December 15, 2013
Pushpanathan (Nathan) Sundram is the Asia managing director for global regulatory consutancy EAS. He is a key figure in the harmonization process now taking hold in the Association of Southeast Asian Nations (ASEAN). NBJ spoke with Sundram from his offices in Singapore.
nbj: What's the current state of affairs for harmonization?
Nathan Sundram: Economic harmonization is ongoing in the region. In a sense, the building of the ASEAN Economic Community
is making good progress. About 80% of the measures of the economic community blueprint are implemented. But the remaining 20% is still important and includes the regulatory reforms, which are, I think, one of the key obstacles for trade overall and include the trade of health supplements. So I expect these issues to be addressed by ASEAN as a whole, and if they get this right and bring about harmonization of standards and more regulatory convergence, I would presume that the impact to the health supplement sector will be felt in a very positive way. Some of the areas they are notably looking at are good manufacturing practices, labeling requirements and, in particular, key areas such as the maximum levels of vitamins and minerals, activities of ingredients, limits on contaminants, lease of restrictive additives and claim requirements.
nbj: What are some of the key challenges now?
Sundram: One is the level of implementation for these measures and agreements. Implementation needs to be more robust if we are going to see real economic impact. The second challenge is the changing trade patterns. China is becoming a major trade partner, whereas previously it was the US and the EU. There are changing trade patterns due to global economic performance and non-tariff barriers to trade in some of the ASEAN countries. So this is one of the key issues ASEAN will have to address to achieve integration. We need a greater flow of trade within the region and the world. ASEAN will have to make trade facilitation, customs and harmonization of standards areas of priority.
nbj: How is the flow of trade changing for the ASEAN region?
Sundram: Global patterns are changing. For example, there has been a trade surplus between ASEAN and the US in the past but that is changing. US exports to ASEAN in 2012 were $75.5 billion compared to ASEAN exports of $122.9 billion to the US, but this figure has gone down recently because trade between the two countries is coming down as more countries open trade with China.
nbj: How will the government address these trade imbalances?
Sundram: The ASEAN region is still production-based, so government is looking at increasing consumption because that is a way to protect the economy from the external and global effects of trade. Consumption is actually a good economic driver. In the case of Indonesia, for example, they are using increased consumption to counter trade effects when the economy goes down. China does this too. So consumption is something the ASEAN government is trying to encourage with the growing middle class. This will be one of the strategies that will probably help the health supplement sector as well.
nbj: What makes ASEAN a desirable market for supplements?
Sundram: Many reasons. First, I want to mention that the population of ASEAN is now 620 million. Compared to the rest of the world, it’s the third most populous region, after China and India. It’s also the world’s third largest economy. In East Asia, they are doing about $2.3 trillion in GDP and trade of about $2.4 trillion. So it’s a sizable economy. The region’s poverty rates are coming down and the middle-income population is increasing. About 37% of the population falls into the middle-income ranges, and this works out to be 229 million people, based on a recent study by the Economic Research Institute of ASEAN.
Now, those people with annual earnings of about $5,000 and above make up 80 million people in ASEAN. This is an important number because as the middle class grows, the economists say that people who reach an annual income of $5,000 are going beyond basic necessities in what they can afford and this allows them to think about things like health. More and more of ASEAN’s population is heading that way.
nbj: Are ASEAN consumers showing interest in supplements?
Sundram: I think so. The health supplements segment is becoming a more important market for ASEAN consumers. Middle-income consumers have a growing interest because you have both the husband and wife working, and the population as a whole is more health conscious. Dietary supplements are currently an $11 billion market and expected to grow to $26.5 billion by 2016. In Southeast Asia alone, the health supplements market is estimated at $1.5 billion and growing at a rate of 10%.
nbj: Is there a specific ASEAN country that represents the best opportunity for supplements?
Sundram: Interest in health product is a general trend in all the ASEAN countries, but, of course, the largest countries—like Singapore, Malaysia, Indonesia and the Philippines—will initially be key markets for health supplement producers, due to their middle-income growth. If I had to single out one country, it might be Singapore, which is consuming about $260 million worth of supplements, so it’s a very attractive market for producers of those products. For example, the Singapore consumer normally spends $80 dollars when he visits a store and a family spends an average of $120 per month on dietary supplements or health products, and this has been growing at rate of 7 to 10%.
There are several reasons for this popularity. One is growing purchasing power, but people are also more aware of health and the benefits of health supplements. People in Singapore enjoy longer life expectancy. We have a growing focus on what we call NCDs, or non-communicable diseases, such as high cholesterol and diabetes.
nbj: What are the barriers to entry?
Sundram: Many ASEAN countries have a long tradition of herbal medicines and treatments. Indonesia is a good example. Their traditional medicines and treatments are cultural. People have been consuming them for centuries. These local companies are often small- and medium-sized enterprises, but they are protected by government so, in a sense, I would call this a barrier to entering the market for health supplements. Some companies may find they can’t get into a particular market because of local competition.
nbj: Please describe the current regulatory environment.
Sundram: Most ASEAN countries currently don’t require pre-market approval to enter, so it’s easier to enter these countries than others in Asia. ASEAN has a system of post-market surveillance. If you put a product in the market and they find a problem with it, then they address the problem with a product recall.
nbj: Are any supplement companies having particular success?
Sundram: I would say the direct sellers from the US are increasingly putting the most effort and emphasis on the ASEAN region. It’s a very important region for them, so they want to see harmonization here so they can market easily across countries. They are focusing especially on Indonesia and Malaysia.
nbj: Is it important for companies to have a manufacturing presence in ASEAN?
Sundram: Most companies are not manufacturing here, but there are some significant benefits to doing this. The ASEAN comprehensive-investment agreement would give a foreign company who opens a manufacturing plant here similar treatment to that of ASEAN companies. This makes it easier to establish free trade agreements in the region and gain preferential treatment in ASEAN. It might also help a company sell more to neighboring countries due to the free trade agreements ASEAN has established with China, Japan, Korea, Australia, New Zealand and India. Wages in ASEAN are also a factor. They are now becoming lower than in China, so there is an inexpensive but skilled labor force in ASEAN.
nbj: How can ASEAN address quality concerns arising from Asia?
Sundram: Supply chain quality is a new issue that is sinking into the minds of regulators here. There is not a lot of specific discussion around health supplements. ASEAN countries are very concerned about quality, as well as the sustainability of ingredients, and that they remain effective on store shelves for months.
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