Non-Equity Modes of Trade in ASEAN

emocratic Rep
D
’s
ub
e
l
l
p

ic

Lao
Pe
o

Promoting new forms of trade between
Japan and ASEAN

PAPER 4

M A R C H

2020

For inquiries, contact ASEAN-Japan Centre(ASEAN Promotion Centre on Trade, Investment and Tourism)
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Paper 4 / March 2020 / Non-Equity Modes of Trade in ASEAN: Lao People’s Democratic Republic
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 4

M A R C H

2020

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NOTESThe terms country and/or economy as used in this study also refer, as appropriate, to territories orareas; the designations deployed and the presentation of the material do not imply the expression of
any opinion whatsoever on the part of the ASEAN-Japan Centre concerning the legal status of any
country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers orboundaries.

The following symbols have been used in the tables:• Two dots (..) indicate that data are not available or are not separately reported.
• A dash (-) indicates that the item is equal to zero or its value is negligible.
• Use of a dash (-) between dates representing years, e.g., 2015–2016, signifies the period involved
between the years, including the beginning and end years.
Reference to “dollars” ($) means United States dollars, unless otherwise indicated.

There are ten papers in total. The other nine papers are being prepared simultaneously.
Paper 1. Brunei Darussalam
Paper 2. Cambodia (published in August 2019)
Paper 3. Indonesia
Paper 4. Lao People’s Democratic Republic
Paper 5. Malaysia
Paper 6. Myanmar (published in March 2020)
Paper 7. Philippines (published in March 2018)
Paper 8. Singapore
Paper 9. Thailand
Paper 10. Viet Nam (published in December 2018)

Prepared by Professor Rajah Rasiah (University of Malaya, Malaysia) and Yasushi Ishida (AJC)
under the direction of Masataka Fujita (AJC). Errors and omissions are only those of theauthors and should not be attributed to their respective organization.

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CONTENTS
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Characteristics and Scope of NEMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
2.1 Scale and scope of NEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

2.2 NEM by modality: case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15(1) Subcontracting: Garments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15(2) Subcontracting: Electrical Machinery and Equipment. . . . . . . . . . . . . . . . . . .  18(3) Subcontracting: Machinery parts and soccer balls. . . . . . . . . . . . . . . . . . . . . .  19(4) Contract Agriculture: Farming. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(5) Licensing and Management Contracts: Hotels. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3. Opportunities and challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3.3 Relationships between NEM modalities and industries. . . . . . . . . . . . . . . . . . . . . 30
3.4 Localization strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

3.5 Labour issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
3.6 Opportunities and challenges facing national NEM firms . . . . . . . . . . . . . . . . . . 32
4. Policy implications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1 Enhancing the capability of local firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2 Improving investment regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3 Promotion of skills and expertise upgrading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4 Developing basic infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

4.5 Developing science, technology and innovation infrastructure. . . . . . . . . . . . .37
4.6 Promoting connectivity and coordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

4.7 Promoting integration into global markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.8 Mainstreaming sustainable development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41

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KEY MESSAGES• The use of non-equity modes (NEMs) of production has been increasing in the Lao People’s
Democratic Republic, including in exports of an estimated $274 million in electrical machinery
and $132 million in garments.
• Lao firms are in the infancy stage of participation in NEMs, using subcontracting, management
contracts and franchising, with the type of NEM varying by industry.
• In the garment industry, an important generator of employment in the country, outsourcing has
given rise to subcontracting NEMs.
• The “Thailand Plus One” company strategy of Japanese transnational corporations (TNCs)
provides opportunities for Lao companies to participate in NEM transactions with such companies
and their subsidiaries. To realize these opportunities, the government needs to put more effort
into developing infrastructure connectivity in the logistics network.
• International hotels are operated in the country through either management contracts or franchise
agreements, or under long-term contracts through the leasing of land on which hotels are thenbuilt with equity investments. Local regulations prohibit land ownership by foreigners.
• The country should take advantage of the opportunities that foreign TNCs offer when theyoutsource the production of goods or services, or part of their production chains to the country.
• The government should assist in the development of NEM capabilities so that local firms can takeadvantage of appropriate TNC-driven economic synergies as competition forces TNCs to makecontinuous improvements in the quality and pricing of suppliers.
• In addition to upgrading the labour force and improving investment conditions, the government
should strengthen the basic infrastructure and the science, technology and innovation
infrastructure; improve coordination and connectivity between intermediary organizations,institutions and firms; and promote global integration.
• The government should consider implementing and strengthening the regulatory framework
for NEM firms.

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1. INTRODUCTION
Following theories on comparative and competitive advantage and on specialization that have attempted
to explain the importance of international trade in economic development, various international bodies
have promoted the internationalization of production to bring scarce capital and technology to poorand transition economies so as to assist them in the initiation of the processes of structural change
from low to high value added activities. Consequently, global trade has grown by leaps and boundover the years. However, in many cases the accounts of trade between countries are represented byaggregate statistics on the basis of broad ownership patterns at different levels of product categories.
Few studies have broached assessments of non-equity modes (NEMs) of ownership, where trade links
appear in the form of supply chains or in many cases as part of the global value chains (GVCs) oftransnational corporations (TNCs). NEMs tend to dominate such trade in industries such as clothing
and electronics, and to manifest in the form of horizontal or vertical trade among TNC affiliates.
NEMs of trade in GVCs started gaining significance following the successful expansion of firms fromJapan, the Republic of Korea and Taiwan Province of China. Unlike the Northeast Asian economies,
Southeast Asian market economies such as Singapore, Malaysia, the Philippines, Thailand andIndonesia have strongly promoted foreign direct investment (FDI). Like these economies, the Lao
People’s Democratic Republic has also been strongly promoting FDI inflows. The role of NEMs
can be complementary to that of FDI in the country. NEMs can become an important platform forgenerating foreign exchange, can provide strong linkages with FDI and the national economy andcan act as a solid springboard for evolving national productive capabilities. Trade linkages between
Japan and ASEAN members produce such elements.
As in the other ASEAN economies, trade linkages involving NEM firms are gradually spreading in
the Lao People’s Democratic Republic. They occur in the form of international subcontracting in
manufacturing industries, such as garments and electronics; contract farming in agriculture andfood processing; international franchising in fast food and retail stores and in hotels; variations ofbuild-own-operate transfer arrangements and other concessions in infrastructure projects; andmanagement contracts in international hotel chains, among others. With a view to the potential that
NEMs offer for national economies, this study examines the Lao People’s Democratic Republic in
the overall framework of the ASEAN-Japan Centre project (box 1), particularly targeting NEMs in fiveindustries: garments, food manufacturing, contract farming, retail chains and hotels.
Box 1. The NEM project by the ASEAN-Japan Centre
Other than arms-length relationships, equity-holding is not the only means of exerting control
over the international value chain. Companies also enter into a contractual relationship with otherindependent firms. This form of trade is gaining importance as global production and value chains are
becoming more integrated. However, there exists a lacuna in the knowledge and research undertakenon this form of trade in ASEAN. It also calls for the formulation of an overall analytical framework toassess development impacts in order to propose a set of generic policies for dealing with this kind oftransactions involved. The fundamental difference between equity and non-equity forms of operation
relate to the question as to who holds equity: for NEMs, it is completely shared by local parties,
especially private interests. Typically, the role of the state related to this partnership is limited tosetting up the framework conditions within which local parties can freely negotiate the terms of theiroperations and cooperation with buyers and suppliers. By understanding better this phenomenon
including the scale and scope of NEM operations and filling in a policy analysis gap the ASEAN-Japan
Centre (AJC) seeks to provide ASEAN country governments with advisory support that they need toconsider in order to fully benefit from these new forms of trade and its related investments.
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Box 1. The NEM project by the ASEAN-Japan Centre (Concluded)
In order to explain better the scale and scope of non-equity involvement in major industrial sectors,
a case study methodology is used in this report. The reasons for taking this approach are twofold: (1) balance-of-payments and supplementary statistics do not provide the details necessary
to accurately measure cross-border NEMs of participation; and (2) the relevant microdata arefragmented and disconnected. Nevertheless, as much as possible, each case study builds on
existing research and statistics.
New opportunities are opening up for ASEAN countries owing to changes in the conduct of TNCs,
and to international innovation networks. While attracting FDI inflows and encouraging foreign
TNCs to establish affiliates remain important options for ASEAN countries, governments need toreview their current regulatory regimes in the context of new developments in this context. A key
objective of this study is to offer policy recommendations (investment and industrial policies) thatgovernments can consider in order to fully benefit from these emerging opportunities.

Resource-based products contributed significantly to overall Lao exports in 2016: copper accounted
for 33 per cent of total exports, followed by electricity at 31 per cent (Bank of Laos, 2017). In contrast,
imported products were concentrated in capital goods, such as machinery and vehicle equipment,
raw materials and consumer products. As table 1 shows, electricity and minerals ($1,450 million)
were the chief exports in 2016. Vegetables and animal products followed, with an export valueof $707 million. Machinery and electric appliances ($428 million) and refined copper and othermetals ($406 million) were next. Textiles have been among the most important manufactured
export items, with their export value rising from $86 million in 1990 to $125 million in 2000 and$222 million in 2016. Clothing and textiles became the leading item exported to Japan in 2013 due
to wage increases in the Thai garment industry and the relocation of factories to the Lao People’s
Democratic Republic from other countries. Nonetheless, the major export destination of thecountry’s clothing and textile exports remains the European Union (EU), thanks to the “Everything
but Arms” clause (Rasiah, Vanthana and Latdavanh, 2011). Another industry that has been growing
strongly in the country, albeit with few exports, is tourism. Its contribution to GDP amounted to
5.1 per cent in 2015, and in 2016 revenue from tourism was more than $700 million (AJC, 2018).
Agriculture has remained the largest contributor to GDP at 24.8 per cent and has accounted for thelargest labour force (figure 1). These two industries are identified as NEM-related industries andsubject to study here.
However, while exports have risen, imports have remained high for a number of items, such asmachinery and electric appliances ($1,370 million), vehicles and equipment ($1,020 million), metals($700 million) and foodstuffs ($496 million). It is in these industries that the expansion of NEMs canhelp ameliorate the problem posed by balance-of-payments imbalances, as NEMs can substitutefor imports.

428

406

382

284

272

221

207

132

211

4 700

Machines/Electric appliances

Refined Copper/Metals

Foodstuffs

Wood products

TextilesChemical productsGold

RubberOthers

Total

100

4

3

4

5

6

6

8

9

9

15

31

Share
(%)

76.5

1.8

32.4

9.9

32.1

3.4

14.5

0.54

24.3

108

Export RCA(selected only)

Source: Global Trade Atlas/UN Comtrade.
Note: CIF = cost, insurance and freight; FOB = free on board, RCA = revealed comparative advantage.

707

1 450

Export value($ million)

Vegitable/Animal productsElectricity/MineralIndustry

Export (CIF)

Table 1. Major Export and Import Products of Lao PDR, 2016

Total

OthersGold

Plastic products

Animal products

Chemical products

Foodstuffs

MetalsRefined Petroleum/Mineralproducts

Vehicle and equipment

Machines/Electric appliances

Industry

6 220

755

138

211

322

395

496

700

813

1 020

1 370

Import value($ million)

100

13

2

3

5

6

9

11

13

16

22

Share
(%)

Import (FOB)

1.7

1.1

4.5

2.1

2.2

3.78

3.27

3.35

2.47

Import RCA(selected only)

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Figure 1. GDP by sector, 2000 and 2015 (Per cent)Year 2000

Year 2015
100

100
80

39.1

60
40
20
0

32.4
19.1

33.1
9.7

23

37.9
Cambodia

38.7

57.2
24.5

Lao PDR

Agriculture

MyanmarIndustry

42.3

40.5

51.8

29.4

34.7

34.5

28.2

24.8

26.7

Cambodia

Lao PDR

Myanmar

44.2

60
36.7

48.5

80

Viet Nam
Services40200Agriculture

Industry37

18.9
Viet Nam
Services

Source: Asian Development Bank, Key Economic Indicators 2016.

Deregulation and the rising importance of FDI inflows into the Lao People’s Democratic Republic
are now well documented. Although national firms overwhelm foreign firms in Japan, the Republicof Korea and Taiwan Province of China, NEMs are active and form a strong, integral part of TNCs’
GVCs that has helped support their growth through integration with the U.S. and European markets.
In Asia, the technological catch-up that facilitated the transformation of national firms from low
to high value added activities was very much based initially on creative learning and incremental
innovation from knowledge acquired and imported from Western and Japanese firms, in which TNCs
have played a critical role (Amsden, 1991; Kim, 1997). Although this development is still not visible in
the Lao People’s Democratic Republic, efforts can be made through the right strategies to stimulate
the upgrading of NEMs in the country to follow the paths of NEMs in Japan, the Republic of Korea
and Taiwan Province of China. This paper seeks to investigate whether there are signs that could be
used to formulate policy-relevant recommendations to stimulate such a development by connecting
Lao firms with TNCs, as well as GVCs, to promote NEMs in the country.
Participation by local firms in GVCs has already emerged in some ASEAN countries, includingin the electronics industry and the textile and clothing industries. The expansion of outsourcing
opportunities from TNCs can evolve only from sophisticated national innovation systems. Changes
in intra- and inter-firm production linkages have resulted in transformations in the nature of control
exerted by buyer TNCs and target markets. Because of the lack of studies that show the state ofNEMs and the value chains of TNCs they connect with, this paper seeks to examine the nature ofcontrol in the value chains of local clothing and textile firms that are either selling to Japanese firms
in the Lao People’s Democratic Republic or exporting to Japanese markets directly.
When analysing the factors that make locations attractive and conducive to NEMs, it is useful tobe cognizant of the great overlap with the factors that contribute to FDI. As with FDI, locational
determinants include political and social stability, sufficiently polished competitive policies, aliterate labour force, good infrastructure, incentives for companies, smooth trading procedures
and appropriate governmental macroeconomic policy. Hence, one can apply to NEMs the standard
frameworks that have been used to evaluate FDI.

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5Several factors provide particular support for the development of NEMs in host countries (box 2).
First, stable contract and commercial laws that are fair to all parties are important to strengthen thelikelihood of the emergence of NEMs. Registration, licensing and protection of intellectual property
rights are some of the regulations that must be in place.
Second, national and local authorities must introduce institutions to promote the emergenceand growth of NEMs. For example, a wide scope of promotional activities and incentives must be
introduced. Examples include specific conditions that induce TNCs to source from NEMs, such as
financial incentives. Wherever possible, TNCs should be encouraged to participate in training andstandards testing centres, which should also be opened for NEMs.
Instead of spreading all their resources across the country, TNCs should be encouraged to set up in
selected locations where both basic and science, technology and innovation (STI) infrastructure canbe developed. Such an effort will stimulate the spread of agglomeration economies, similar to theeffect of special economic zones (SEZs).
Through either NEM modalities or TNCs, reliable regional enterprises are important to promote thegrowth of NEMs. Owing to locational specifics that include conditions such as working with a local
labour force and the fact that foreigners are prohibited from owning land in the country, TNCs willseek local partners to expand their business. Large NEMs will also require small and medium-size
enterprise NEMs to which to outsource complementary but dissimilar components and services.
Local agricultural cooperatives can act as intermediaries to reduce business risks and raise productreliability (Barrett et al., 2010).
Another important factor is the phase of economic development and social capital to which thecountry has evolved. For example, consumer market scale and growth will be larger in moredeveloped countries than in less developed countries. The same can be expected of social capital,
which is important in solving problems that the market does not manage, especially when
involving risky and uncertain investments. The provision of strong basic infrastructure—transport,
energy and communication—can help lower transactions costs, and in that way reduce risks
and uncertainty.

Box 2. Factors that will stimulate NEM Operations
When examining the factors that make national, regional and global locations attractive andconducive to NEMs, there is a need to address overlapping factors that stimulate FDI inflows. As
with FDI, determinants of location choice include political and social stability, a literate labour
force, good infrastructure, sufficiently efficient and competitive policies, financial incentives,
smooth trading procedures and conducive macroeconomic policies. The Pakse-Japan Small andMedium Enterprises (PJM) Park in Champasak, which houses foreign small and medium-size
enterprises, is very much a development zone driven by these attractions.
In addition to policy-related determinants that stimulate FDI, there are also many factors thatcan support NEM development in host countries. First, NEMs also depend on forms of contractbased TNC linkages in host economies, such as stable contract laws and commercial contract
laws. For example, in franchises (e.g. Beard Papa’s and Lao World) and contract farming (e.g.
Tokai Tsukemono and its contract farmers), it is important to establish sufficient protection of
intellectual property rights.
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Box 2. Factors that will stimulate NEM Operations
Second, as with FDI, facilitation measures for promoting businesses are very important for
attracting NEMs. For example, promotion activities and financial incentives must be applied overa wide scope, such as when investment promotion institutions partner foreign franchisers withpromising local companies. Access to capital procurement is also an important factor for regional
enterprises that has strong potential for promoting NEM expansion.
TNCs must be given the opportunity to establish footholds from where they can support the growthand expansion of NEM businesses. These footholds can be a minimal commercial presence,such as purchasing and quality management organizations that provide support for outsourced
manufacturing or logistics support operations that provide materials to franchise locations, as in
the case of retail and quick service restaurant franchises.
The existence of reliable and capable regional enterprises, and the ability to network with them,
are among the important factors essential to promote NEM operations. Most NEMs require
local partners that are powerful, efficient and capable of taking on risks in complementary
but dissimilar operations on behalf of TNCs. For example, if TNCs do not find it economical toproduce their own machinery and equipment in integrated circuit assembly operations, theiroperations in particular locations become more deeply rooted when NEMs emerge to provide
such services (Rasiah, 1994). Also, when TNCs do not enter contracts directly with individual
farms, agricultural cooperatives can act as intermediaries to reduce business risk and provide
reliability (Barrett et al., 2010).
Third, the degree of economic development and its association with social capital within a country
are important in the promotion of NEMs. For example, consumer market scale and growth, andaccess to regional markets are as important to such NEMs as franchises and out-licensing as they
are to FDI. Basic infrastructure provision and transport, energy and communication costs are all
major areas of interest for both local and foreign companies.
Technological capabilities and the capacity to improve the quality and productivity of regional
enterprises are critical to both TNC and NEM operations. Government policies targeted at
improving such capabilities in national firms, as well as regulations to stimulate strong corporatesocial responsibility practices and minimum labour conditions, are also important to stimulate
upgrading in TNCs and NEMs. Such initiatives also help expand the pool of NEMs available to
network with TNCs. For example, the Malaysian government has introduced a law specificallyconcerning franchises and has implemented other measures to promote TNC participation inregional economies. For service outsourcing, the government of the Philippines has contributed tothe promotion of the information technology and business process outsourcing industry.
Factors such as these have contributed to increasing the overall allure of ASEAN countries assites for various types of NEMs. Box table 2-1 summarizes the major locational determinants ofeach mode.

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Box 2. Factors that will stimulate NEM Operations (Concluded)

Box Table 2.1. Locational determinants for FDI and NEMs
Relevant for FDI and NEMs

More relevant for FDI

More relevant for NEMs

Policy framework• Economic, political andsocial stability• Competition policy• Trade policy• Tax policy• Rules regarding entry andoperations• Standards of treatment offoreign affiliates• International investment
agreements• Privatization policy• Reduction of hassle costs(e.g. cost of doing business)• Investment promotion• Investment incentives• Provision of after-care• Provision of social amenities(e.g. quality of life)• Infrastructure• Market size and per capita
income• Market growth• Access to regional and global
markets• Country-specific consumer
preferences• Access to raw materials• Access to low-cost labour• Access to skilled labour• Relative cost and productivityof resources and assets• Other input costs(e.g. transportation,communication, energy)• Access to strategic assets• Created assets(e.g. technology, intellectual
property)• Strategic infrastructure• Stable general commercial andcontract law• Specific laws governing
NEM contractual forms(e.g. recognizing licensing,franchising contracts)• Intellectual property protection

Business facilitation• Facilitation efforts aimed at- upgrading of technologicalquality, productivity standards of
local firms- enterprise development,
increasing local entrepreneurial
drive, business facilitation- subsidies, fiscal incentives forstart-ups- information provision,awareness-building on NEM
opportunities with local groups- support for minimum standardsof working conditions and CSR
in local firms

Economic determinants

Source: AJC.

• Presence of credible local
entrepreneurs and business
partners• Access to local capital8

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Regional enterprise technology and quality improvement, active national-level measures aimed at
improving productivity and supporting minimum labour conditions, and corporate social responsibility
are important to stimulate FDI inflows, but they also increase the pool of potential NEM partners
that can work with TNCs. In this respect, the Lao People’s Democratic Republic can adapt the
franchising laws in a manner similar to the way that the Malaysian and Philippines governments didfor information technology (IT)-related industries, which resulted in the development of outsourcing
services such as the call centre industry. The factors described above have contributed to increase
the overall allure of countries as sites for various types of NEMs. Table 2 summarizes the major
locational determinants of each mode.
The Lao People’s Democratic Republic is landlocked, between China and Myanmar to the north,Thailand to the west, Viet Nam to the east and Cambodia to the south. However, the MekongRiver flows through the country into Cambodia and Viet Nam before reaching the East China Sea.
Economic development is still in its infancy as market reforms began only in 1987. The economy was
the 121st largest in 2017, according to the International Monetary Fund (IMF 2017), and the country
is categorized by the United Nations as a least developed country. The capital city, Vientiane, had a
GDP per capita of $5,052 in 2017, but the GDP per capita in the small town of Phongsaly in the north
was a meagre $874. Consequently, the government has focused on rural development and poverty
reduction, spending more than 2 trillion ($245 million) in 2016 and 2017.1
NEMs are expected to play an important role in the government’s efforts to eradicate poverty
and raise the standard of living. Although NEMs have emerged in all sectors of the economy –primary, secondary and tertiary – the task now is to stimulate their widening and deepening. In
manufacturing, for example, machinery and electrical appliances, and textiles accounted for 9 percent and 6 per cent of the country’s exports, respectively, in 2016 (table 1). There were approximately
100 garment companies, exporting goods worth more than $127 million and employing more than
30,000 workers. Garment manufacturing employed about 1 per cent of the labour force, with women
younger than 25 dominating the company workforces.
Despite rapid growth in the secondary and tertiary sectors, the Lao People’s Democratic Republic
is still very much an agricultural economy, with agriculture accounting for about a quarter of GDP.
Coffee is the most important agricultural product, with exports to more than 26 countries, amounting
to $67 million in 2016. Japan (25 per cent) and Belgium (20 per cent) were the main destinations inthat year. That said, services has become the strongest and fastest-growing sector in the economy.2
The government could accelerate the sector’s orderly growth by developing basic infrastructure. For
example, tourism will grow faster with improved air transport connectivity, retail trade and insurance
services.
The next section explains the characteristics and scope of NEMs by type and introduces particular
types that are distinctive in the Lao People’s Democratic Republic. The following section discusses
the opportunities and challenges expected for selected industries in the Lao economy. The paper
finishes by drawing out policy implications for the government.

1
2“Govt spends over 2 trillion kip on rural development”, Vientiane Times, June 18, 2018.
Its GDP contribution reached 41 per cent in 2015 (see figure 1).

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9Table 2. Common forms of NEMs and examples of typical industries with NEMs
in the Lao People’s Democratic Republic
Modality

Subcontracting

Description(in the international context)
Agreement whereby a TNC contracts
out to a host-country firm one ormore aspects of product design,
processing or manufacturing.
Includes contract manufacturing anddesign outsourcing in the case ofservices and business processes.

Contract farming/
contract mining

Agreement between a TNC buyer
and host-country farmers or
miners (including governments)that establishes conditions for the
production and marketing of farm or
mining products.

LicensingContractual relationship in whicha TNC (licensor) grants to a hostcountry firm (licensee) the right touse an intellectual property (e.g.
copyrights, trademarks, patents,
industrial design rights, trade
secrets) in exchange for a payment(royalty). Includes brand licensing,product licensing and process
licensing (cross-licensing, intra-firm
licensing).

Franchising

Contractual relationship in whicha TNC (franchisor) permits a hostcountry firm (franchisee) to run a
specified business modelled on asystem developed by the franchisor,
in exchange for a fee.

Typical industries

Company examples

Electronics

Vientiane Automation
Products

Garments

Yamaki, Santei-Lao

Medical equipment MANI

Agriculture• Dao Coffee (Dao-Heuang)• Sinouk Coffee (Chang Beer)• Adventure Agriculture• Tokai Tsukemono

Finance• Phongsavanh Bank (JCB)• NCC (VMoney)

Beverage

Pepsi-Cola (Lao Brewery)

Restaurant• Texas Chicken, Café Amazon• Swensen’s Ice Cream• The Pizza Company• Tammour

Convenience store• M-point Mart
• Jiffy Mart

Education• Shichida• KiddyRoo

Management
contracts

Agreement under which operational
control of an asset in a host country
is vested in a TNC contractor thatmanages the asset for a fee.

Tourism andhospitality

Lao International
Development (IHD)

Other

Concessions, lease agreements,
build-operate-transfer
arrangements, etc., in the context ofpublic-private partnerships.

Electricity(Nam Ngiep
1 hydropower
project)

Kansai Electric Power

Source: AJC.

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2. CHARACTERISTICS AND SCOPE OF NEMs
The characteristics and scope of the different modalities vary, and hence, it is important to discusseach of them so that efforts to promote them are cognizant of their unique elements. Since NEM
modalities have already emerged in a number of sectors in the country, a systematic discussion isprovided in this section.

2.1 Scale and scope of NEM
It is clearer to explain NEM modalities through comparisons with TNCs’ operations. NEMs canbe compared with FDI from the perspective of TNCs’ motivation. For example, contract farming
is motivated by a search for resource-based agricultural outputs. Contract manufacturing andoutsourcing or subcontracting are motivated by the desire to improve efficiency by reducing costs.
Local characteristics offer NEMs the opportunity to enter into such captive activities. For example,
the confinement of land ownership to nationals ensures that either access to such activities isundertaken through a lease from national owners or the farming itself is outsourced to NEMs.
Licensing and franchising are motivated by the desire to expand markets. Whereas subcontracting
is similar to FDI in that it consists of transferring resources, technology and expertise tocontractors in the form of “packages”, licensing and management contracts involve little transfer.
Table 2 presents the different forms of NEMs that are dominant today. This section discusses
the characteristics of the modalities in use in the country: subcontracting, contract farming
and franchising.
The degree to which subcontracting accounts for overall production varies from industry to industry.
The general value added breakdown between internalized operations and subcontracting in thetoy, sporting goods, electronics and automotive industries is about 50 per cent. In pharmaceuticalproducts it accounts for less than 50 per cent of the value added.
In Asia, subcontracting has grown significantly in the electronics, machine tool and automotive
industries since the 1980s, as competition has driven firms to seek cheaper options by taking
advantage of opportunities presented by NEMs in rapidly industrializing countries, such as Taiwan
Province of China, China, Malaysia, Indonesia, Thailand, the Philippines and Viet Nam. Major
electronics and automotive companies have dedicated themselves to research and development,
product design and brand management, using electronics manufacturing services and cellular
manufacturing to outsource component manufacturing. Of the top 10 electronics manufacturingservices companies, seven are headquartered in East Asia. Some suppliers, such as Celestica,
Flextronics, Foxconn, Astra-Honda, Astra-Toyota and Ingress, evolved to undertake component
design so as to create a modular value chain (Sturgeon, 2002; Rasiah, 2004).
The use of subcontracting also has expanded into labour-intensive industries, such as the apparel,
footwear and toy industries. From simple cut, make and trim (CMT) operations, subcontractors
connected to clothing value chains have evolved to become intermediaries that handle a large
section of the stages involved in the value chain – e.g. manufacturing and logistics throughout Africa,
Asia and Latin America (Rasiah, 2007, 2012; UNCTAD, 2011).
Lao garment manufacturers participate in international subcontracting as subcontractors. Done
Garment Factory, International Garments and Kianvilay Garments are local garment manufacturersthat produce jackets and export to European markets. Foreign companies operating in the Lao
People’s Democratic Republic, such as Yamaki and Santei-Lao (both Japanese), are involved in
subcontracting for foreign apparel makers.

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11Although the garment industry is the major industry in which NEM operations have emerged, they
are also emerging in industries such as machinery and electronics, though still in the early stages.
For example, an electronic wire harness assembler, Vientiane Automation Products, and a Japanese
medical device manufacturer, MANI, have established subcontracting links.
Important developments are taking place in the country. The construction of SEZs and theimplementation of the “Thailand Plus One” corporate strategy by Japanese companies have attracted
foreign electronics manufacturing companies to relocate, using NEMs in manufacturing operations
to complement those companies’ operations in Thailand. Electronic manufacturing companies, suchas Daiichi Denshi (Japan), MMC Electronics Lao (Japan) and Jui-Fang Electronics (Taiwan Provinceof China) relocated their production operations to the Vientiane Industry Trade Area (VITA) park in
2012, 2014 and 2016, respectively. The relationship between Thai Yazaki and Vientiane Automation
Products (VAP), which is explained in box 3, is an example of the Thailand Plus One initiative in the
manufacturing of electronic wire harnesses.
Partly through international cooperation,3 the Lao People’s Democratic Republic has been developing
its human resources to strengthen local firms’ participation in GVCs, in contract farming, franchisingand licensing.

Contract farming spanning international borders has evolved since colonial times. The nature ofcontrol has experienced considerable changes. From chain controllers with brand names, suchas Chiquita and Del Monte, supermarkets have taken control of several agricultural value chains.
For example, bananas, mangoes, rice and vegetables are now farmed by NEMs using supermarket
brand names such as Tesco, Albert Hein and Giant. TNCs were already involved in contract farming
in more than 110 developing countries as of 2010 and are involved in a diverse range of agricultural
products (UNCTAD, 2011).
Contract agriculture is a tool for the efficient procurement of agricultural products because it makes
it possible for TNCs to secure the necessary quantity and quality of products, farmed in arguably
some of the best locations, at competitive prices. Farmers can also secure stable sales and improvetheir income, though they are often faced with pressures to reduce costs. TNCs demand highquality from contract farmers, who try to meet that demand because they can sell at prices higher
than the price of shipping to the domestic market. In addition, the most sophisticated buyer TNCs
offer farmers new technology and food sanitation procedures, raising the quality of farming andpreparation by NEM farmers, including connecting them with new information from buyer TNCs.
Contract farming can offer large employment opportunities for small-scale farmers and harvesters.
In 2018 Dao Coffee, which operates from Champasak, reported drawing on 1,000 families as coffee
farmers to produce Arabica and Robusta coffee for export.4 This employment has a reasonable
impact in terms of reducing poverty. Although the total number of contract farms is hard to identify,
individual projects can have several tens of thousands of participating farms. Such participation is
emerging but limited to certain products (e.g. cucumbers for Tokai Tsukemono of Japan5; coffee for
the TCC Group for export to Japan6).

3

4
5

6

For example, at the request of the Lao government, since 2010 the Japanese government has implemented the
project “Capacity Development of Business Persons through the Laos-Japan Human Resource Development
Institute” in order to train business managers.
Interview with the general manager and factor manager conducted on 26 July 2018.
Tokai Tsukemono, a Japanese pickle maker which established a local subsidiary, has contracted out cucumber
supply to contract farmers. The processed cucumbers are exported to Japan and marketed under the house brandas “Kyuri-no-kyuchan”, or Japanese pickles.
TCC Group, which is a Thai conglomerate, has a 2,400 ha contract farm in the Bolaven Plateau. The company
started growing coffee there in 2009. More than 70 per cent of the harvested coffee is exported to Japan throughtrading companies.

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P R O M O T I N G N E W F O R M S O F T R A D E B E T W E E N J A PA N A N D A S E A NFranchising is a well-known business mode through which franchise holders contract out theirestablished brand, including the technology, for a fee. In addition, they undertake the marketingof the brand. In return franchisees meet all the conditions imposed by the franchiser. Using thismodality, franchisers can not only expand operations rapidly and efficiently, but also procure capital.
This contract mode is common in the retail industry, including high street retail and goods stores,
as well as in restaurants, hotels, business services and education. Examples include Pizza Hut andCaffe Bene. Crown Plaza and Summerset are examples of NEM hotels.
In addition to absorbing operations requirements, franchisees are also often exposed to ongoingsupport, training, management guidance, marketing and advice on administration and humanresources. After gaining sufficient experience, a number of hotels have broken out from suchfranchising contracts to use their own brand names.
Licensing is the process of transferring the rights of a firm’s products and services to thesubcontractor for further production or sale. In exchange for a payment (royalty), the licensor allows
the licensee to use an intellectual property (e.g. copyrights, trademarks, patents, industrial design
rights, trade secrets) to access markets covered by the licensee. The international expansion ofpharmaceuticals, consumer goods and electronics has often been based on licensing of contracts.
Examples of licensing contracts in operation in the country include Pepsi-Cola, the carbonated softdrink, which is manufactured by Lao Brewery Company Ltd under a licence agreement. In services,
New Concept Consulting provides mobile lotto and e-gaming services, which it obtains through alicence agreement to use the VMoney platform for customers’ online payment, and Japanese credit
card company JCB has granted a license to Phongsavanh Bank to issue a JCB-brand credit card in
the country.7•••
The analysis of NEMs is complex, since the web of directly owned, partially owned, contract-based andarm’s-length forms of international operation of TNCs are entangled with overlapping operations,so that some of the distinctions between modes are blurred (UNCTAD, 2011). Thus, in this series of
papers we limit the analysis to a select number of industries in which NEMs are important. This isespecially necessary in the Lao People’s Democratic Republic, where NEMs have expanded mainly
since 2012, when the country’s first SEZ opened in Vientiane and foreign investments and companies
relocated there. The Thailand Plus One initiative has acted as a strong pull factor for Japanesecompanies in the machinery and electronics manufacturing industries.
NEMs have also been expanding in the country since the economy started to integrate into ASEAN,
as well as since the formation of the ASEAN Economic Community in 2015, which has created strong
opportunities for local firms to connect into TNCs’ regional value chains. NEM operations identified
for close assessment in this paper are summarized in table 3.

7

JCB website: https://www.global.jcb/en/press/20121116153000.html.

Contract farming/growing

123 producer groups in 7 districts(40,000) (Small and medium-size
farmers make up about 80% of all
coffee producers)

15% increase from 2015

Japan 23%
Belgium 17%
Germany 10%

Planned production of
120,000 tonnes in 2020 and
280,000 tonnes in 2025

Modality

Number employed

Average export growthMarket/trade scale

Product/service scope

Source: AJC.
Note: Selected industries only; 2016 data unless noted.
*
2010/2011 census.
**
Lao Expenditure and Consumption Survey 2012/13.

$342 million($274 million)[$666 million import]$165 million($132 million)

170,047 tonnes$29 million($3 million)

23,659 tonnes$67 million($7 million)

Estimated export
volume(Estimatedexport by NEMs)

5% decrease from 2015

EU 85%
Japan 6%
United States 3%
EU has stable demand, butsome Japanese companies
have interest in transferring
their factories from China.

Viet Nam 58%
Thailand 41%

Planned production of
1.3 million tonnes in 2020 and
1.4 million tonnes in 2025.
China will become a newmarket.

27,000 workers

Subcontracting

46% decrease from 2015

187,300 growers*

Vientiane Automation Products

Yamaki
Santei-Lao

Laos Agro Industries
Friend of the Upland Farmer

Dao Coffee (Dao-Heuang Group)
Sinouk Coffee(Chang Beer Group/Thai)TCC Group (Thai)

Major companies(local partner/main
franchisee)

More international
convenience chains haveopportunities to enter.

More international hotel chains
have room to enter local resorts.

Thailand 47%
Viet Nam 23%
China 12%
Republic of Korea 4%

Thai capital convenience
stores are dominant

Thailand 95%
Viet Nam 2%
Japan 1%Thailand Plus One productionMore manufacturing
production at SEZs

47% growth in international
tourism consumption from 2012
to 2016. Thailand is a dominantforeign value added contributor.

Over 167,800 (hotels andrestaurants)

Approximately 7% annual
economic growth

1,000 to 1,500

Licensing, management contract$570 million travel and tourism$6.7 billion (household
final consumption
expenditure)**336% growth from 2012

10,000 to 15,000 workers

Franchising, licensing

Crown Plaza
Amari
Summerset

M-Point Mart (Big C)
Jiffy (PTT-LDC)

545 hotels and1,982 guesthouses[3 major international hotel
chains]45 M-Point Mart Outlet,
21 Jiffy in PTT petrol
station[M-Point and Jiffy are Thaiconvenience stores]

No specific associations[Most export products are
NEM]

116 factories(57 factories for export; 28 forboth export and domestic; and31 produces garment parts)[Most export products are NEM]

More than 500 contract farmers
for Laos Agro Industries[Corn producers for Thai,
Vietnamese and Chinesecompanies are NEM]

Lao Coffee Association(39 traders, 6 roasters,
5 producer groups)[Coffee producers for Thai companies
are NEM]

Welcome, comfort, quality, trustand safety services

Small retail business

Trigger switch
Car speaker
Wire harness

Number of companies[NEM-related
estimation]

ApparelHotel

Tertiary
Convenience store

Livestock feed

Electrical machineryGreen coffee bean (Robusta coffee)

Garment

Product or service

Secondary

CoffeeIndustry example

Corn

Primary

SectorTable 3. NEM operations in major sectors, 2016

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As discussed earlier, several examples of NEM exporters are found in the country. In the primarysector, coffee, rice and corn are produced and exported through contract farming and growing.8
These farms are operated and managed by cooperatives of coffee-exporting companies affiliatedwith major local (e.g. Dao-Heuang Group) and Thai (e.g. TCC Group) companies.
Coffee and corn are major agricultural exports that play a vital role in employment, income generationand contribution to GDP, as well as in export for foreign currency earnings. Although most of theseexports are undertaken directly by Lao farms, some are carried out through NEM modes. Japan is
the largest destination for Lao coffee exports, worth $16 million or 23 per cent of total coffee exports
in 2016,9 and some of these exports are through NEMs.10 China is the largest destination for Lao corn
exports, with 55 per cent of total corn exports in 2016.
In the secondary sector, the garment industry has been playing a major role in driving Lao exports
and TNC subsidiaries since the country was opened to foreign investment. It fell to second place
among industrial exports from the country in 2016 (table 1). As a major dollar earner, the industry
accounted for 6 per cent of total exports ($165 million) in 2016, with an estimated $132 million of that(80 per cent) the share of NEMs. The Association of the Lao Garment Industry had 100 members in
2017, with 57 of them having export operations, mainly to the EU market.
Machinery and electrical appliances have grown rapidly to account for 9 per cent of exports in 2016(table 1), overtaking garment exports. This expansion is largely a consequence of Japan’s Thailand
Plus One initiative, with production linkages between the Lao People’s Democratic Republic andThailand following the opening of SEZs in the former. Although machinery and electrical appliances
still experienced a trade deficit between imports and exports, the export volume of electricalmachinery from the country increased by 12.7 times between 2013 and 2016 to a record $342 million.
This expansion was partly due to relocations to the country by Japanese electrical machinery
manufacturers, such as Nikon and DD-Lao. Under the Thailand Plus One business model, theseelectrical machinery companies operating in industrial clusters in Thailand transfer the labourintensive parts of their production processes to firms located in SEZs in neighbouring countries,
including the Lao People’s Democratic Republic (Oizumi, 2013).
In services, the country is no exception to the global trend of rapid growth in IT services. The
provision of various support services by ASEAN neighbours has already resulted in greater IT
connectivity in the country. IT is expected to be a major focal industry for the growth of NEMs, which
will not only stimulate the economic contribution of the industry to the national economy, but also,
through its complementary support of other industries, stimulate dynamically the expansion of allindustries.11 As the IT industry develops, local firms must take note that the industry is more maturein neighbouring ASEAN countries. Hence, Lao NEMs face much competition if they are to develop
enough to catch up in the IT value chain.
Tourism is another major revenue earner in the Lao People’s Democratic Republic. According to theWorld Travel & Tourism Council (WTTC), in 2016 the direct contribution of travel and tourism to GDP
in the country amounted to $570 million, which accounted for 4.3 per cent of GDP. The industry also
generated 397,500 jobs in 2016, which accounted for 2.4 per cent of total employment. Among theindustry’s contributions, hotels – and international hotel chains in particular – can best contributeto NEM operations through contract management.

8
9
10
11

Coffee is by far the most lucrative item produced through contract farming in the country.
UNCOM Trade.
Coffee products produced by the TCC Group.
See Rasiah and Oyeyinka (2005) for a lucid account of increasing returns generated by the IT industry.

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15

In the extractives sector, copper and gold mining offer strong opportunities for the growth of NEMs
as they are major exports, with gold accounting for 4 per cent of exports in 2016. TNCs dominate themining of gold and copper. The Lao government should promote NEMs in smelting and downstream
products, including jewellery.

2.2 NEM by modality: case studies
To understand better the operations of NEMs in the country, cases that have evolved successfully arereviewed here. A number of these NEMs are well integrated into TNC value chains.

(1) Subcontracting: Garments
Clothing industries played a significant role in export-oriented industrialization in East Asia’s earlyphase of rapid economic growth (Rasiah, 2012). Three of the Asian Tigers or Asian Dragons – Hong
Kong (China), Taiwan Province of China and the Republic of Korea – benefited from massive garment
exports from the 1960s until the early 1980s. They were accompanied later by ASEAN members
Indonesia, Malaysia, Thailand and the Philippines, all of which benefited from the relocation of firms
from the Asian Tigers and Japan. Since the turn of the millennium, two major developments havetransformed trade in garments. First, China extended its grip on global garment exports – to about
40 per cent by 2010 – thereby reducing the space available for other countries (WTO, 2015). Second,the World Trade Organization (WTO) offered least developed countries, such as the Lao People’s
Democratic Republic, preferential access to major markets following the scrapping of the MultiFibre Arrangement in 2004 (Rasiah, 2012).
As in Viet Nam and Myanmar, the garment industry is dominated by CMT operations. In thisform of contract work, a foreign buyer with the necessary financial and technical abilities pays
contracting fees to a garment factory to perform the labour-intensive task of cutting fabric, sewing
garments together according to design specifications and packing finished garments for export tointernational markets. The contractor handles the purchases of inputs, provides the subcontractor
with the specifications to use to manufacture and buys the output, which it then supplies to majorinternational buyers. The NEMs in such operations enjoy little value added until they begin upgradingin the garment value chain. Garment exports from the Lao People’s Democratic Republic began in
the middle of the 1990s. However, following a peak of $219 million in 2011, exports have been falling
due to labour shortages and a lack of upgrading.12 On the basis of estimations by the Lao Garment
Industry Association, NEMs account for about 80 per cent of Lao garment exports.
Although garment exports have gradually declined since 2010, the Lao government has actively
promoted FDI inflows into the industry, especially in SEZs. In addition to low taxes, firms relocating
to the country have also been allowed to lease land for setting up factories as well as access to power
and other basic amenities. Hence, foreign firms are increasingly attracted to establish linkages with
Lao NEMs. Santei-Lao is one beneficiary of such developments (box 3).

12

Xaybandith Rasphone, chairman of the Association of the Lao Garment Industry, stated in the general meeting thatlabour shortages are a chronic issue for the industry that leads to decrease in export (The Nation, March 30, 2017).

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Box 3. Santei Group and Santei-Lao
Santei Group
Established in 1963, Santei has evolved as a major maker of men’s and women’s apparel,
expanding its production network internationally to several countries, including China, Viet Nam
and the Lao People’s Democratic Republic, following the rapid growth of mass retailing. In the
1980s, while still in its growth phase, the company decided to set up operations overseas. In
China, Santei established a joint venture to produce men’s suits in Hubei in 1985 followed by one
in Shanghai in 1987, in Jiangsu in 1988 and in Zhejiang in 1991. In Viet Nam it did the same in
Ho Chi Minh City in 1991. In 2008 Santei established Santei-Lao in Vientiane in order to diversify
its country risk. Currently, with 630 workers, Santei-Lao produces 240,000 pieces of formal
wear for men and women and 100,000 men’s trousers annually in three factories in Vientiane(box figure 3-1).

Box figure 3.1. Business model of Santei Group

Santei Group

Santei Co., LTD

Santics Co., LTD

San-N Co., LTD

Main activities:- Overall management- Trade (fromprocurement ofmaterials to delivery
to other countries)- Mainly focuses onoverseas market

Main activities:- Management offactories- Quality control- Production of men’s
jackets, dress suits,
and pants, and ladies’
dress jackets, suits,coats, and casual
dresses- Trade (fromprocurement ofmaterials to delivery
to other countries)- Mainly focuses on
Japanese market

Main activities:- Management offactories- Quality control- Production ladies’
suits- Trade (fromprocurement ofmaterials to delivery
to other countries)- Mainly focuses on
Japanese market

Source: Based on Santei Group report.

…/

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Box 3. Santei Group and Santei-Lao (Concluded)
Santei-Lao
Santei-Lao, which is a subsidiary of the Santei Group, is a joint venture between Japanese apparelmaker Santei and a Lao investor. It manufactures men’s and women’s suits, jackets and coats
under the extensive use of NEM contracts with Japanese apparel retailers.

Box figure 3.2. NEM contracts between Santei-Lao and retailers
Provide design, order a certain
quantity of products

Retailers

NEM contract

Santei-Lao

Quality control,
Management
Provide inputs
Transfer knowledge
Produce the quantityof products ordered

Santei Group

Source: Based on Santei Group report.

The relocation to the Lao People’s Democratic Republic follows from the Santei Group’s
strategy to avoid the risks of overconcentration in China by using alternative locations to achievecomplementary synergies: whereas Santei’s China factories produce clothes that are in fashion,
Santei-Lao produces clothes that are not much affected by trends. By producing low value added
clothes in the Lao People’s Democratic Republic, Santei-Lao can take advantage of the lower
production costs that the country offers through its lower tax rate, lower wages and special
financial incentives.

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18(2) Subcontracting: Electrical Machinery and Equipment
Electrical machinery and equipment exports have grown rapidly, becoming the leading manufactured
export in 2016. Much of this expansion has been due to the opening of SEZs, which have benefited
from the Thailand Plus One initiative. The Lao government aimed to build 25 SEZs to create job
opportunities for 50,000 people by the end of 2020.13 Export manufacturers in electronics andrelated industries tend to operate in SEZs. With the establishment of more export processing zones
and industrial estates, more foreign companies have entered the country. In electronics-relatedindustries, export growth has continued to increase dramatically since 2014, and the import surplus
in this industry has been decreasing (figure 2).

Figure 2. Change in import and export amounts in HS (Harmonized Commodity Description
Coding System) code 85 (electrical machinery and equipment and parts thereof),
2010–2016 (Millions of dollars)

742
680

380
315

289
198

178

666

342

194

17

9

4

25

2010

2011

2012

2013
Import

2014

2015

2016

ExportSource: UN Comtrade.

13

As of May 2018, there were 14 SEZs in the country. https://www.asean.or.jp/ja/invest/country_info/laos/industrialestate/

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NEMs in electrical machinery and equipment
In the electrical machinery and equipment industry, Japanese companies are particularly visible,
producing a wide range of products from wire harnesses to temperature sensors, charging resistors
and coils through linkages with NEMs in SEZs. Daiichi Denshi, MMC Electronics, Lao Stanley, AsahiMaxima (Lao), Tokyo Coil Engineering Lao and Nikon Lao are engaged in NEM linkages (table 4).
These companies moved to the Lao People’s Democratic Republic in order to enhance their production
efficiency and reduce costs. As in the linking of VAP with Thai Yazaki (box figure 3.2), Nikon Lao fulfils
a complementary function for manufacturing processes in Thailand. These examples illustrate theThailand Plus One model, in which Japanese companies operating in industrial clusters in Thailand
relocate the labour-intensive parts of their production processes to SEZs near the borders withThailand (Oizumi, 2013). Nikon Lao, located in the SEZ in Savannakhet Province at the border withThailand and Viet Nam, produces DSLR camera parts that are shipped to Thailand for assembly into
finished cameras at the Nikon factory in Rojana Industrial Park near Ayutthaya (Somphet, 2018).

Table 4. Japanese electrical and electronics-related companies in the country
Company Name

StartedLocation

Product

Mode

Subsidiary ofDaiichi Denshi

2012

Vientiane(VITA Park)

Wire harnesses

Subcontracting

Daiichi Denshi
Hong Kong

MMC Electronics

2014

Vientiane(VITA Park)

Temperature
sensors

Subcontracting

Mitsubishi
Materials

Lao Stanley

2004

VientianeElectronic applied
products

Subcontracting

Thai Stanley

Asahi-Maxima
(LAO)

2013

Vientiane

Resistors, coil

Subcontracting

JP Thai Asahi
Electronics

Tokyo CoilEngineering Lao

1999

Vientiane

Coils

Subcontracting

Tokyo CoilEngineering

2013

Savannakhet(Savan-Seno
SEZ)Interchangeable
lensesfor cameras

Complementationof manufacturing
process in Nikon
Thailand

Nikon

Nikon Lao
Source: AJC.

(3) Subcontracting: Machinery parts and soccer balls
Machinery and electrical appliances exports rose sharply to become the leading manufactured
export in 2016. Although the Lao People’s Democratic Republic has a small market, incentives
and available land have made the country an attractive complementary location for suppliers that
produce for bigger firms in Thailand. Manufacturers of other products, such as soccer balls, haveestablished similar NEM-TNC linkages. Following are examples of such NEM operations.

Vientiane Automation Parts
The Vientiane Electrical Engineering Company (VEEC) Group, founded in 2002, has a few NEM
subsidiaries in the country (box 4). One of them, VAP, produces wire harnesses with technicalassistance from Yazaki Thailand. VAP’s assembled products are sent to Yazaki Thailand for inspection. VAP thus completes a part of the production process that is entrusted to Yazaki Thailand(box figure 4-2).

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20Vientiane Equipment Factory
Vientiane Equipment Factory (VEF), founded in 2012, which is a subsidiary of VEEC (box 3), manufactures 70,000 footballs annually, with technical assistance from its buyer, Molten (box figure 4-3).
Recognizing the importance of skills development, the president of the VEEC Group, Bountheo
Phommaseisy, has maintained a strong focus on employee training and vocational education.
Consequently, VEEC Group opened in 2006 the Vientiane Human Resource Development College,
which offers a three-year program with evening classes covering four courses: management,
English, information technology and electronics. About 200 students study at the college, and many
graduates are expected to work at the VEEC Group.

Box 4. The VEEC GroupThe VEEC Group, founded in 2002, is made up of seven companies, which have more than 650
employees in total. The firm mainly specializes in the installation and construction of energy
transmission and distribution facilities, electrical power plants and airports.

Box figure 4.1. The structure of VEEC Group

Vientiane ElectricalEngineering (1989)
Vientiane Concrete
Pole Factory (1994)
Vientiane Engineering
Construction (2002)

VEEC Group

Vientiane Automation
Products (1994)
Vientiane Pure
Drinking Water (2006)
Vientiane Equipment
Factory (2012)

Place ofemployment
Vientiane Human Resource
Development College (2006)

Source: Laos 100 Business Leaders (JETRO) and related materials (AJC).

…/

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21Box 4. The VEEC Group (Concluded)

Box figure 4.2. The relationship between Thai Yazaki and Vientiane
Automation Products

Export wire
harnesscomponents

Thai Yazaki Group(consignor)

Technical assistanceVientiane
Automation Products(consignee)[NEM] No equity relation

Export manufactured
wire harness fromThailand to overseas

Exportmanufactured
wire harness

Source: AJC.

Box figure 4.3. The relationship between Molten and Vientiane Equipment Factory

Technical assistance

Moltena Japanese sportsball manufacturer(consignor)[NEM] No equity relation

Export manufactured
footballs

Source: AJC.

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22(4) Contract Agriculture: Farming
The prohibition of foreign ownership of land in the country has offered local farmers and land owners
the opportunity to start NEMs to either lease the land for foreign cultivation or cultivate the land
under contracts to supply farm products. Coffee and corn have become important platforms forcontract farming, which has been assisted by the European tariff concession called Everything
But Arms. The same arrangement has spread to contracting of agro-processing of fruits and jams
(UNIDO, 2009). Vegetable and animal products accounted for 15 per cent of exports in 2016 (table1). Coffee is by far the chief agricultural export. Examples of NEMs for coffee production include theCoffee Producers Cooperative (CPC) (discussed here), as well as the Thai-controlled CPC and the
locally controlled Dao-Heuang.

Coffee Producers Cooperative
The hilly highlands and two-season (wet and dry) climate dominating the southern province ofChampasak have made it attractive for coffee farming, especially in the Bolaven Plateau. Founded in2007 by the government, the CPC draws on 1,855 families in 55 villages who farm coffee (Lao, 2018).
The successful harvesting of high-quality Arabica and Robusta coffee resulted in the cooperative
raising exports of green coffee from 633 tons in 2012 to 1,000 tons in 2017. Each family handles
on average about three hectares of the coffee farm. In fact, CPC coffee competes well with someof the best coffee in the world, though a glut in the market in July 2018 has resulted in the shiftingof market destinations recently. The Asian Development Bank helped finance the construction of a
training centre for the cooperative. The consistent production of high-quality green coffee has led
the CPC to register intellectual property rights for its geographical indication with the WTO.

(5) Licensing and Management Contracts: Hotels
The Lao People’s Democratic Republic has managed to attract tourists from all over the world. The
number of foreign visitors has grown steadily (figure 3), especially after 2013, when the country was
nominated as the World’s Best Tourist Destination by the European Council on Tourism and Trade.
Table 5 shows the number of hotels, guesthouses and rooms by province.

Figure 3. Number of tourist arrivals, 2010–2016

5000 000
4500 000
4000 000
3500 000
3000 000
2500 000
2000 000
1500 000
1000 000
500 000
0

2010

2011

Source: Ministry of Information, Culture and Tourism.

2012

2013

2014

2015

2016

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23Table 5. Number of hotels and guesthouses, and rooms, by province, 2016
Province

Number of hotels

Number of rooms

Major place

Attapeu

58

930

Attapeu

Bokeo

80

1 273

Ban Houayxay

Bolikhamxay

120

2 248

PakxanChampasak

224

3 788

Pakse

Houaphanh

67877

Xam Neua

Khammouane

127

1 960

Thakhek

Luang Namtha

98

1 614

Luang Namtha

Luang Prabang

297

4 844

Luang Prabang

Oudomxay

101

1 764

Muang Xay

Phongsaly

64

720

Phongsali

Saravane47

373

Saravane

Savannakhet

204

4 512

Savannakhet

Sakong40

456

SekongVientiane Capital429

12 704

Vientiane

Vientiane Province

269

4 321

Muang Phon-Hong

Xaisomboun

38

336

Anouvong District

Xaiyabouli

150

1 846

Xaiyabouli

114

1 947

Phonsavan

2 527

46 513

Xieng Khouang
Total

Source: Ministry of Information, Culture and Tourism.

In 2017, the government stepped up the promotion of Visit Laos Year campaign, aiming to reverse
a decline in tourist arrivals in 2016 (figure 3). It laid out an ambitious goal of attracting 5.2 million
tourists, with projected revenues of approximately $910 million. Considering the current tourism
infrastructure, especially the quality of the hotels and local airports, the target seems too ambitious.
The WTTC reported that tourism contributed 14.2 per cent of the country’s GDP in 2016, and it isforecasted to rise by 5.5 per cent per year to 13.4 per cent of GDP ($3.4 billion) in 2027. This has led tothe country being ranked 51st in the world in terms of long-term growth in tourism (forecast 2017-27).
A total of $550 million of capital investment went to the development of hotel and tourism-relatedcommercial complexes in 2016. That investment is expected to rise by 5.1 per cent per year to $976
million in 2027. Among the developments are a Hilton and an InterContinental hotel (table 6).
The hotel industry has several appendage industries, such as online booking services, restaurant
services, food and beverage services, linen services, and furniture and decoration industries, as wellas transport services and tourism businesses. These linkages contribute to employment creationand industry development in the country,14 which is why tourism has been identified as one of thepriority sectors for development in many provinces: e.g., Vientiane, Luang Prabang and Champasak.
Locations of most branded hotels are generally concentrated in Vientiane and Luang Prabang, where
they cater to commercial demand and government requirements. International hotels have begun to14

According to the WTTC (2017), travel and tourism generated 118,000 jobs in 2016, while the total contribution toemployment (including indirect effects) was 397,500 jobs.

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operate in leisure destinations but these markets have been opened only recently and are not very
well known among foreign travellers. The hotel industry has contributed strongly to employment andrural development because of its labour-intensiveness and its community-based activities.

Table 6. Foreign investors opening international hotels (since 2014)
Hotel brandHotel nameOpening year

Local partner

InterContinental

InterContinental Vientiane

2021

Lao International Development

HiltonDouble Tree by Hilton

2020

TPD Company Limited (TK Group)

InterContinental

Holiday Inn & Suites Vientiane2019

BIM Group

Amari

Amari Vang Vieng2018

Onyx Hospitality Group

Viet Namese

Muong Thanh Luxury Vientiane

2018

Muong Thanh GroupInterContinental

Crowne Plaza Vientiane2017

BIM Group

The Ascot

Summerset Vientiane2014

LCD Global Investments (Singapore)

Source: AJC.

One of the most critical factors affecting TNCs’ decision to choose NEMs in the Lao People’s
Democratic Republic is local regulations, which de facto favour NEMs over FDI. Hotel management
and operations are constrained by land ownership limitations, thereby forcing foreign investors to takeup management contracts, seek franchising or undertake long-term leases of land. However, even
if the tourism growth ranking rises from 119th in 2017 to 51st by 2027 (WTTC, 2017), the country will
still be far behind Thailand, Singapore and Malaysia, which ranked 4th, 21st and 22nd, respectively.
Because the hotel industry in the country has the potential to grow further, the government must
promote the involvement of foreign companies to stimulate FDI and NEM operations.

Amari Van Vieng, Crowne Plaza and Somerset Vientiane
As in other countries, international hotels in the Lao People’s Democratic Republic are operatedusing different types of contracts and entry modes (table 7). Since the government does notallow foreigners to own private land, international hotels are operated either by NEMs throughmanagement contracts or franchise agreements, or through long-term lease of land in which hotels
can be built with equity investments.

Table 7. Hotel operations, by type
Mode

FDI

Management contract

Franchise agreement

ExampleAmari Vang Vieng

Crowne Plaza

Somerset Vientiane

Ownership of theland and hotel

Owns hotels

Without ownershipWithout ownershipManagement
control

Direct control

Direct leadership by expatriatesfrom headquarters

Management training throughmanuals

Contract fees

Not applicable

Higher (10% or more of profit)

Lower (less than 10% of profit)

Slow, smaller scale

Faster, medium scale

Very fast, larger scale

5-star hotel,
independent hotel

4-star class3-star class

Scale and speedof growthHotel class

AJC, based on Shinomiya (2016).

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25

Box 5. Construction boom in international hotels
The hotel industry is one of the most important sectors contributing to the expansion of tourism
in the Lao People’s Democratic Republic. According to the Ministry of Information, Culture andTourism, the number of establishments has expanded constantly, with an average annual growthrate of 8 to 9 per cent. There are 2,527 establishments (545 hotels, 1,982 guesthouses) and 2,969
restaurants, which employ more than 167,800 people.
The country was recognized as the World’s Best Tourist Destination for 2013 by the European
Council on Tourism and Trade. The government regards tourism as a priority sector for drivingsocioeconomic development this year is designated as “Visit Laos Year 2018”.
With the constant increase in foreign travellers, the country has begun to see the constructionof international hotels. InterContinental Hotels Group (IHG) opened the Crown Plaza Vientianein 2017. The hotel had a total investment of $78 million, and IHG had a management agreementwith the developer, BIM Group, a Vietnamese conglomerate. IHG proactively seeks to enter the Laomarket, considering that “the country is well its own way to becoming one of the region’s busiest
business and tourist destinations”.15 IHG has announced that the openings of the Holiday Inn &Suites Vientiane in 2019 and the InterContinental Vientiane in 2021.
In general, IHG operates its hotels under three models (box table 5.1): a franchise model, amanagement model, and an ownership and lease model.

Box Table 5.1. IHG’s operation models
FranchiseManagement

Ownership and Leased

Ownership

Third party

Third party

IHG

Employees

Third party

IHG and third party

IHG

Source: IHG investor relations report, 2018.

According to publicly available information retrieved from IHG’s website, the Crowne Plaza
Vientiane is run by IHG under a mix of a franchise and a management model.

…/

15

Leanne Harwood, Vice President, Operations, ING, South-East Asia & Korea https://www.ihgplc.com/news-andmedia/news-releases/2016/ihg-to-launch-intercontinental-brand-in-laos26

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Box 5. Construction boom in international hotels (Concluded)

Box figure 5.1. Management agreement between IHG and BIM group

IHG

BIM Group

Operator,
Franchisor

Owner ofproperty,
Franchisee

Crowne Plaza Vientiane

Sales /
ExportSource: IHG annual report.

The possible fee system, services provided, term and renewal of the cooperation between IHGGroup and BIM Group described here are based on IHG’s investor relations report for 2018 andother relevant documents (box table 5.2).

Box Table 5.2. Possible fee system for a mixed business model, responsibilities, term
and renewal
Fee charged by IHG Group

Services provided by IHG Group

Term and renewal

Franchise fee:
- Application fee: $50,000-$100,000- Franchise fee: 5-6% gross room
revenues- System fund (marketing): 2.5% of grossroom revenues
Management fee:- Base fee: 1-3% of the hotel’s total
revenue- Incentive fee: calculated as a percentage
of a hotel profitability measure
Fee for running the Crowne Plaza
Vientiane:- Operating costs- Capital expenditure- BIM Group can use the Crowne
Plaza brand name- BIM Group can benefit from aloyalty programme- Reservation system- Maintenance and repair- Hiring, training and supervisinghotel managers and employees(general manager and financial
controllers are from IHG)
- Annual budget preparation- Local sales and marketing
efforts- Financial analysis- Food and beverage services- Franchise
agreement- Managementagreement- 15-20 year contract

Source: IHG annual report, 2018.

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3. OPPORTUNITIES AND CHALLENGES
It is clear that NEMs have already started evolving in several industries in the Lao People’s Democratic
Republic. We focused on four industries where NEM participation is prominent, viz., garments (including
the allied industry of sports equipment), electronics (including machinery and equipment), contract
farming and hotels. This section provides an analysis of the opportunities and challenges that thecountry faces in promoting and absorbing potential benefits from NEMs (figure 4). Establishment of
NEM agreements with TNCs offers Lao industries a number of economic opportunities; however, these
agreements must be carefully crafted, as NEMs also bring a number of challenges for local firms.

Figure 4. Opportunities for NEMs
Agreements between
TNCs and local firms
exist through NEMs

Local companies/
Local employees

Opportunities

TNCs
Challenges

Subcontracting
Garment industry
Competition among ASEAN
Member StateBusiness model is basedon TNC’s side

Job creation

Non-equity modalities

Subcontracting
Manufacturing
Management know-how transfer
Job creation

Need localization (takes longer)

Management contracts
Hotel industry

Management know-how transfer

Substantial investment isrequired from locals
Training by TNC,
no localization requirement

Contract farming
Agricultural production
Subcontracting withlocal employees

Source: AJC.
Note: Major NEM industries only.

Substantial investment isrequired from locals
Training by TNC,
no localization requirement

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3.1 Ownership
NEM operations provide the host country and local firms with both opportunities and challenges. Evenif business activities are not owned by foreigners, TNCs can still exert quasi-control over local firms
through contracts by means of supply of important inputs, access to markets, required technology
and income sources. If TNCs can find local firms that offer the same services as or better services
than their existing affiliates, TNCs may establish contracts with local firms in the form of NEMs.
TNCs can offer potential opportunities for local NEM firms in a wide range of industries, including
agriculture, garments, electrical machinery, hotels and retail. However, it is important that local firms
have a minimum level of management skills, autonomy and initiative, as well as technological skills
and capacity since, unlike TNCs’ support for their affiliates, TNCs’ support for NEM partners cannot
be taken for granted and TNCs can terminate contracts with local partners at any time. Garment
firms engaged in CMT operations, for example, are often vulnerable to such dangers.
In the absence of direct operations by wholly or jointly owned foreign TNCs, national firms can also
take advantage of potential opportunities, but these opportunities cannot be seized easily as the
economic environment is becoming increasingly competitive. TNCs typically make their decisions
about whether to produce in-house or to subcontract out components and intermediate inputs on
the basis of a wide range of factors. One key factor is the existence or emergence of competentsuppliers within the country. TNCs are likely to contract out supply to Lao firms if the TNCs benefit
economically from outsourcing relative to producing in-house or importing. Such NEMs are more
beneficial to host countries than TNC operations, as most of the profits arising from such linkages
are most likely to stay within the host country. Santei-Lao, VAP and VEF are some of the NEM firmsthat took advantage of Santei’s efforts to shift low value added activities from China and of theThailand Plus One business model, which enabled several NEMs, including Lao Nikon, VAP and VEF,
to supply Santei subsidiaries in Thailand. The same can be said of the NEM hotels of Crowne Plaza,
Amari Vieng Vang and Somerset Vientiane.
However, such opportunities can be seized effectively only if the Lao firms acquire and develop
the requisite capabilities to participate in such contract relationships. Such capabilities include
management, inventory and quality control systems, and production technology. There is alsoa pressing need to sustain rapid technological upgrading among local NEMs so that they canremain connected to GVCs, as well as enjoy movement to higher value added activities. This is
how Foxconn from Taiwan Province of China managed to transform its link with Apple from being
an original equipment manufacturer to taking control of the design, research and development of
the components it supplies to Apple (Sturgeon, 2002). And unless Lao NEMs succeed in remaining
competitive – for example, in supplying materials to garment and electronics firms, and hotel
franchising – TNCs may switch suppliers or terminate their brand recognition. In hotels, establishedbrand holders have terminated contractual agreements with host-owners in several countries when
the brand standards were not upheld. Examples include the termination of contracts by Park Hoteland Holiday Inn in Malaysia. Finally, franchise modalities are often vulnerable to the vicissitudes ofvolatile demand fluctuations. In industries such as garments, TNCs often engage a few suppliers
simultaneously so that orders from successful competent firms are available to cover for orders
terminated from unsuccessful firms.

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3.2 Control
Although foreign firms have no direct ownership in NEMs, more often than not they are controlled bythem. Control can take the form of buyer firms dominating pricing decisions, assessment of qualityand determination of lead times. In CMT operations, Lao NEMs are completely reliant on buyers
with respect to lead times, specifications used and materials sourced (Rasiah and Vanthana, 2014).
Similarly, in hotels, franchise holders determine the terms and conditions under which NEMs must
operate. The positive side of these conditions include the pressure imposed by TNCs on NEMs to
upgrade. NEM firms that remain suppliers will remain exposed to the risk of contract termination
whenever TNCs are not satisfied with their supplies or if more capable suppliers emerge. Suchcircumstances often arise when TNCs operate at the level of high value added activities that
require their suppliers to upgrade and can also emerge when TNCs find other supplier bases inother countries to be more efficient. Nevertheless, NEM firms that successfully ride the wave ofcompetition offered by major export markets and upgrade have the opportunity to move up thevalue chain – and in cases such as the Republic of Korea and Taiwan Province of China, to leapfrog
incumbents. Samsung Semiconductor, which started memory chip production in 1975, and Taiwan
Semiconductor Manufacturing Company, which started logic chip production in 1987, now lead
their respective value chains (Rasiah and Yap, 2015). Infrastructure in the Lao People’s Democratic
Republic will require massive transformation to achieve such developments.
If buyer TNCs’ subsidiaries are located in the Lao People’s Democratic Republic to procure inputs
from NEM firms, the control they exercise can be stronger than if those subsidiaries are locatedin other countries. In a number of cases such TNCs make efforts to train the workforces of hostcountry NEM suppliers; sometimes they invest in skills development centres to develop the hostcountry’s human resources or implement rooting strategies for their own expansion. The hostcountry government often plays a central role to initiate and coordinate such developments, as seen
inSingapore16 and Malaysia.17 The garment and electronics industries in the Lao People’s Democratic
Republic can benefit from adopting such a framework. TNCs often adopt such a framework tostrengthen their value chain globally.
Given that linkages with foreign TNCs can never be taken for granted, Lao NEM firms will haveto take advantage of the opportunities to launch new businesses, which will then stimulate sales
growth, job creation and exports. In order for them to do so, the government also needs to develop
the science, technology and innovation (STI) infrastructure to stimulate entrepreneurial synergies.
The STI infrastructure in the country should connect strongly with universities to stimulate start-ups
in the garment and electronics manufacturing industries. However, the capacity of local NEM firms
to enter such high-technology activities has remained a challenge.

16
17

Singapore’s Economic Development Board successfully played such a role (Rasiah and Yap, 2015a, 2015b).
The Penang Skills Development Centre, a training centre established in 1989, is financed together with TNCs
(Rasiah, 1995).

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3.3 Relationships between NEM modalities and industries
Particular modalities are linked to particular industries in the country. There are TNC-owned
subsidiaries in industries such as garments and electronics that enter contract agreements withcustomer firms outside the country or non-parent firms. In these cases, the subsidiaries create
offshore outsourcing with these vendors. This modality creates opportunities for local employees
to become integrated in the subsidiaries’ business activities; however, it does not provide
opportunities for building capacity in local firms. If local NEM firms have contract agreements withlocal subsidiaries of TNCs in the garments and electronics value chains, that creates outsourcing.
Through this modality, local firms have potential opportunities to receive orders from customer
TNCs located outside the country. TNC affiliates also have a modality through captive offshoringwith their parent firms, which is done through FDI (non-NEM).
Different types of modalities are also observed in the hotel and retail industries. Most brand holders
in the hotel industry use management contracts and franchising modalities. Indeed, throughout
ASEAN, TNCs in the industry typically engage in these modalities, though there are also hotels
that are owned jointly with foreign capital and managed directly by foreign hoteliers (e.g. Crowne
Plaza). In the Lao People’s Democratic Republic, there are a few four- and five-star hotels that haveforeign equity. Examples include the Summerset Vientiane, Crowne Plaza and Muong Thanh Luxury
Vientiane hotels.18 Management contracts and franchising should be promoted, as foreign brandholders have demonstrated their strong global marketing ability to attract tourists worldwide to boththe country and the country’s hotels. However, because brand holders impose stringent conditions
to protect their brands, national owners will need to maintain high operating standards to remain
attractive to brand holders. To benefit from tourism synergies deriving from the promotion of NEMs
in the hotel industry also requires that the government improve infrastructure (including IT support)
and security throughout the country.

3.4 Localization strategies
Governments have often launched localization strategies when foreign TNCs are engaged in
manufacturing for the domestic market. This is how Indonesia, Malaysia and Thailand initiallypromoted local suppliers in the automobile industry (Rasiah, 2009). However, such initiatives havebeen pruned since the launching of the ASEAN Free Trade Area in 1992 and the WTO in 1995.
Nevertheless, governments can still promote linkages with national NEM firms without infringing
the Trade-related Investment Measures instrument of the WTO, which prohibits differential
trade treatment on the basis of ownership (Rasiah, 2006). Localization strategies ensure that the
government can use its bargaining strength to impose conditions for TNCs to train national workers
and to source from capable NEM firms, especially when the TNCs enjoy incentives or benefit
from sales in the domestic market. The garment, hotel and related industries can be targeted fordevelopment of NEMs as suppliers, which can then also export once sufficient capabilities have
evolved. Challenges include the need to stimulate human capital development and the need for local
firms to undergo massive technological upgrading to meet international standards.
Foreign TNCs can outsource a part or the whole of any goods or services, or even part of their
GVC stage, to a country when the government uses its leverage to call for national production orservice. TNCs supplying the domestic market may seek NEM suppliers to reduce transport costs

18

Information supplied by an official from the National Economic Research Institute (NERI), Vientiane, on 11 July 2018.

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31and to coordinate effectively the implementation of just-in-time inventory control systems, as wellas smoothen the application of kaizen (continuous improvement) activities. This is why foreign TNCs
have developed nearby suppliers in the electronics and automobile industries, though unless local
capabilities are advanced, foreign suppliers often fill the void (Rasiah, 2014). In the garment andelectronics industries, Lao NEM firms can improve the quality of their manufacturing of silk fibre,
electronics parts (e.g. plastic injection moulding) and textiles, both to supply TNCs in the country
and to export. National NEM firms should undertake initiatives independently to integrate theiroperations and activities with TNCs’ overall production networks and GVCs.
In the industries with franchising agreements, operations or activities may require a localization
strategy – for example, in the retail industry – or may not – for example, in the hotel industry.
In the retail industry, the final customers are mainly in the country, as is demand. Therefore, alocalization strategy is required for TNCs in the retail industries. In the hotel industry, in contrast,
TNCs; operations and activities are standardized at the international level and essentially the sameas in other countries.
As TNCs may terminate their agreements with local contracting firms for more efficient suppliers,
efforts to discourage crowding-out effects of this type require a profound localization strategy, bothby TNCs and by local firms, even in NEM operations. To maintain their TNC relationships, local firms
should undertake initiatives independently to integrate their operations and activities into TNCs’
overall production networks and GVCs.

3.5 Labour issues
The nascent development phase of the Lao People’s Democratic Republic offers access to lower-wagelabour than in neighbouring countries. According to a survey by the Japan External Trade Organization(JETRO), the basic monthly salary of manufacturing workers in the country is $121, which is threetimes lower than in Thailand and the lowest among the Mekong region countries (figure 5).

Figure 5. Basic monthly salary for manufacturing worker in Asia-Pacific countries, 2016
(Dollars)

1 630

Source: JETRO (2017).

135

121

es
la
d
ng

PD

R

h

101

Ba

o
La

ya
n

di

m
ar

a

170

m
bo
Ca

et

N

di

am

a

216

M

234

In

ne
s
pi
lip

In
d

Ph
i

es

ia

257

Vi

314

on

si
a

356

al
ay

d
M

ai

la
n

a

378

Th

in
Ch

Si

ng

ap

or

e

470

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Although the cheap labour cost is very attractive, securing the labour force is another issue.
Among the total population of 7.1 million, the working population – those age 15 to less than 65 – is
4.5 million, or 63 per cent of the total. The median age is 23 years (male, 22.7 ; female, 23.3) and
54 per cent of the population is younger than 25. By industry, more than 60 per cent of the working
population is employed in agriculture – a high ratio, compared with Cambodia’s 27 per cent andThailand’s 33 per cent (figure 6). In contrast, the share of the working population employed in
manufacturing is less than 10 per cent. Thus, building a factory with a workforce of a large number,such as more than 1,000, would not be suitable. In this respect, small and medium would be theproper sizes of enterprises.

Figure 6. Employment by sector in the Lao People’s Democratic Republic and neighbouring
countries, 2017 (Thousands)

Country

Distribution

Employment

Distribution

Employment

Distribution

Total

Employment

Services

Distribution

Industry

Employment

Agriculture

Lao PDR

2 195

61.3%

346

9.7%

1 038

27.0%

3 579

100%

Cambodia

2 481

26.7%

2 510

27.0%

4 299

46.3%

9 289

100%

Myanmar12 587

49.9%

4 180

16.6%

8 444

33.5%

25 211100%

Viet Nam

23 01440.9%

14 12025.1%

19 18234.1%

56 315100%

Thailand12 697

32.8%

8 732

22.6%

17 28344.7%

38 712100%

3.6 Opportunities and challenges facing national NEM firms
Local firms face a range of issues, from those related to contractual agreements to those related
to industry characteristics and TNC strategies. Both opportunities and challenges can be foundfor each category, which can be grouped into issues of continuity, NEM characteristics, capacitybuilding and local firms’ initiatives and local embeddedness (table 8).
Local NEM firms will enjoy opportunities but also face challenges when they seek to strategicallyacquire TNCs’ know-how and technological skills by linking with them. They could also build capacity
to deal with these challenges and even expand their businesses by using TNCs’ GVC networks. In
addition, national NEMs can eventually use their supply experience with TNCs to export directly toforeign markets.

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33

Table 8. Opportunities and challenges for local firms engaged in NEMs
Opportunities

Typical industries
concerned

Challenges

Continuity (footlooseness) problems
Easier to find TNC partners,
both in and outside the country
through, for example, matching
events (since TNCs do notdirectly invest in the business).

Garment
Electrical Machinery

Easier for TNCs to terminate contracts
and long-term relationships are notguaranteed, if quality of services orgoods 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).

CoffeeHotel

Demand and markets are outside thecountry (e.g. customers in hotel industry
and for subcontracting products).

NEM’s characteristic issues
Easier to enter new market
or new area even thoughdemand are is present in
the country. Skills, talents orresources that are available inthe country but not requiredin the country can be usefully
utilized outside the country.

TNCs’ demands may change with
the interests and tastes of theirclients (e.g. changes in trends of
tourism destination, consumer’staste and home decoration tastes.)

Capacity-building issues
Easier for local employees towork with the business activities
because of low skills.

Garment
Hotel
RetailNot easy for local firms to build capacity
apart from receiving orders from
customers as they receive only relevant
know-how at most (e.g. upgrading value
chain activities only through local firms’
efforts is not easy).

Initiatives and local embeddedness issues
Local firms adapt to foreign
design and management anddo not need to think about
local values and localization
strategies (quicker for local
firms to make profit by using
TNCs’ business model).

Hotel

Local firms may lose their initiative,
design ability and traditional values,
apart from designing for limited productsin the furniture industry (e.g. local firms
may follow TNCs’ business models in
the hotel industry as they do not needto implement a localization strategy).

Franchise business operations
need to be localized, so ittakes longer for local firms
to make profits. Therefore,
they need initiatives fortheir operations or activities
leading to embeddedness.

RetailConvenience stores

In the short term, franchisees or local
firms may face difficulties in adapting
TNCs’ original strategy to local tastes andneed to learn through experience before
they become part of the community (e.g.
in the retail industry, franchisees need to
localize the TNCs’ strategy to meet local
demands of which TNCs are not aware).

Source: AJC.

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4. POLICY IMPLICATIONS
Increasing intra-ASEAN trade and investment openness offers enormous opportunities for the Lao
People’s Democratic Republic despite some reversals in trade and investment practices, especiallythe current anti-trade policy stance of the United States. The remaining countries minus theUnited States under the Trans-Pacific Partnership agreement, or Comprehensive and Progressive
Agreement for Trans-Pacific Partnership, have already forged ahead to deregulate trade. The ASEAN
countries as a whole have become one of the most open and integrated regions in the world, with
rapid expansion of trade and FDI inflows and outflows.
Within the overall policy framework of NEMs discussed earlier, the Lao government should consider
evaluating the state of NEMs or NEM-related operations in the country so as to ensure it offers thefoundation for their promotion in the country. If such an evaluation methodology does not exist in
the country, AJC proposes the checklist shown in table 11. This proposal is based on the corporate
code of conduct of the Tokyo Chamber of Commerce and Industry. It provides direction for the Laogovernment to confirm whether NEM agreements and their operations are in sync with international
standards, taking account of foreign NEM clients, local NEM firms, local NEM firms’ subcontracting
firms and local employment.
Typically, firms owned fully or jointly by foreign TNCs that are reliant on export markets have been
the most vulnerable to external shocks, as experienced in Malaysia, the Philippines, Singapore andThailand during the global financial crisis of 2007-2008. More importantly, TNCs often repatriate
their profits to their home countries. Lao NEM firms can help reduce the wholesale repatriationof profits as they are nationally owned firms. The development of resilient Lao NEM firms will also
help expand the reservoir of domestic capital. Hence, the government should strongly consider thepromotion of NEMs as a critical strategy for economic growth. This section discusses a number ofthe strategies that the government, TNCs and local NEM firms can take to facilitate the expansion of
local NEMs in the Lao People’s Democratic Republic, especially as a landlocked economy.
Fostering NEM firms can create more opportunities to link the country with neighbouring countries(e.g. Thailand, China, Viet Nam) through becoming part of value chains. Aiming at growth areas of
the ASEAN region specifically is an important and reasonable growth strategy.

4.1 Enhancing the capability of local firms
The lack of training organizations in the Lao People’s Democratic Republic has led to several TNCs
launching their own initiatives to train workers. For example, the French firm Essilor, which wasestablished in 2013 in Savannakhet to manufacture polycarbonate eyeglass lenses, has built avocational training centre there to help Lao workers develop skills appropriate to new industrial
needs (Somphet, 2018). The company also sends staff to train in Essilor Thailand for a period of
two months in engineering, logistic procedures and human resource management. Other in-housetraining centres include the one financed by the Asian Development Bank at the CPC in Champasak.19
The spontaneous emergence of training centres shows the urgency for the government toinstitutionalize training as a major initiative. Local firms’ capabilities in both technological andmanagerial skills should be enhanced so that they can meet TNCs’ current and potential demands.

19

Interview with the general manager of CPC on 26 July 2018 at the firm.

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35Once these necessary capabilities have been attained, firms can undertake more business initiatives
or have more autonomy in their operations; they can find potential customers through networks; andindependently from TNCs, they can create their own business activities in the long run.
To support access to learning and training on a wide scale, the government needs to provide support
for several efforts:• Implementing continuous internal training for employees within local firms. Local firms need totrain their employees for higher job skills. Judging from the results of the interviews for thisstudy, not all local firms implement continuous or regular training due to the costs incurred.20 If
there were some direct or indirect financial support for training, it would help local firms focus
on internal training tailored to the needs of the firms themselves or to the demands of their client
TNCs.21• Establishing provincial learning centres where local firms can learn NEM operations or activities.
Local firms need to be aware of changes and likely future demands in their industry rather than
only focusing on current operations. The government can subsidise the centre and support thedevelopment of this awareness by facilitating connections between individual firms and industry.
Such learning centres should cover all aspects of NEMs in forming, executing and evaluating
contracts, as well as increasing knowledge about NEM operations.
• Creating a conducive environment for local firms to facilitate their globalization and localization
strategies. Local firms need to familiarize themselves with TNCs’ changing strategies and learn
their customers’ strategies. The government can offer support for different types of NEM strategies
in different industries at the individual level, rather than offering support as an industry.
At the industry level, industrial or business associations and the government can work toward
several goals:• Creating an environment for competition and cooperation between local firms. Individual local
firms need to have continuity in their operations or activities by enhancing their capabilities, andthey need to compete among themselves. This implies that a number of potential local firms
need to become competitive enough to participate as TNCs’ partners or vendors. Therefore, thegovernment needs to create a better environment for competing with and cooperating with eachother so that NEM industries as a whole can become more competitive. In this environment,
industrial and business associations can consult with the companies and offer them necessary
capacity-building opportunities.
• Stimulating the upgrading of local firms to higher positions in GVCs. Shifts in demand by TNCs andchanges in TNCs’ strategies in the country derive mostly from TNCs’ search for cost reduction.
The government can promote local firms’ capabilities explicitly through support for innovationand technical upgrading. Only then may they be partners with foreign TNCs in NEM operations.
The CPC is on the brink of achieving its own geographical indicator, which should then offer thecooperative considerable opportunities to eventually become a major player in the green coffee
value chain.22• Putting in place an innovation policy for local firms to encourage and protect technologies
required to perform as NEM operators. Competition to become TNCs’ NEM partners is high.
Some competitors may offer quality services at lower prices. Particularly if the services offeredby local firms are standardized and do not require localization, competition will be much more

20
21
22

Interview with Sitthipone Rashpone from NERI, Vientiane, conducted on 15 January 2017 by email.
This was the case of the Malaysian electrical and electronics industry in the 1990s.
Interview with the general manager of CPC on 26 July 2018 at the cooperative.

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severe. Therefore, local firms need to be attractive enough to become a TNC’s NEM partner.
Innovations flourish only in the presence of intellectual property rights protection. The country is
still underdeveloped in this respect, as the country is classified as stage 1 (the lowest development
stage) in the World Economic Forum’s Global Competitiveness Index. It is also pertinent for thegovernment to identify and promote the geographical indicator so that products from its related
farms in coffee, for example, can be traded at premium prices.
• Protecting local employees from unreasonably exploitative conditions can only help raise
productivity. If the working environment or conditions in an industry are not healthy, local employees
need to be protected by some labour policy for the industry.

4.2 Improving investment regulation
Although NEM firms are entirely owned by Lao citizens, stimulating NEM activities in the country
requires refinement of regulations for attracting foreign and domestic investment. An active andvibrant environment where NEMs function alongside foreign firms and joint ventures will be
important to foster rapid economic growth in the country. However, a 2016 report by Emerging
Markets Consulting (EMC) and the Mekong Business Initiative (MBI) noted that regulations on theapproval of licenses for small and medium firms are extremely cumbersome and often involve long
delays. The government should rationalize approvals to be consistent with its practice for large
firms, for which licenses are expedited quickly. In addition, since large foreign firms are primarilyfound only in resource-based and hydropower industries, it would be useful to attract similar foreign
and joint-venture firms to play an active role in other critical sectors, such as IT and transport.

4.3 Promotion of skills and expertise upgrading
Economic development requires, inter alia, a massive upgrading of skills and expertise.
Unfortunately, labour and skills shortages have hampered the activities of private firms in the Lao
People’s Democratic Republic (EMC & MBI, 2016). Interestingly, the 2016 study reports shortages inskilled, semi-skilled and unskilled labour. NEM firms and complementary foreign and joint-venturefirms can certainly pursue upgrading strategies if the requisite skills and expertise are in place. The
following recommendations can go a long way to make this possible:• The government should build more schools and make primary education compulsory for children
from age 7 to 12. Although this is the age group typically targeted for universal education,
extending that to secondary schooling would be useful to ensure a strong supply of basic workers
who are literate enough to at least perform unskilled jobs. This labour force can be trained toundertake semi-skilled and skilled tasks through learning by doing, in-house training andexposure to training in technical and vocational institutes. Foreign organizations – e.g. the Japan
International Cooperation Agency and GIZ, the German development agency – can complement
national institutes to strengthen skill-building activities.
• The country has seen significant emigration of skilled and professional personnel, especially toThailand. Not only are the languages of the two countries close, some areas are still culturally
close, with a long history of northwest Thailand being part of Laos. Efforts must be taken to bringthese personnel back through attractive brain gain and brain circulation policies like those of the
Republic of Korea, Taiwan Province of China and China. Whereas the government may consider
Laotian immigrants for permanent resident and citizenship status, it should consider easing andsimplifying work permits for foreign experts so as to strengthen firm management in the country.

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37

4.4 Developing basic infrastructure
The NEM contribution in Lao exports, employment and revenue can grow only if the government
develops the basic infrastructure where NEM firms operate. Ease of registration, access to financeand skilled personnel, and to water and power, and provision of security is important to lower thecost of doing business and to operate efficiently. Local administrative agencies must help solve
the problems that these firms face. Hotels can benefit from an increase in tourist visits to scenic
locations if the infrastructure is good. Access to the internet will also connect potential customers tohotels and the various tourist attractions that surround their locations. In the garment, electronics,
coffee and corn, convenience store and hotel industries, NEM firms can enjoy low cost and quick
access to essential services.

4.5 Developing science, technology and innovation infrastructure
Whereas efficient basic infrastructure is critical to raise the efficiency levels of firms, the developmentof STI infrastructure is critical to stimulate firms’ participation in innovative activities, including
information and communication technology (ICT) and biotechnology.23 The country can start withICT and biotechnology, offering complementary support for a wide range of industries. Not only
current industries (such as silk, agricultural products such as coffee, tourism and electronics), butalso future outsourcing industries (such as IT-BPO) could benefit strongly from this support. Given
the landlocked nature of the country, this type of technology and innovation infrastructure should
become important and useful for the country to develop.
The government has recognized the need to promote technological upgrading and consequently has
set aside 1 per cent of investments to support the development of STI infrastructure (Somphet, 2018).
This is a good move that should be accompanied by frequent appraisal to see that this development
is followed by greater connectivity and coordination between the firms, cooperatives, universities,
training centres and incubators in science parks as well as by legislative promotional instruments
to ensure the maximization of economic synergies.

4.6 Promoting connectivity and coordination
The co-location of organizational support for NEM firms alone is not sufficient to stimulatetechnological upgrading. There must also be strong connectivity and coordination between the basic
and STI infrastructure organizations, and the NEM firms. Whereas emphasis on basic infrastructure
will enable the firms to execute efficient business practices with short lead times and low costs,
the development of STI infrastructure – science parks, industry-university linkages, standards
organizations – and the resulting good-quality technically skilled workers and university graduates
will help in the stimulation and appropriation of innovation synergies among firms. These are criticalfor firms to upgrade technologically to enjoy participation in high value added activities.

23

For a detailed account of STI infrastructure in ASEAN member countries, see Rasiah (2018).

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4.7 Promoting integration into global markets
NEMs can help ASEAN become more integrated. The ASEAN Economic Community offers low tozero tariffs in almost all product lines, and through ASEAN NEM firms enjoy preferential treatment
in East Asian markets. In addition, Lao NEMs can also enjoy trade preferential treatment provided bydeveloped countries. Efforts to maximize the use of such treatment include reducing bureaucratic
red tape in custom controls involving trade, and registration of firms seeking to import and export. It
is also important for the country to offer employment permits to foreigners who meet the requisite
qualifications. The lack of professionals is a key problem faced by Lao firms.

4.8 Mainstreaming sustainable development
Adoption of the sustainable development goals by the United Nations provides opportunities forthe government to shape the conduct of NEM firms to mainstream such goals. In particular, thegoals related to workers and human rights, and to the environment are relevant. Environmental
and labour standards have become important in bilateral trading relationships. The Lao People’s
Democratic Republic should observe the critical international labour covenants, which means it will
have to allow unionization of workers and freedom of association, among other things.
Existing export-oriented garment firms, such as Alpilao and Anta Apparel in garment manufacturing,and the CPC in coffee production and farming, observe the standards imposed by TNCs and otherbuyers.24 Nolintha and Jajri (2016) provided evidence that the technological capabilities of garmentexporting firms in the country are quite high. Similarly, established hotel brands also require theirlocal hosts to observe such standards. Such monitoring by developed-country buyers has increased
over the years. According to the UN’s guidance,25 human rights due diligence “should cover adverse
human rights impacts that the business enterprise may cause or contribute to through its own
activities, or which may be directly linked to its operations, products or services by its business
relationship” (2011: 17).
Pressure on environmental standards have also mounted as problems of global warming andclimate change grow. The Lao People’s Democratic Republic has ratified the 2015 Paris Accord(and its subsequent time-deferred version of the Marrakech Proclamation in 2016) under the United
Nations Framework Convention for Climate Change (Rasiah et al., 2018). Hence, the government
should raise awareness, as well as work towards the formation of a major standards organization tocoach and certify NEM firms.
The government should consider implementing and strengthening the regulatory framework for
NEM firms so that they can successfully export, expand employment and upgrade technologically.
This initiative should start with a profound evaluation of the critical policy pillars shown in table 9.
This would be the first step for the government to decide whether it will establish a policy framework
for NEM promotion and, if so, it will decide what, how and to what extent the government has to do.

24

25

The garment firm interviews were conducted on 23 April 2018 in Vientiane, and the CPC interview was conducted
in Champasak on 26 July 2018.
United Nations (2011), “Guiding Principles on Business and Human Rights: Implementing the United Nations‘Protect, Respect and Remedy’ Framework”, by the United Nations Human Rights Office of the High Commissioner.
New York and Geneva.

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39Table 9. Checklist for NEM agreements and operations to maximize benefits from andminimize costs with NEMs
Whether there is an agreement on contract performance
Whether there is an agreement on contract terms (durations)
Compliancewith laws

Whether there is an agreement on contract termination and its
process
Whether there is an agreement on contract arrangement(additional contract) and its process
Whether there are rules on non-discrimination

Respect forhuman rights

Whether there are rules on basic human rights
Whether there are rules on harassment(power balance exists between local NEM firms and TNCs)
Whether there are guidelines on air pollution by local NEM firms

Environmental
consideration

Whether there are guidelines on water contamination by local
NEM firms
Whether there are guidelines on environmentally friendly goods
or services by local NEM firms
Whether there are employment rules (laws) on ages under the NEM
agreement
Whether there are employment rules (laws) on gender under the
NEM agreement
Whether there are guidelines on a safe and pleasant work
environment for local NEM firms
Whether there are employment rules (laws) on working
environments under the NEM agreement

NEM policyof the Laogovernment

Whether there are employment rules (laws) on working conditions
under the NEM agreement
Work
environment

Whether there are employment rules (laws) on working hours under
the NEM agreement
Whether there are employment rules (laws) on taking holidays under
the NEM agreement
Whether there are employment rules (laws) on treatment of absence
under the NEM agreement
Whether there are employment rules (laws) on maternity-related
leaves under the NEM agreement
Whether there are guidelines on provision of support system ofchildcare and nursing care
Whether there are employment rules (laws) on terminating
employment contracts under the NEM agreement
Whether there is a program which local NEM firms can take toimprove their technology/capacity

For local firms’
development

Whether there is a program through which local NEM firms’
employees can learn
Whether there is a program which local NEM firms can take tounderstand NEM policy
Whether there is a program which local NEM firms can take tounderstand the business environment of the industry

Subcontractors/
suppliers

Whether there are guidelines for similar NEM policies for local
subcontractors and suppliers…/

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Table 9. Checklist for NEM agreements and operations to maximize benefits from andminimize costs with NEMs (Concluded)
Earning the trustof customers andconsumers

For TNCs,
required by the
Lao government

Whether there are guidelines for TNCs to provide correct informationon their products or services
Whether there are guidelines for TNCs to respect free and fairtrading rules

Mutual growth withpartner companies

Whether there are guidelines for TNCs to provide relevant
information required for trading
Whether there are guidelines for TNCs to develop relationships
based on trust with local NEM firms

Whether there are guidelines for TNCs to establish and maintain a
Coexistence with local
good relationship with local community where local NEM firms arecommunities
locatedSource: Adapted from “Corporate Code of Conduct, the Third edition” of the Tokyo Chamber of Commerce and Industry(2013).

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41

REFERENCES
ADB (Asian Development Bank) (2016). Key Indicators for Asia and the Pacific. Manila.
AJC (ASEAN-Japan Centre) (2018). Promoting Services Trade in ASEAN: Trade in Tourism Services.
Amsden, A.O. (1989). Asia’s Next Giant: South Korea and Late Industrialization, New York: Oxford
University Press.
Barrett, Christopher B. (2010). “Measuring food insecurity”. Science 327, 825.
CPC (2018). “Bolaven Plateau Coffee Producers Cooperatives”, http://www.cpc-laos.org, accessedon 10 August 2018.
EMC and MBI (Emerging Markets Consulting and Mekong Business Initiative) (2016). “Businessformalization in the Lao PDR”. Vientiane.
JETRO (2017). Laos 100 Business Leaders.
Kim, L.S. (1997). From Imitation to Innovation, Cambridge: Harvard Business School Press.
Nolintha, V., and Jajri, I. (2016). “The garment industry in Laos: technological capabilities, global
production chains and competitiveness”, Asia Pacific Business Review, 23(1): 110-130.
Ohizumi, Keijiro (2013). 「拡大する新興国・途上国輸入市場をどう攻略するか」, 日本総合研究所『環太平洋ビジネス情報RIM』13(49).
Rasiah, R. (1995). Foreign Capital and Industrialization in Malaysia, Basingstoke: Macmillan.
Rasiah, R., Al-Amin, A.Q., Chowdhury, A.H., Ahmed, F., and Zhang, C. (2018). “Climate change
projections for ASEAN”, Journal of the Asia Pacific Economy, 23(2): 195-212.
Rasiah, R., and Myint, M.M. (2014). “Ownership, technological capabilities and exports of garment
firms in Myanmar”, Technological and Economic Development of Economy, 19(S1): 22-42.
Rasiah, R., Vanthana, N., and Latdavanh, S. (2011). “Garment manufacturing in Laos: clustering andtechnological capabilities”, Asia Pacific Business Review, 17(2): 193-207.
Rasiah, R., and Yap, X.S. (2016a). “Institutional support, regional trade linkages and technologicalcapabilities in the semiconductor industry in Malaysia”, Asia Pacific Business Review, 22(1):165-179.
Rasiah, R., and Yap, X.S. (2016b). “Institutional support, technological capabilities and domestic
linkages in the semiconductor industry in Singapore”, Asia Pacific Business Review, 22(1):180-192.
Rasiah, R., Yap, X.S., and Yap, S.F. (2015). “Sticky spots on slippery slopes: the development of theintegrated circuit industry in emerging East Asia”, Institutions and Economies, 7(1): 52-79.
Shinomiya, Yukiko 四宮 (2016). 日本ホテル企業の国際発展とアジア回帰の奇跡；過去50年間の国際企
業行動の変化に関する考察，アジア経営研究，22, 3-15.
Somphet, A. (2018). “Lessons learnt on situation of Lao technological industry, agribusiness (contract
farming) and their participating in GVC”, Powerpoint presentation at “Seminar on Non-Equity
Mode (NEM) in Lao PDR - Promoting New Forms of Trade between Japan and ASEAN”, 26
July, Pakse.

The Nation (March 30, 2017).
UNCTAD (2011). World Investment Report, Geneva: United Nations Conference for Trade andDevelopment.

Vientiane Times (2018). “Govt spends over 2 trillion kip on rural development”. June 18.

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Data:
ILO Sat, http://www.ilo.org/ilosat/ Retrieved 1 June 2018
The Lao Census of Agriculture, 2010/11
The Lao Expenditure and Consumption Survey, 2012/13
The Observatory of Economic Complexity Laos, https://atlas.media.mit.edu/en/profile/country/lao/,
Retrieved 1 June 2018
UN Comtrade https://comtrade.un.org/ , Retrieved 1 June 2018

ISBN 978-4-910293-07-3

ASEAN Promotion Centre on Trade, Investment and Tourism
https://www.asean.or.jp/en