Introduction

Globalization is a comprehensive term for the emergence of a global society in which

economic, political, environmental, and cultural events in one part of the world quickly

come to have significance for people in other parts of the world. Although most people

continue to live as citizens of a single nation, they are culturally, materially, and

psychologically engaged with the lives of people in other countries as never before.

(“Globalization" Microsoft® Encarta® Online Encyclopedia 2004) Items common to our

everyday live such as the clothes we wear, the food we eat, and the cars we drive are the

products of globalization. Globalization involves the growth of multinational

corporations (businesses that have operations or investments in many countries) and

transnational corporations (businesses that see themselves functioning in a global

marketplace) (ibid).

Globalization has removed barriers to international trade and investment, allowing capital

to be allocated more efficiently and giving consumers greater freedom of choice. With

free-market globalization, investment funds can move unimpeded from where they are

plentiful (the rich countries) to where they are most needed (the developing countries). In

other word, globalization encouraged free trade between countries all over the world,

which we called multilateralism. This is why international institution such as WTO,

World Bank, etc has been formed to encourage multilateralism, because it’s believed that

lifting trade barriers and increasing the free movement of capital across borders would

narrow the sharp income differences between rich and poor countries. But these

international institutions have been criticized as only give benefit to rich countries, while

the poor countries have not enjoyed the benefit. This is the reason many countries try to

form their own free trade agreement with other countries, which we know as Regionalism

and Bilateralism.

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1.1 Reason for Regionalism

Regionalism can be defined as concentration of economic activities (trade in goods and

services, capital, people, etc) in a particular region. Regionalism has become the major

trend in East Asia. The development of regionalism in Asia has been triggered by the

growing economic regionalism in the world economy since the mid-1980. (Cai, 2003) Of

the three global economic centers, East Asia is the only region that is not yet formally

organized, while Western Europe has been well-established in EU and North America

has its NAFTA. Because East Asian economies are highly depended on these two major

markets and their outward-oriented development strategies, the intensifying regionalism

in other areas has raised concern among East Asian economies over the diversion of trade

and investment flows. Moreover, EU and NAFTA have not only formed themselves into

increasingly closed markets but have also come to the bargaining table in multilateral

trade negotiations as blocs (ibid). This leaves individual East Asian states frequently in a

much weaker bargaining position in multilateral trade negotiations. All this has brought

home a strong feeling of East Asia being excluded and isolated in the arena of global

economic competition.

While regionalism was intensifying elsewhere, there has also been a concomitant

acceleration in economic ties among East Asian countries since the mid-1980s, as

illustrated by rising intra-regional trade and foreign direct investment (FDI) flows

(Beeson, 2003). In particular, there has been a relative decline in importance of the

United States as a market and concurrent increasing importance of the regional markets

for East Asian economies over time. As a result, a sense of increasing interdependence,

regional community, and common interests has both emerged and strengthened

Countries pursue regionalism for a number of reasons. First, the lack of a mechanism for

close policy coordination and cooperation among the region's governments is widely

cited as being responsible for the rapid and unchecked contagion of the crisis. This bitter

experience not only proved that East Asian economies were now so closely

interdependent, but also revealed how each of them was exposed, fragile, and vulnerable

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to an economic crisis that might originate anywhere in the region. Second, the Asian

financial crisis is widely believed to have resulted from the financial liberalization that

the International Monetary Fund (IMF) and Washington pushed hard on East Asian

economies in the early 1990s. Once the Asian financial crisis set in, the IMF imposed

policy prescriptions supported by the U.S. government - strategies which soon resulted in

catastrophic economic and social consequences for the crisis-hit countries. It is within

this general context of global and regional political economy that the Asian financial

crisis of 1997-98 provided a direct and vigorous catalyst for the most recent push to

establish an East Asian grouping. The Asian crisis, which started in Thailand on 2 July

1997 as a financial crisis, rapidly spread to the whole region and evolved into a broader

region-wide economic crisis. Third, the Asian financial crisis has shown that APEC and

ASEAN, with their current structures, are unable to help East Asian states pursue their

common interests of maintaining regional economic stability and promoting prosperity.

(Bushifer, et al, 2003)

1.2 Reason for Bilateralism

The Major difference between Regionalism and Bilateralism is that the later one referring

to trade or political relations only between two states. Most of the bilateral are between

developed countries or in a few cases between a developed and a developing country;

examples of the latter are the agreements Mexico has agreements with the EC and EFTA

countries (Job, 2002). When the larger size of the markets in developed countries and

especially the US and the EU is taken into account, there is no doubt that the increase in

market access resulting from bilateral has gone overwhelmingly to developed countries

and not to developing countries. The one significant exception among the developing

countries appears to be Mexico, which has secured mostly free access to its major

markets in both North America and Europe. In the APEC area, the countries that have

gained improved market access from the bilateral are all the higher income countries of

the region, again with the exception of Mexico. Of most concern, none of the bilateral

links a Least Developed Country to a Developed Country. (ibid)

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2.1 The development of Regionalism in Asia

The idea of forming an East Asian grouping was first explicitly proposed by Malaysian

Prime Minister Mahathir Mohamad in 1990 when he called for the formation of the East

Asian Economic Grouping (EAEG), but his proposal not only received strong opposition

from the United States, which feared it might evolve into an exclusive East Asian bloc,

but also met with cold response from other East Asian governments which were under

American pressure to withhold support for this idea.(Cai, 2003)

In the late 1990s, the East Asian grouping idea was revived through the APT forum.

Initiated by ASEAN, APT first emerged from the need of ASEAN and the three

Northeast Asian countries - China, Japan and South Korea - to prepare for the Asia-

Europe Meeting (ASEM), which was first held in 1996. APT soon evolved into an

institutionalized forum for consultation and cooperation between ASEAN and three

Northeast Asian countries over a growing range of regional issues. (Dent, 2001)

The East Asian Vision Group (EAVG) and the East Asian Study Group (EASG), based

on a proposal by President Kim Dae-jung of South Korea, were established in December

1998 and November 2001 respectively "to explore practical ways and means to deepen

and expand the existing cooperation" between ASEAN and the three Northeast Asian

countries, "and prepare concrete measures and, as necessary, action plans for closer

cooperation in various areas"(www.aseansec.org, 2002)

A significant move under the APT framework was the creation of a regional currency

swap arrangement in 2000 known as the Chiang Mai Initiative. (Cai, 2003) Under this

currency swap arrangement, a bilateral currency swap and repurchase mechanism was

established on the basis of the ASEAN swap arrangement. The swap arrangement

requires that each state commit a certain amount of currency to be used whenever a

partner state experiences a currency crisis and needs to borrow foreign exchange. When

an East Asian state under the arrangement faces a currency crisis, other states within the

framework should come to its rescue by providing emergency aid to help ease that state's

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liquidity problem and prevent the spread of its currency crisis to other parts of the region.

Although this is a regional mechanism based on bilateral arrangements, this move reflects

the resolve of the East Asian governments to commit themselves to closer regional

cooperation. It is within this process of growing regional consultation and cooperation

that there has emerged a call for APT to be transformed into an East Asian FTA. At the

2001 meeting in Brunei, while participants discussed the possibility of establishing an

APT secretariat, South Korean President Kim Dae-jung went as far as to propose the

formation of an FTA that would include all APT members.(ibid)

2.2 The Development of Bilateralism in Asia

The first concerns the reaffirmation and reorientation of existing bilateral ties, in

particular the keystone of U.S. engagement in the region, that is, the U.S.-Japanese

alliance. Its reaffirmation in 1996 helped to solidify confidence within the region

regarding the continued role and presence of the United States. Equally significant for

the longer term was the reorientation of the rationale for this relationship as a central

element in promoting regional security. In effect, there is movement in Washington and

Tokyo away from a narrow bilateralist conception toward an expansive bilateralist

perspective-a transition of substantial import for the regional security architecture of the

future.   (Job 2002)

The second concerns efforts in the other direction, to reinforce narrow bilateralist

relationships. It has not been surprising, for instance, to see North Korea seek to secure a

bilateral relationship with the United States and to attempt to insulate it from outside

interference. While this is clearly a nonstarter in the longer run, even as the United States

has resisted North Korean efforts to shut out other players, it has (allowed itself to)

become maneuvered into a position that gives the North Koreans greater leverage

regarding benefits for staying at the table than would have been possible in any

multilateral context. (ibid)

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Third, and in some contrast to the above, have been the significant steps taken by China

to resolve tensions along its land borders. These include agreements reached with

Russia, a Sino-Indian agreement, and the so-called Shanghai agreement with the Central

Asian states. Apart from their direct substantive relevance in assuring China's "back

door," these bilateral events have interesting and possibly positive implications for

regional security development. (Acharya, Desjardins, 1997)

Fourth is the formation of bilateral ties involving states already enmeshed in multilateral

arrangements. For the small states in Southeast Asia, this is not a new strategy. While

actively promoting the advancement of ASEAN, member states such as Singapore and

Malaysia have sought bilateral relationships with the United States, in effect "insurance

policies" to assure U.S. attention should their security be at risk. The more intriguing

recent bilateral event is the "alliance" arrangement between Australia and Indonesia. The

circumstances of the negotiation of this agreement and its exact provisions remain

unclear, as does its logic. (ibid)

2.3 Benefits and Pitfall of Regionalism

Asia was going towards regionalism because of its benefits for the member countries.

The First benefit that they will gain is favorable environment. When a country is in a

group, automatically they are in stronger position, either economically or politically.

Growing economic regionalism will resulted in political commitment, which will

provides the requisite motivation for a group of countries which had limited bargaining

power individually, to stick together to improve their position. The second benefit is

closer ties. With regionalism, the economic linkages among member countries for

example through trade and FDI will be bond closer, which will increase trading between

countries in the area. The third benefit is low tariffs, which include binding of tariffs at

zero under duty-free entry provisions within the RTA and prevention of contingent

protection actions by fellow members (anti-dumping, countervailing actions and

safeguard action. The forth benefit is Growing intra firm flows. As a result of economic

integration and the formation of intra regional company networks as well as the growth of

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intra firm flows, most of the existing NTBs have become less binding and therefore their

removal is unlikely to generate strong opposition. The fifth benefit is the ease of

negotiations with fewer parties. (Llyod, 2002) Since Regionalism only consist of few

countries in the specific area, the negotiations between countries will be easier, because

normally the more members you have, the more different opinions and requirements

there will be, which resulted in a lot more trouble to form an agreement that can pleased

everybody. And finally, the last benefit is the benefits of deep integration resulting from

the cross-border harmonization of national economic policies and regulations (ibid), for

example if there is no barrier, a company in one country will be able to do business in

other companies in other countries without much obstacles such as government

regulations, etc.

However, the huge gap in economic development levels among East Asian countries also

works against effective economic cooperation in East Asia. Because of their economic

differences, East Asian governments have varying policy priorities and pursue diverse

economic and social policies. Policy coordination and cooperation among such diverse

members within a regional grouping would be difficult. Furthermore, it could be argued

that successful regional integration largely hinges on the willingness and capacity of a

hegemonic state to assume a leadership role. (Mattli, 1999)

In addition, the lack of cooperation between Japan and China remains another important

obstacle to East Asian integration. Seeing each other more as rivals than anything else,

Tokyo and Beijing remain suspicious of each other’s intentions in regional affairs rather

than cooperative on the promotion of an East Asian grouping. To some extent, Sino-

Japanese rivalry constitutes the single most intractable obstacle to the formation of an

FTA within the framework of APT. (Cai, 2003)

In view of all these difficulties, it is not surprising that regional cooperation in East Asia

within the APT framework depicts two important features. The first feature is that this

process of regional cooperation has been initiated and led by small players, rather than by

major powers, as is the case in the process of regional integration in Western Europe and

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North America. This proves to be a wise strategy to promote integration in East Asia,

given the complexity of regional politics and distrust of major regional powers. As this

process of East Asian cooperation is initiated by small players in the region, it is therefore

possible for all the states in the region to be less suspicious of the idea of a regional

grouping and more comfortable about getting involved, which could hardly have

happened if the process had been initiated by a regional power, for example, Japan or

China.

3.0 Regionalism or Bilateralism ?

Founded 37 years ago, Kalbe Farma currently is the market leader of Indonesia’s

Pharmaceutical Industry in term of market share. They have expands their business not

only manufactured drugs, but also into health foods and packaging business. Kalbe

Farma has been listed in Jakarta and Surabaya Stock Exchanges since July 1991, and

nowadays they has been focusing much effort to International market, particularly

ASEAN and several countries in Africa, in anticipation of globalization and AFTA, and

also fierce from local companies. This markets are very similar to Indonesian market, and

therefore do not required much adjustment. Until the end of 2003 Kalbe Farma has

establish representative offices in Malaysia, Myanmar, Sri Lanka, Vietnam, Cambodia,

Philippines, and South Africa. (Kalbe Farma Annual Report 2003)

Kalbe has placed a team in the selected major export destinations to conduct direct

marketing activities. As for no major destination, Kalbe only conduct trading activities

with local distribution. Export sales in 2003 has reached Rp 180 billion (around US$ 20

million), mainly contributed by sales in Malaysia, Singapore, Myanmar, Nigeria, Sri

Lanka, and South Africa and Zimbabwe. The obstacles faced are because some of these

countries such as Sri Lanka, Nigeria, and Zimbabwe have continued to experiencing

prolonged economical and political crisis. (ibid)

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As a CEO of Kalbe Farma, I would see regionalism as the preferable trend in doing

international business. Looking at current situation, Kalbe International businesses were

mainly contributed by ASEAN countries such as Malaysia Singapore, and Myanmar.

Special attention were also be given to Vietnam, which currently having a high economic

growth and soon may join Malaysia, Indonesia and Thailand as New Industrial

Economies. The reasons why Kalbe Farma chooses to do business in these countries

included:

1. Location. Geographically, ASEAN countries were the nearest to Indonesia,

therefore they will have a better control and manage of the business.

Transportation cost (for shipping, etc) will be less because of the shorter

distances.

2. Culture similarity. Asian countries (especially South East Asia) have a lot of

culture similarity, for example: language being used in Malaysia and Singapore is

similar with Indonesia (Malay, Chinese, and English).

3. Kalbe Farma has not developed their brand name in international market,

therefore they have to start with the nearest counties or countries that have

economic level which is equal or below Indonesia, and therefore their products

will be easier to penetrate into their market. And once they become a dominant

players in the region, then they can start to expand to other countries.

4. As a multinational company, Kalbe Farma doesn’t have a very strong financial

reserved compared to other multinational pharmaceutical company, therefore they

have to be careful in investing their money into overseas market, which is why

they choose to do business mostly within South East Asia Region.

By having regionalism such as European Union, Kalbe Farma businesses in South East

Asia will growth very fast. One of the reasons why Kalbe Farma international businesses

still having slow growth mainly caused by government regulations from destination

countries. For countries such as Malaysia and Singapore, getting working permit was the

major problem. Although Kalbe Farma already set the representative office in those

countries, to get working permits for their employees is still difficult, and very limited.

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That’s why business in those countries is still very much depends on partnership with

local distributor, and has caused the growth to be limited. Such problem will not be arise

if regionalism was formed in the area just like in European Union where the citizen of the

member countries would be able to work in any other member countries anytime they

wanted without have to worry about visa and etc. Another benefit that Kalbe Farma will

enjoy from regionalism is low tariff, which means we will get more profit from the

international business because we won’t need to pay high tax and tariff to export our

product to other countries.

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