SMEs may find RCEP economies more appealing — BDO report

KUALA LUMPUR: Small and medium enterprises (SMEs) may find the developing economies of the Regional Comprehensive Economic Partnership (RCEP), such as Indonesia, Vietnam, Malaysia and the Philippines, more appealing as they could provide access to a large market, cheap labour, natural resources or raw materials.

This is given that cheaper access to new markets will spur large, capital-rich and innovative companies to invest in and establish presence in newer markets across the region.

According to Issue 31 of the Asean Investment & Tax News (AITN) by BDO, in doing so, companies will facilitate knowledge and technology transfer from developed to developing economies.

The report said companies may also set up production facilities in these economies, improving the productive capacities there.

These trends enhance the total factor of productivity of developing economies, inevitably leading to higher growth and incomes.

SMEs are well-placed to take advantage of these benefits, especially those in the goods, manufacturing, technology and information and communications technology (ICT) sectors.

“As many large companies enter new, developing markets, they will look for partners, suppliers and vendors.

“These need not always be large companies and are often midmarket or SME businesses.

“Regardless, the transfer of knowledge and technology will inevitably trickle down to smaller companies in the economy receiving the inbound investment, through a more sophisticated and efficient ecosystem which will develop,” said the report.

This will be more nuanced in the RCEP than in the Asean Plus One agreements or other trade deals across the Indo-Pacific region because the enhanced framework of intellectual property rights (IPRs) will instil more confidence and trust to facilitate such exchanges.

“Adequate IPRs protection can play an important role in attracting foreign direct investment and encouraging technology transfer and knowledge spill-overs,” it quoted a 2019 Organisation for Economic Co-operation and Development (OECD) paper on international technology transfer policies.

Hence, the report said SMEs across the region should adopt a positive mindset to RCEP and gear up to be a beneficiary of technology transfers within the more sophisticated and structured IPRs environment that RCEP will galvanise.