Executive Summary
The phenomenon of an FTA cannot be considered a new economic strategy, yet in the wake of the global pandemic, it might support the states that have suffered significantly from it and require active support. For Wilmar International, a Singapore company operating in the agricultural setting, the opportunities provided by the FTA might be particularly useful due to the recent economic challenges. However, an FTA may also imply several risks, such as a ruined reputation in case of mismanaging the responsibilities and tasks as a member of FTA, as well as the misallocation of the resources at hand, which should be considered as essential warnings that Singapore must consider prior to selecting an FTA option. Nevertheless, given the recent dive in Singapore’s GDP and the excruciatingly slow rates of economic recovery, it is vital for Wilmar International to use every available opportunity to improve its performance. Therefore, it is highly advised that an FTA within the ASEAN community be encouraged within the target setting. Thus, Wilmar International will have the chance to improve and update its supply chain networks by introducing cheaper and more effective options, while making the infrastructure more flexible and avoiding devastating taxes.
Introduction
The concept of a free trade agreement is a comparatively recent phenomenon, yet it has proven to work quite well in contexts where the levels of economic well-being are relatively similar and mostly impressively high. This study seeks to prove that, for Wilmar International, a company operating in the food processing industry in Singapore and experiencing challenges in overcoming the effects of the economic crisis caused by the coronavirus, the organization is likely to experience a significant boost, which will allow it to manage the recently taken costs and address the damages caused by the pandemic, while also expanding its supply chain and exploring the opportunity of attracting new investors.
FTAs Overview
Currently, FTAs are mostly represented by WTO-related agreements, as well as the collaborations between countries bound by a single geographic area. For instance, Singapore as the most successful member of ASEAN could use the support of the ASEAN participants in order to improve its economic growth rates (Duong et al., 2020). As an agreement between two or more countries regarding the terms of trade, an FTA provides quite a range of opportunities, of which the chance to attract investors and the opportunity to encourage the further promotion of innovative solutions in the target setting must be mentioned, which will allow Wilmar International to thrive and expand its supply chain. Specifically, Wilmar should consider entering a Bilateral Trade Agreement with Vietnam in order to establish collaboration with Vietnam organizations.
Background
Until recently, Singapore has been enjoying quite an impressive rise in its economic performance. Due to the elaborate and well-thought-out use of technological advances, the focus on supporting entrepreneurs, and the enhancement of education, Singapore has been leading the ASEAN group, representing exemplary management of the available economic, financial, and other types of resources (Duong, Holmes, & Strutt, 2020). Among the companies that have been producing particularly notable effects on Singapore’s economy, is Wilmar International, a company functioning in the agricultural industry and offering services such as the refinement and cultivation of some of the most popular plants, such as oil palms, oilseed, and edible oils (Duong et al., 2020). However, with the emergence of the pandemic and the effects that it has produced on the global economy, Singapore has experienced certain difficulties, which have driven Wilmar International’s profits down to a significant extent (Duong et al., 2020). Currently, the company could use the support of possible business partners.
Rationale
Given the current economic and political situation observed in Singapore, the country can be considered perfectly suitable for entering a free trade agreement. Given the fact that Singapore presently holds an impressively high human development index of 0.938 (2019) (Jamrisko, 2020), which makes the country relatively safe even after the exposure to risks that FTA may entail (Duong et al., 2020). Similarly, the country’s GDP, while being affected significantly by the pandemic, is still quite high (See, 2021). The described changes have affected Wilmar International accordingly, providing the organization with a chance to improve its performance, yet leaving its current share price at 4.79 and declining (Duong et al., 2020). Although the current state of Wilmar International‘s business is bearable, the company could use a boost, which can be achieved by expanding to the Vietnam market. Specifically, Wilmar International‘s share price has been increasing quite steadily, currently sitting at 4.8200+0.0400 (+0.8368%) (“Wilmar International Limited (F34.SI),” 2021). However, the company needs to reduce the risks that may hinder its further progress in global trade. Lately, Wilmar International has been showing stupendous growth; specifically, the organization increased its sales by 50% in 2020 to $611,000,000 (Wilmar International Limited, 2021). In turn, the support of local partners and the influx of international investments could help Wilmar International to address the issue.
Areas of Benefit
The creation of a free trade area always implies introducing a broad variety of benefits to the countries participating in the transactions. For ASEAN, the creation of a free trade environment will be particularly useful for numerous reasons discussed below. With a common cultural background and, therefore, multiple opportunities for constructing a platform for active and effective interactions, the ASEAN Free Trade Area is quite a worthwhile project for Wilmar International since it will provide the organization with a strong support system (Wong et al., 2017). Additionally, the increase in the company’s performance will attract foreign investors.
For Wilmar, becoming a part of an FTA will allow exploring the opportunities of the Vietnam market without the restrictions that would have been imposed on it as a foreign company. Specifically, Wilmar will not have to pay the fees that are currently imposed on companies importing products into Vietnam, which suggests that Wilmar will be able to focus on improving the quality of its products and enhancing its supply chain (Duong et al., 2020). Therefore, participating in an FTA will allow Wilmar to rearrange its resources in order to gain a competitive advantage. Finally, a cheaper labor force and the opportunity to outsource effectively should be seen as major goals to pursue in the ASEAN setting.
Moreover, domestic industries and businesses within the target countries will receive a strong and direct impetus for further development and an increase in the extent of their activity and initiative within the ASEAN market (Duong et al., 2020). Consequently, the ASEAN market will become more competitive, which will incentivize the participants of the tared relationships to seek opportunities for improvement and innovation. As a result, the states and businesses involved will avoid the threat of becoming stale and inactive. For Wilmar International, the chance to expand the supply chains of its major organizations and reinforce them is an essential advantage since it will help the country to make its position even stronger and provide its businesses with vital resources, including a cheaper labor force. Namely, the organization will be able to expand into the oil markets of Vietnam as one of the areas that Wilmar International has not encompassed yet.
As a result of the observed economic growth and the change in the trade relationship dynamics, an influx of investors is expected to be observed within a significantly short time. Indeed, the existing examples of free trade agreements between states indicate that investors will view the specified setting as particularly lucrative due to the absence of physical boundaries and, therefore, tax-related issues, between the states. Consequently, a large number of organizations are likely to consider the ASEAN setting as the potential area of their investments, which, in turn, will cause an additional boost for ASEAN organizations and increase their performance rates. The resulting rise in the economic growth rates within the ASEAN states involved, which can be measured by comparing the GDP rates before and after the creation of the free tared zone is likely to demonstrate a massive improvement.
However, in relation to Singapore, the opportunities to receive foreign direct investments should be listed among the main investment-related opportunities for countries entering a free trade agreement. Duong, Holmes, and Strutt (2020, p. 1) assert that “One of the most important reasons a country enters into an FTA is the expectation of increased FDI flows.” Therefore, the chance to attract investors and introduce a continuous source of financial support for Singapore entrepreneurs, as well as corporations and SMEs, remains one of the most powerful advantages to consider. Specifically, it will offer Singapore the opportunity to address its recent drop in GDP growth rates to 0.73% (USD 371,200,000,000) (Jamrisko, 2020).
Finally, the opportunity to gain experience for the companies involved in the transactions, thus creating the circumstances for a potential rapid increase of the states’ GDPs and allowing them to become important players in the global market setting deserves a mention. The opportunity for participants to obtain the vital experience of participating in international trade also suggests the advantage of training to deploy appropriate technological tools for managing the relevant processes. For a range of organizations and the corresponding governance bodies, the introduction of new control tools, particularly, digital ones, often represents a significant challenge (Duong et al., 2020). In fact, the very nature of the digital market, with the emergence of additional uncertainties and the lack of experience in functioning within it, may serve as a source of stress and a large impediment on the path toward economic progress (Duong et al., 2020). However, once an FTA is signed and the process of trade commences, the parties involved may test innovative solutions without the fear of being overpowered by a more experienced and influential company belonging to a rival member of the global market (Duong et al., 2020). Instead, mutual support and collaboration can be promoted in the specified setting, which will imply greater options for building a strong support network and developing a massive competitive advantage compared to other participants in the global market interactions.
For Wilmar International, the support of the ASEAN states will be quite relevant given the effects that the coronavirus pandemic has had on its economy and overall well-being. Namely, Wilmar International will be able to enter the Vietnam oil market and build a supply chain within it, attracting new audiences. Given the slow rise of the Singapore economy, branching out appears to be a suitable strategy for Wilmar International. Specifically, the 3.6% rate in 2020 compared to 3.5% in 2019 indicates that Singapore was affected tremendously by the global crisis (Jamrisko, 2020). Therefore, even though the state’s economy demonstrates signs of gradual recovery, Singapore could use the support of neighboring states.
Challenges and Pitfalls
Unfortunately, along with numerous positive aspects of the use of free-trade agreements, there are certain problems of which one must be aware and which one must prevent from turning into the sources of significant financial losses. The key risks associated with the development of a free trade zone typically include problems linked to the management of information.
The threat to participants’ intellectual property should be placed at the top of the main concerns associated with signing a free trade agreement and engaging in the related activities. According to the existing evidence, intellectual property theft is one of the many realities of functioning in the economic setting of third-world countries (Duong et al., 2020). However, even though countries with lower income rates and a significantly poorer GDP are prone to the threat of a cyberattack specifically strongly, the issue in question may also occur in a comparatively innocent setting of the second-or first-world countries, indicating that the issue of weak safety standards and the absence of tools that could serve as restricting options.
The problem of poor security rats can be explained by the exclusionary nature of the proposed framework for ASEAN to create a free-trade zone specifically for certain population groups (Duong et al., 2020). At the same time, the described tool is very time- and resource-consuming, which may suggest that the further use of the label becomes a nearly impossible task. Therefore, before signing a contract that involves any careful and meticulous labeling and allocation of the resources available to Wilmar International, one must not consider the described option. Nevertheless, it seems that the organization has a rather high chance of receiving the needed support while also improving its performance by attracting new investors and business partners.
Another issue of which an unsuspecting entrepreneur must be wary when signing an agreement to participate in free trade concerns the problem of inappropriate working conditions. Due to the emerging outsourcing opportunities that companies participating in free tared may enjoy, they are highly likely to seek the options of outsourcing the labor force. As a result, companies may feel lower responsibility for failing to meet the needs of the specified audience as opposed to meeting the requirements that staff members sourced from a local setting will set (Duong et al., 2020). As a result, an organization may discover that its managers are prone to introducing rather exploitative strategies into the firm’s human resource management (HRM).
Remarkably, apart from making the company fail to meet the set legal standards, the specified threat also implies being devalued in the eyes of the rest of the community. Namely, as the example of Wilmar International is bound to show, the amount of positive attention that an organization may be used to receive from its target audience, will inevitably decline. Moreover, the opportunities for partnership with the states and organizations that provide the greatest opportunity for professional development and the acquisition of new tools and skills should be addressed. Poor reputation is the main outcome of failing to meet local cultural norms; therefore, it is highly desirable that the company’s leaders, their managers, and employees for which the said managers are responsible, should be particularly careful with the selection of their partners within the ASEAN environment. For this reason, Wilmar International will have to build a strategy based on the promotion of transparency and incremental innovation across its SC. Thus, the organization will gain a competitive edge within the Vietnam oil market.
Finally, providing an honest overview of the effects that signing a free trade agreement will entail for the states involved in ASEAN, one must mention the problem of natural resource depletion. Since the process of economic development remains contained within a restricted setting instead of expanding further into the global environment, the possibility of spending every bit of the resources available within the setting of the home country remains dangerously plausible (Duong et al., 2020). The described threat is quite possible both for developing states and developed ones, which is why the issue at hand can be considered one of the primary issues with building a free trade zone.
The problem described above poses a particular threat to the ASEAN community due to the scarcity of resources available in the specified states. Although some of the countries included in the ASEAN union are far from being poor, the potential loss of the remaining resources will affect every participant, causing them to reevaluate the approach to resource management and, ultimately, accept the fat for ruining the state economy (Duong et al., 2020). Therefore, the described step can be considered an act of active harm to the state and its citizens. Indeed, the effects of resource depletion are likely to affect every citizen of the ASEAN union. Specifically, states with lower GDP, such as Vietnam, are likely to suffer extensively given the third dependency on additional sources of support. Moreover, without a range of natural resources, ASEAN countries such as Vietnam, which have been dependent on local economies for the most part of their history, are likely to be affected drastically.
Overall, gaining advantages from the free trade agreement between ASEAN states is not impossible for Wilmar International. However, to accept it and engage in the active promotion of digital market development, the company must be fully aware of the key sociocultural specifics that define the states involved in the agreement, as well as their goals and weaknesses. Thus, a framework for preventing Wilmar International from suffering even greater risk and damages (Adamchick, & Perez, 2020). For this purpose, it is highly recommended that the organization should introduce a better financial monitoring system, as well as an improved framework for coordinating its actions and communicating with its partners across the supply chain. Specifically, by participating in the ASEAN FTA, Wilmar will be able to expand its supply chain and develop a stronger bond with local organizations. Moreover, Wilmar will be able to outsource effectively by recruiting ASEAN experts while saving a substantial amount of financial resources. Finally, Wilmar international will be capable of becoming a dominant force in the ASEAN oil industry, thus cementing its status as a powerful corporate entity.
Conclusion
As shown in the analysis above, Wilmar International has a range of opportunities to pursue in the ASEAN setting once entering a free trade agreement. However, the problems that ASEAN states are likely to face in the free trade zone unless the major risks are identified and prevented from occurring are also quite large, with the principles of proper resource management being discarded being the key one. The failure to address the allocation of natural resources properly and suffering significant losses and a sudden drop in reputation on a global level are the rather drastic potential outcomes, which ASEAN countries cannot currently risk.
Furthermore, the threat of a ruined reputation that ASEAN counters and the companies that represent them on a global level are likely to suffer if the development of the free trade zone results in a failure, is also an important point to consider. If ASEAN states become the pariahs of the global community reprinted by wealthier countries, ASEAN will be unlikely to ever recover from it. In turn, the loss of reputation will imply that investors and potential foreign partners will stop considering ASEAN states and Wilmar International, specifically, as a lucrative investment option.
Therefore, it is highly recommended that Wilmar International should apply unique strategies to assess its readiness to participate in a free trade zone. Specifically, every member of ASEAN will need to conduct a thorough analysis of its recent fluctuations in GDP rates, the presence of the required resources, and the extent of financial well-being. Afterward, the ASEAN states must share the outcomes of their analysis with one another so that a sensible strategy for developing a free trade zone could be created, if possible.
References
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Jamrisko, M. (2020). Singapore unemployment rises to 16-year high. Bloomberg. Web.
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