Nevertheless, at present, local firms are only involved in CMT activities in the entire textiles andgarments supply chain. For raw materials procurement, garments manufacturers rely heavily on
the People’s Republic of China, which is now the main supplier of fabrics and raw materials (seeFigure 4 for the common flowchart of contract manufacturing). Thus, local firms will only charge
for their CMT services and other logistics costs. No cost is incurred in raw material procurements.11

1011

https://www.fibre2fashion.com/news/manufacturingnews/newsdetails.aspx?news_id=165805
Feedback from the owner of a local garments NEM.

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Figure 4. Flowchart of contract manufacturing

Survey of subcontractors

Sample production

Contract to manufacture

Dispatch amanagement person

Provide materials,
machineProduction activity

Inspection work

Delivery (import of production)

Settlmement

Cancellation of a contract

Source: ASEAN-Japan Centre.

(3) Licensing: Automotive
Licensing is a business arrangement in which one company gives another company permission
to manufacture, sell and distribute its products or services for a specified price. Being awarded
the only licensed distributor or seller for another company’s products or services means that noother companies within the area/region or country are allowed to perform such activities. Thus, theawarded company has the legal rights to sue any company that manufactures, sells or distributes
the same product within the same region.
With a high income per capita, the population of Brunei Darussalam also has a high ownership ofcars per person. Table 4 shows that the number of newly registered cars exceeded 10,000 vehicles
per year for the past three years. Brunei Darussalam has the highest total registered motor
vehicles per 1,000 population at 962.9 among ASEAN countries, followed by Malaysia and Thailand
with 897.4 and 583.1 respectively in 2018 (ASEAN Secretariat 2019). The country also has many

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17registered distributors of automobiles. Having a licensed distributor in the host country meansthat TNCs can rely on the local firm to generate income. According to the ASEAN Automobile
Association, motor vehicles sales in Brunei Darussalam increased by 5 per cent in 2020 from theprevious year, while other ASEAN countries saw on average a drop of 27 per cent for their overallsales due to the pandemic.12
Goh Hock Kee Sdn. Bhd. is a local firm and the only authorized dealership in Brunei Darussalamfor Mitsubishi vehicles and Daihatsu from Japan (Box 6). The company is also licensed to sell otherinternational brand vehicles such as Alfa Romeo, Jeep, Dodge, etc. Other car dealers licensed tosell and distribute domestic vehicles are Maju Motors Sdn. Bhd., Grand Motor Shd. Bhd., QAF Motor
Sdn. Bhd., Jati Transport Sdn., among others. Each company has the licence to sell only one or moreinternational brand vehicles.

Table 4. Newly registered cars per year, 2017–2019
Year

2017

2018

2019

Length of road (km)3,693.0

3,708.4

3,713.6

Newly registered vehicles (numbers)

11,39011,14012,258

Private cars

10,743

10,442

11,383

Goods vehicles

211

334

321

Motorcycles/scooters

319

241

309

Others

117

123

245

Land Transport

Source: Department of Economic Planning and Statistics 2019.

Box 6. Local automobile firm licensed to sell Japanese cars
Goh Hock Kee Motor, which laterchanged to GHK Motors Sdn. Bhd.,
was founded in 1970 and registeredas a private limited company in1984 and supplies passenger carsin Brunei Darussalam. Bruneian
Goh King Chin established thecompany in 1970 primarily sellingreconditioned European, American
Source: Author photo.
and Japanese cars. The company
started to gain a good reputation for selling used cars after the first three years of its establishment,
motivating the founder to venture into the automotive industry by importing new cars seriously. In
1973, the Daihatsu Motor Corporation (Japan) granted the franchisee licence to distribute and selltrucks and passenger cars in Brunei Darussalam.
.../

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Box 6. Local automobile firm licensed to sell Japanese cars (Concluded)
The company has set a pace to grow exponentially by upgrading its facilities, hiring more staff
and investing in equipping its staff, especially the mechanics, with the latest industry know-how.
The mechanics were sent to Japan to improve their efficiency and competitiveness in dealing with
day-to-day operations at the company. At the same time, the founder was determined to expand
further the company’s share of the local automotive market; as a result, the company received thesole distributorship of Mitsubishi trucks and cars by Mitsubishi Motor Corporation in 1979.
The company prides itself on providing quality cars and quality services and has grown steadily
since its founding. GHK Motors also became the sole distributor of Fiat Chrysler Automotive inthe sultanate. It started selling the Jeep and Alfa Romeo brands in the local market in 2006. The
company also acquired the rights to distribute and market Chevrolet, Chrysler, Jeep, Dodge andPerodua models.
The company pushed further horizontally, establishing its sister company in 2000: GHK Auto
Assembly Sdn. Bhd. In 2019, GHK introduced the first in the country, a locally built multipurpose
segment vehicle. The model is the Daihatsu Gran Max line of vehicles for commercial customers.
It is custom designed to meet the demand for food trucks from small business entrepreneurs in
the country.

3. OPPORTUNITIES AND CHALLENGES FOR NEMS
IN BRUNEI DARUSSALAM
This section describes the opportunities and challenges the country might face in promoting andutilizing NEMs (Table 5). NEMs can benefit local industries in many ways such as capacity building,technology and knowledge transfer and innovation. Engaging with TNCs through NEMs will help
accelerate the country’s economic diversification towards non-oil-based industries.
As the most politically and socially stable country in the region, Brunei Darussalam has an advantage
in attracting more TNCs. However, the high cost of labour, limited raw materials and deficientlogistics present competitive challenges for local firms as compared with firms in the country’s
ASEAN counterparts such as Cambodia and Viet Nam.

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Table 5. Opportunities and challenges for NEMs in Brunei Darussalam

Agreement between
TNCs and local firms
exist thriugh NEMs

Local compagnies
local employees

TNCs

Opportunity

Challenges
Franchising:F&B Industry

Non-Equity Modes in Brunei Darussalam

Job creation
Management know-how transfer

Training by TNCs
Localization (is required)

Subcontracting
Textiles and Garments Industry

Job creation
Management
know-how transfer

Localization (is required)
Competition among ASEAN
member states
Business model is basedon TNC's side

LicensingAutomobile Industry

Job creation

Training by TNCs
Localization (is required)

Source: Authors.

3.1 Business Continuity
The main feature of NEMs is that TNCs do not need to own the local firms running their businessactivities directly. However, they still have indirect control over the local firms. Thus, throughvarious modes, the TNCs awarding contracts still have quasi-ownership over the local company
or corporations. Participating in NEMs with their TNC counterparts provides Bruneian local firms
various advantages. Table 6 shows that local firms can benefit a lot from TNCs through knowledge,
skills and technology transfers to the locals; international exposure, management know-how andjob creation, to name a few.

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Table 6. Opportunities and challenges for local firms engaged in NEMs
Opportunities

Typical industries
concerned

Challenges

Continuity problems
Easier to find TNC partners, both inand outside the country through, forexample, matching events (because
TNCs do not directly invest in thebusiness)

Subcontracting: Textiles Easier for TNCs to terminate contracts andand Garments
long-term relationships are not guaranteed, if
quality of services or goods do not meet TNCs'
standards and if local firms in other countries
are more competitive (e.g., strong competitors
exist in the garment industry in Cambodia and
Myanmar)Typical NEMs issues
Franchise: Food andEasier to enter new market or new
area even though demand is present Beverages
in the country. Skills, talents, or
resources available in the country but
not required in the country can be
usefully utilized outside the country.

Franchisees or local firms may face difficulties
in adapting TNCs' original strategy tolocal tastes and need to learn through theexperience before becoming part of thecommunity (e.g., franchisees need to localize
the TNCs' strategy to meet local demands andtastes that TNCs are not aware of).

Subcontracting: Textiles Demand from TNCs may change depending on
and Garments
the interest and taste of their customers.
Demand and markets
are outside the country.
Capacity-building issues
Many opportunities exist for local
firms to develop new businesses andboost sales.
Easier for local employees to work in
NEM activities, even with low skills.
They may be able to improve theirskills through working.

Subcontracting: Textiles Not easy for local firms to build further
and Garments
capacity apart from receiving orders from
customers, as they receive only relevant
know-how at best (e.g., upgrading value chain
activities thorough their own efforts is not easy
especially on the logistics issue of exporting
the orders to the TNC)

Initiatives and local embeddedness issues
Local firms need to take the initiative
to lead operations and embedknowledge while maintaining the
TNC's basic strategy. Through these
activities, local firms can open new
business opportunities and improve
management capability.

Franchise: Food andBeverages
Licensing: Automobile

Not easy for local companies (franchisees;
licensing) to adopt TNCs' original strategies
to localize. Local companies need to learn
through operating.

Source: ASEAN-Japan Centre.

Nevertheless, TNCs, such as in the textiles and garments industry, can relatively easily terminate
their contracts and find new production sources to manufacture their products. One of the main
factors influencing TNCs in the textiles and garments industry in awarding production contracts isthe cost of labour. Brunei Darussalam has a high cost of living relative to many ASEAN countries, andhigh labour costs will definitely raise never-ending challenges to ensure that TNCs keep renewing
their contracts. Thus, this is the main challenge that the textiles and garments industry in Brunei
Darussalam faces.

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3.2 Characteristics of NEMs
One opportunity of NEMs is that it is much easier for local firms to enter a new market or new
area even though demand is not present in the country. For example, a franchisee can get full
support from the franchisor in almost all aspects of its operations. The TNC can provide all standard
operating procedures up to the supply of materials. Thus, TNCs can make productive use of excess
skills, talents or resources available but not required in the country through NEM arrangementswith local companies. Nevertheless, in the food and beverages industry, franchisees or local firms
may face difficulties adapting the TNCs’ original strategy to local demands and tastes, which the
TNC may not be aware of, and thus becoming part of the community. In some instances food or
drinks have needed to be adjusted to local demand. Furthermore, local Bruneian firms rely heavily
on imported raw materials. Lack of local production can be a challenge for franchisees to keep theirprices competitive compared with their local competitors. For the textiles and garments industry
where production is based on contract demand from TNCs, government policy changes might affectthe continuation of contracts.

3.3 Capacity Building
Local firms engaging with TNCs have many opportunities to develop new businesses and boost
sales. Technology transfer and know-how usually flow from TNCs to local firms. The technology
transfer from TNCs in the textiles and garments industry enables local firms to offer services toother companies either locally or internationally, which builds capacity for local firms, enhancing
productivity and efficiency. It is also much easier for local employees to work in NEM activities where
TNCs provide proper training. Being employed by NEMs will further improve their skills. However,as Box 4 shows, it is not easy for firms in the textiles and garments industry to build additional
capacity apart from receiving orders from customers, as they receive only relevant know-how atbest. Furthermore, upgrading value chain activities through their efforts is not easy, especiallyregarding the logistics issue of exporting their orders internationally.

3.4 Initiatives and Local Embeddedness
Engaging TNCs in NEMs also enables local firms to take the initiative to engage in activities that
could lead to business opportunities and management capability improvement while maintaining
the TNC’s basic strategy. Engaging with TNCs would enable the local firms to build their selfconfidence in offering their services to others. This will also lead to market confidence in theirservices. Learning through operating would benefit the local textiles and garments industry toadapt to new technologies and be on par with international standards. However, local firms may
not be able to adopt and implement the same standards required by the TNCs with other clients.
This could be due to the high cost incurred by maintaining the same standards. Therefore, thelocal firm could only use the standards as a reference when offering their services to other local orinternational corporations.

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4. POLICY IMPLICATIONS
Local firms, TNCs and the host country face some challenges and opportunities in adopting NEMs
as a mode of investment. Nevertheless, the Government of Brunei Darussalam should see this as
an opportunity to diversify its economy and move away from dependence on oil and gas production.
The recent downturn in global oil prices, which has been exacerbated by the COVID-19 pandemic,has forced Brunei Darussalam to push its economic diversification initiatives further.
In early January 2021, the country launched the Brunei Economic Blueprint, which provides thecountry’s guidelines for achieving the third goal of the Brunei Vision 2035 strategy, i.e., developing a
dynamic and sustainable economy. Six aspirations are the focus of the economic blueprint:
1. To develop a productive business environment by leveraging technology and innovation;
2. To promote continuous learning, training and reskilling of the workforce;
3. To ensure the economy is open and globally connected;
4. To ensure preservation of the environment;
5. To develop infrastructure to support and grow businesses; and6. To ensure good governance and public service excellence.13
Usually, firms owned wholly or jointly by local and foreign TNCs that rely on export markets in ASEAN
have been the most vulnerable to external shocks, as experienced in Malaysia, the Philippines,
Singapore and Thailand during the global financial crisis of 2007–2008. More importantly, because
TNCs often repatriate their profits to their home countries, local NEM firms (as domestically owned
firms) can help reduce the wholesale repatriation of profits. Developing resilient NEM firms will
also help deepen the reservoir of domestic capital for national expansion. Hence, government policy
should strongly consider promoting NEMs as a critical economic growth strategy. The Governmentof Brunei Darussalam can focus on broad institutional improvement and changes. Fortunately, these
proposed improvements and changes are mostly in the pipeline and were extensively discussed in
the recently released Brunei Economic Blueprint.

4.1 Enhancing the Capability of Local Firms
Attracting TNCs to sign deals with local firms requires a more convincing presentation of the local
firms’ capabilities. TNCs will be more comfortable awarding any contract knowing that local firms
have the technological and managerial know-how. TNCs usually consider the availability of local
firm capabilities as part of their business risk assessment. Thus, the first two aspirations of theBrunei Economic Blueprint will fulfil these needs. The first and second aspiration will assist NEMs
at the industry level and the individual business level, respectively.
At the industry level, industrial or business associations and the Government of Brunei Darussalam
can jointly support these initiatives:• Developing a productive business environment by leveraging technology and innovation. Various
strategic priorities were laid out to help the country to reduce its dependency on oil and gas. A broadbased approach to growth will be promoted by strengthening priority sectors including exploringnew economic activities. This will include promoting FDI and NEMs to spur economic growth.

13

https://www.aseanbriefing.com/news/brunei-launches-economic-blueprint-salient-features/

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23• Promoting local firms’ greater involvement in global value chains (GVCs). The Governmentof Brunei Darussalam can promote upgrading and upscaling local firms’ capabilities in GVCs
through various strategies. One is by providing locals with meaningful and high-value jobs to meetindustry needs. Upskilling the labour force will make hiring local firms as part of their value chain
attractive to TNCs.
• Another strategy stated in the blueprint report is shifting towards higher value-added activities
and products through innovation and compliance with international standards. Innovation andintellectual policy need to be in place to support this strategy. Brunei Darussalam established
its Intellectual Property Order in 2013. Such a policy will build more confidence among TNCs
in dealing with local firms both via FDI and NEMs, especially for technology- and intellectual
property-oriented industries.
At the individual firm level, the government needs to support these efforts:• Local firms need to train and re-train their employees to ensure that they keep up with TNC labour
skill requirements. Thus, the government should promote continuous learning, training andreskilling of the local workforce. Ensuring that workers stay relevant by being innovative and having
the right skills to meet future industry demands and adapt to any disruptive global trends is crucial.
• Local firms need to inculcate research and development (R&D) practices into their annual planning.
The government needs to be more proactive in assisting local firms with their R&D requirements
by providing research grants and expertise. As per the government blueprint aspiration, one ofits strategies to support the third goal is to strengthen research, development and innovation
capacity to support industrial development.
• Darussalam Enterprise (DARE) is a statutory body established by His Majesty the Sultan and Yang
Di-Pertuan of Brunei Darussalam with the key objective of building enterprises into dynamic andresilient drivers of economic growth, to enable enterprise growth through a pro-business ecosystemwith necessary infrastructure, reliable support and effective development programmes.14 DARE
can expand its function to be the local business advisory centre where local firms can learn NEM
operations or activities. Local firms need to be aware of the big picture of changes and future
demands in the industry, not only of their current operations. The government can support thisby connecting individual firms (horizontally and vertically) in the industry. The centre should cover
all aspects of NEM establishment: forming, executing and evaluating contracts and increasing
knowledge about NEM operations. It also can assist in the globalization and localization strategiesof the NEM.

4.2 Enhancing Basic Infrastructure
The government has created various initiatives to attract FDI to Brunei Darussalam. Various types ofinfrastructure were developed to ease business operations in the country. Brunei Darussalam has
seen remarkable improvements in the Ease of Doing Business rankings (it is currently in 66th placeworldwide and 4th place in ASEAN). The country also maintained its first-place ranking for ease ofgetting credit (World Bank Group 2020). Nevertheless, improvement in transportation and logistics
infrastructure is critically needed to assist local firms’ export activities. Shortfalls in these areas
might deter not only FDI but also NEMs in Brunei Darussalam. However, one of the policy directions

14

https://www.dare.gov.bn/

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under the fifth aspiration of the Brunei Economic Blueprint (2020) is the improvement of road,sea and air connectivity (passengers, freight and logistics) to boost productivity and growth of theeconomy. NEM firms could enjoy low cost and timely operation if this policy were to be implemented.
Infrastructure simultaneously follows and fosters economic development as an importantelement of logistics systems. Enhancing logistics systems through infrastructure development
and modernization is crucial as a competitive advantage that would motivate TNCs to engage in
NEMs in a specific nation (host country). In other words, infrastructure creates adhesiveness for
NEMs in an otherwise competitive region, which in turn enhances regional development efforts(Sakalayen 2014). That is, efficient infrastructure in regional or peripheral locations may assist
in developing an ecosystem or hub to attract investments and NEMs. For example, Singapore’stransport hub concept, which consists of efficient seaport and airport infrastructure, compelled theMaersk shipping lines to leave the dedicated terminal services of Tenjung Pelepus Port in Malaysia.
Some infrastructure development plans under the Belt and Road Initiatives also have the capacity toenhance the attractiveness to invest in regional areas. In turn, NEMs bring in investments that boost
the economy, support resilient growth and induce further demands for effective logistics systems
where infrastructure development remains pivotal.
In general, TNCs choose NEMs for the effective transfer of their competencies to the host-countryfirm. In NEMs, the host-country partner’s bargaining power and efficiency largely depend on thequality and extent of the logistics systems and infrastructure in the host country. In other words,
TNCs influence the NEM partner firms in the host country based on the host country’s level ofbargaining power (UNCTAD 2011). The NEMs along the value chain often include activities in theinbound logistics such as contract farming and procurement and contract manufacturing anddistribution activities in the outbound logistics or contract logistics. Underdeveloped infrastructure
and logistics systems may reduce the bargaining power of the NEM host-country firms or may evenpreclude NEMs.
The infrastructure and logistics systems of Brunei Darussalam have undergone a reasonable
development phase. The government is now accelerating diversified and transformative strategies
in logistics systems for further resilient growth. Logistics systems in tourism; agriculture, including
aquaculture; energy and halal sectors may benefit from NEMs for their diversification. Integrating
the logistics systems of these sectors into GVCs through diversification and development schemesis critical for the future resilient growth of Brunei Darussalam.
A key component of plugging into GVCs is the logistics facilities that connect to many just-in-timeprocesses. A relatively faster, more efficient and reasonably priced logistics system would support
the ability of Brunei-based firms to participate in GVCs. Faster and more cost-effective logistics
services would ensure quicker arrivals of machinery and raw materials and prudent distribution
or transportation of finished products. Otherwise, smaller Bruneian firms might find it difficult toconnect and operate in larger markets, even through e-commerce platforms where quicker andinexpensive shipping services are the usual expectation of suppliers and consumers. The efficientinternal logistics systems of Brunei Darussalam are the critical conduits to provide such faster andinexpensive shipping and logistics services where ensuring port connectivity and incentivizing thirdparty logistics service providers form core elements.
The challenges Brunei Darussalam faces in providing fast and inexpensive shipping and otherlogistics services include a small domestic market or internal demand, lack of competitiveness with
regional market players and inadequate shipping alternatives such as port connectivity to link GVCs.
In other words, the absence of competitive advantages, low-cost internal logistics services andefficient port connectivity will make it harder not only for local businesses in Brunei Darussalam,
but also for TNCs to form better financial cases for investments linking GVCs.

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25Despite these challenges, the Government of Brunei Darussalam has so far delivered several goodpieces of logistics and infrastructure and has planned to implement some others in the near futurethat will certainly revamp and integrate the country’s internal logistics a step further. These include
the 30-km long Temburong Bridge that integrates domestic freight and passenger movements,
assists in ecotourism, helps achieve parity in national development and enhance the strategic
location and geographical hierarchy of Brunei Darussalam in the region (Commonwealth Secretariat2019). This bridge, along with the already-built air freight infrastructure, will eventually present theBrunei-Muara Port as a multimodal logistics hub in the region with the gradual improvement ofinternal logistics services and manufacturing potential. However, at present the air freight facility
is occasionally over- and underutlilized due to fluctuating and occasional demands; however, it
raises the future adaptability and opportunities for businesses and signals the TNCs that Brunei
Darussalam is a coherent business location.
In promoting logistics services, including halal industry logistics, Brunei Darussalam strategizes
several options, such as the establishment of the Brunei-Guangxi Economic Corridors,
implementation of a Bruneian halal food and beverage production facility and strengthening of thecollaboration between the Brunei Darussalam BIMP-EAGA Business Council (BD-BEBC) and theLabuan Halal Hub to position Brunei Darussalam as a transshipment hub. The full implementationof the Brunei halal food and beverage production facility will provide a leap for logistics services
including refrigerated warehousing and storage facilities in the country. This will further enhancefreight shipping, logistics networks and warehousing that often together serve as a basis for building
franchising operations.
In the recent past, cruise shipping attached to ecotourism has shown reasonable growth in Brunei
Darussalam. In addition, development of health logistics for health tourism coupled with ecotourism
could also be further investigated. For all the aforementioned logistics systems development, port
connectivity enhancement remains pivotal. Port connectivity, in general, fosters geographicalconcentration, which is one of the main characteristics of agglomeration economics (Sakalayen2014). At present, Brunei-Muara Port has limited capacity with only one 250-metre container
terminal wharf that can serve one container ship at a time, thus restricting quick logistics services,cargo shipment and internal transportation due to port congestion. However, Brunei-Muara port
and logistics services are heavily subsidized by the Government of Brunei Darussalam due to thecomplexity of export and import imbalance, low port throughput and suboptimal logistics services.
In the future, an effective public-private partnership in building one or two additional container
terminal wharfs could enhance Brunei-Muara port connectivity to regional and global value chains.

4.3 Promoting Integration into Global Markets
Local firms can take advantage of having NEMs to expand their networks internationally. The
ASEAN Economic Community drives towards a more integrated ASEAN economy. With zero to low
tariffs among member states, the AEC encourages more ASEAN NEMs to expand their operations
regionally and internationally. As an ASEAN member state Brunei Darussalam should takeadvantage of the trade preference given by ASEAN international counterparts such as ASEAN+3,
ASEAN-EC, etc. Nevertheless, a favourable and supportive Bruneian government policy towards
international trade is still needed. According to the World Bank Group (2020), Brunei Darussalam
is in the 149th place of the Trading Across Borders Index, with BND9.6 billion ($7.2 billion) of FDI
stock in Brunei Darussalam for 2019 and total exports of goods and services worth BND10 billion($7.5 billion). This is not a good reflection on the image of Brunei Darussalam. However, thegovernment has recognized this problem and plans to improve the international trade and index.

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The recently published Brunei Economic Blueprint stated that it aspires to turn Brunei Darussalam
into an open and globally connected economy. Some of the policies in the pipeline include promoting
and strengthening economic ties with trade partners, bilaterally, regionally and multilaterally forbroader market access; supporting trade facilitation to assist export-ready companies throughefficient, competent authorities and encouraging businesses to maximize international tradeopportunities. These policies will hopefully encourage more NEMs in Brunei Darussalam.

4.4 Developing STI Infrastructure and Promoting Connectivity and
Coordination
The co-location of organizational support for NEM firms alone is not sufficient to stimulatetechnological upgrading. Strong connectivity and coordination must also exist between basic andscience, technology and innovation (STI) infrastructure organizations and NEM firms. Whereas
emphasis on necessary infrastructure will enable the firms to execute efficient business practices
with short lead times and low costs, the development of STI infrastructure—science parks, industryuniversity linkages and organizations—and the resulting high-quality, technically skilled workers anduniversity graduates will help in stimulating innovation synergies among firms. These are critical forfirms to upgrade technologically and enjoy participation in high value-added activities.
In Brunei Darussalam, some of these initiatives have been implemented or are currently in thepipeline. BEDB initiated development of ADTP and Brunei Agro Technology Park (BATP). ADTP iscurrently in Phase 3. Existing facilities include a design and technology building and a multi-storey carpark, the iCentre building15 and Knowledge Hub building16 and Kontena Park.17 Meanwhile, the vision
for BATP highlights building strong relations between academic and business circles at both thenational and international level, ensuring an investor-friendly atmosphere to secure leading global
technology investors to promote modern agriculture innovation and healthy and safe agricultural
products and to introduce green tourism and export-oriented agriculture to Brunei Darussalam.
Coordinated effort and connected stakeholders in STI infrastructure will help NEMs to flourish.

4.5 Mainstreaming Sustainable Development
United Nations sustainable development goals, also known as global goals, were adopted by its
member states in 2015. They provide a shared blueprint for peace and prosperity for people andthe planet, now and into the future.18 This provides opportunities for the Government of Brunei
Darussalam to shape NEM firms’ conduct and mainstream the 17 goals. This report will examine
relevant goals related to workers and human rights and the environment. In any bilateral trade,the common practice is to look at environmental and labour standards as prerequisites for futurecooperation. Brunei Darussalam must ensure that its human rights and environmental policy
comply with United Nations standards.

15

16

17

18

iCentre is a startup incubation program and co-working space for entrepreneurs with access to capacity-building
programmes and the startup ecosystem. iCentre works closely with local and regional collaborators to develop andconduct workshops in the areas of ideation, market validation and fund raising.
Knowledge Hub (KHub) is a platform for developing the creative and multimedia industry through programmes andactivities that are run in partnership with companies such as Microsoft and Sesame World Technology.
Kontena Park is an area with the aim to provide a platform for foodpreneurs to test and validate their product in areal market setting.
https://sdgs.un.org/goals

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The only Bruneian textiles and garments NEM firm has gone through the international assessmentof workers and human rights. The Disney Facility and Merchandize Authorization application that
local NEM firms complete must satisfy Disney International Labour Standards.19 As stated on its
website, “Disney’s International Labor Standards Program seeks to foster safe, inclusive, andrespectful workplaces wherever Disney-branded products are made”. This is in line with the second
aspiration of the Brunei Economic Blueprint (2020, p. 10), which aims to instill a healthy work-lifebalance to ensure a productive workforce. Thus, Brunei Darussalam needs to monitor its labour orworkforce welfare to ensure its welfare or interests are kept at an international standard.
Seventy-two per cent of Brunei Darussalam land is still covered by pristine forest, and the country
has committed 58 per cent of its land area to be conserved under the Heart of Borneo initiative. As
a result, Brunei Darussalam is ranked 46 in the aforementioned Environmental Performance Index.
A sustainable environment is the fourth aspiration under the Brunei Economic Blueprint (2020).
Various policy directions were laid out such as instilling a culture that promotes the preservationof the environment and ecosystems in economic activities; promoting green growth initiatives
and a sustainable blue economy; promoting research, development and innovation to develop andadopt environmentally friendly and resource-efficient technologies; promoting and investing inenvironmentally and green-friendly industries and limiting land and environmental degradation inany economic development activities.

5. CONCLUDING REMARKS
As one of the smaller ASEAN member states with the smallest population, Brunei Darussalam has
much to gain from NEMs. The three types of NEMs, i.e., subcontracting, franchising and licensing,illustrate that many other industries are not being tapped into. Even though existing and future local
NEMs face or potentially face some challenges, the economic and social opportunities that NEMs
could bring to the country are undeniable. With more articulated government policies, especiallywith the recent release of the Brunei Economic Blueprint on 16 January 2021, considering Brunei
Darussalam as a business and trading partner looks promising for foreign investors and TNCs.
NEMs are a strategic tool for these companies to do business in the country and a developmental
tool for local firms.

19

https://thewaltdisneycompany.com/responsible-supply-chain/

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