By Eugene A. Matthews (China Daily)
Updated: 2008-04-01 07:38

The area known as the Mekong Center - Thailand, Vietnam and Laos - is gradually coalescing into a single economic zone. It could become Asia's hottest region. Here's why:

Vietnam is the second-fastest growing economy in the world, behind China.

Thailand, Vietnam and Laos are functioning as a single economic region, thanks to highways and other infrastructural creations over the past decade - and to a powerful new spirit of cooperation among the three countries.

Over the past several years, roads and highways connecting Thailand, Vietnam and Laos have made it economically efficient to ship goods between the countries overland.

Previously, a real manufacturing connection was unthinkable due to the cost of shipping by air or sea. Now a plant in northern Thailand can ship directly to places like Da Nang by road.

It may not seem like much, but this has connected a region that heretofore was three distinct if not rival countries, all three bordering one another.

The total population is 155 million, about half that of the United States, teeming in a land mass of 1,072,255 sq km - slightly less than two states of Texas side by side.

The advantages are numerous. A company can have two factories share product inventory, parts, design and other supplies. If there are production problems, including plant shutdown, there is back-up production capability.

Trading house Mitsui & Co sees the region as having the collaborative potential that many talk about with ASEAN, but with real practical benefits that the formal organization has only discussed.

Other Japanese trading corporations led by the trading companies saw natural transport routes, and their persistence allowed companies to trust the placement of assembly plants. That is the key to the birth and sustenance of what can be called Mekong Central or the Mekong Center.

Because Laos is the least economically developed of the three countries, it has the most relative upside and the most to gain in real economic terms. The country's insufficient development and its geographical proximity to Vietnam and Thailand cause many Japanese corporations to believe training Laotian workers is the key to unlocking the region's full potential.

To enhance their opportunities, there are certain acute areas firms should focus on in terms of direct investment. Competition is heating up for the economic benefits the Mekong Center has to offer.

There are two key sectors with great opportunity for direct investment:

1. Hydroelectric power in Laos.

This is the one sector ripe for direct investment. Laos is often forgotten but can be a key destination for investment because it has the most upside compared to Vietnam and Thailand.

The powerful Mekong River, with its terrain of hills and high varying vertical grades, make it a particularly great source of hydropower. In fact, both Thailand and Vietnam import hydroelectricity from Laos.

The Vietnam-Laos Power Joint Stock Co (VLCP) was founded recently for the single purpose of building hydroelectric plants in Laos, China and Vietnam. The projected need for continued and expanding electrical power over the next 25 years is daunting in the Mekong Center and neighboring countries alone.

It is in this sector that Japanese private companies should seize on the opportunity - and aggressively.

An example of competitive hydroenergy development that illustrates the opportunities in the field is in Laos - the Nam Theun 2 hydropower plant. This plant is a $1.2 billion joint venture between various foreign companies and the Laos firm is about 80 percent near completion. More projects are in the early planning stages for Laos.

2. Logistics industry.

The other area where increased direct Japanese investment would be prudent is in the logistics industry.

Vietnam's membership to the WTO has opened the door for tremendous trade opportunities, but it still lacks the logistical prowess of more developed countries like Japan. Vietnam also has a competitively priced labor force meeting the demands of a growing logistics industry.

This logistics business has the potential for high return on investment within the Mekong Center.

Companies, thus, should focus their investments in ways to particularly enhance multichannel transport - a critical part of logistic networks. This involves a series of complex matrixes from outbound and inbound logistics, to multiple distribution locations, to inventory.

Even within Japan, it is well known by the business elite that the sophistication of the logistics business is the driving force behind the country's perennial place as one of the world's top exporting countries.

Businesses with operations in multiple prefectures still effectively act as one production line in many instances - logic is the key.

The new Mekong Center has the potential to be the most dynamic economic region in Asia. Its draws include a majestic river and its tributaries that are a commercial lifeline connecting the three countries, skilled workers, a strong work ethic, an interconnected Web of manufacturing and logistical advantages and a critical mass of domestic consumers.

The author is president of Nintai Inc, an investment advisory firm focusing on Asia Asahi Shimbun

(China Daily 04/01/2008 page9)