Understanding the economy of brunei darussalam
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Published: Mon, 5 Dec 2016
The economy of Brunei Darussalam is denominated by the oil liquefied natural gas industries and Government expenditures patterns. The export of Brunei Darussalam consists of three major commodities which are crude oil, petroleum products and liquefied natural gas. Japan, the United States and ASEAN countries are the main destination for Brunei’s export.
The Government of Brunei Darussalam has entered a new phase of development in its drive towards economic diversification. It is encouraging to note that the contribution from the non-oil and gas-based sector of the economy, as reflected in the contribution to the gross domestic product has continued to increase. Apart from that, the number of establishments in the private sector has increased from year to year.
The encouraging trend was initiated by the Government’s moves to promote the development of the private sector as the engine of growth to attain diversification. A range of legislation made for international business and carefully designed to permit flexibility and cost-effective capabilities which will include a full range of facilities necessary for the efficient conduct of global business have been put in place (Brunei Industrial Development Authority, n.d.).
1.2 Fisheries Industry in Brunei Darussalam
In order to away from the reliance on oil and gas industries, fisheries has been identified as one of the potential industries that could contribute to the diversification of Brunei Darussalam’s economy. As such the Government is giving a number of incentives for the commercial fisheries development. Currently, Brunei Darussalam is still importing about 50 percent of its fish requirements whilst the fisheries potentials of our country are estimated to be sustainably worth at least $200 million. With opportunities from the local capture and aquaculture industries and the vibrant region, Brunei with its strategic location can act as the Regional Centre (HUB) for the handling and distribution of export and import of seafood products to the international market. The highly accessible coastal highway, modern seaport and airport facilities, all within easy reach, contribute towards viable investment potentials in the fisheries industries (Ministry of Industry and Primary Resources, n.d.).
Fisheries industry in Brunei comprises of three sectors which are capture fisheries, aquaculture and seafood processing. The capture fisheries sector estimated to contribute at least B$ 112 million, aquaculture sector B$ 71 million and seafood processing sector of at least B$ 17 million. Brunei provides an ideal environment for the aquaculture industry as it uses environmentally friendly practices and has clean, unpolluted waters relatively free from fish pathogens. Our country has a water area of 38,600 square kilometres and a coastline of 160 kilometres. Although it is the smallest country in the region, Brunei has one of the highest per capita fish consumptions at around 45 kilograms per year.
In its effort to increase the contribution of fisheries towards the national GDP, the Government is opening opportunities for more investments in capture fisheries sector especially in pelagic or tuna fishing. Fishing licenses are available for operating purse-seiners, tuna long-liners in the Brunei zone of fishing areas. With an estimated population of about 400,000, the total annual consumption of fish is about 15,500 metric tons. This should be calculated as potential market. For example, if 50% of 15,500 metric tons is imported, the potential replacement market is 7,750 metric tons.
The aquaculture sector offers vast opportunities and is very lucrative with estimated potential to be worth B$ 71 million per annum based on the existing available sites. Prime areas suitable for aquaculture have been identified and basic infrastructure like access roads, electricity and sea water supply and cage culture have been made available by the Government of Brunei Darussalam. In addition, Brunei has a number of advantages such as clean and unpolluted environment, absence of typhoons, floods and other natural phenomena.
Currently, the Government has also identified potential areas ready for development with laid down essential basic infrastructure. Meanwhile, the fish processing sector is still relatively at a small scale despite the big numbers of processors and a joint-venture company involved in the production of a variety of fisheries products. More rooms are still available for expansion and further development. In Brunei, Semaun Aquaculture Sdn Bhd has the highest market share of the current fish suppliers.
Apart from that, with the current push to create a healthy society in Brunei Darussalam, the local population is taking serious view in increasing the intake of fish as compared to other sources of protein. Fish is a staple diet of a good majority of population and it is almost a necessity in one’s daily diet. Marine fish has been the principal source of protein for the people of Brunei. The per capita fish consumption is one of the highest in region at around 45 kilograms per year. It is anticipated that the steady increase in the population will increase the demand and with the current liberalization of trade, opportunities for export are there, even though as it is, the local demand and market price in itself already make the fisheries industry attractive (Fisheries Department, n.d.).
It is important to analyse both the national and global environment of fisheries industry in contributing towards Brunei Darussalam’s as a land of opportunity. It can be used for analyzing competition in different national markets.
2.1 Competitive Analysis
In order to achieve industrial global competitiveness, it depends on the ability of a firm or a nation to offer products and services that meet the quality standards of the local and world markets at prices that are competitive and provide adequate returns on the resources employed or consumed in producing them (Daft and Marcic, 2004, pg. 55). Industrial global competitive analysis initiates by focusing on the global overall industry in which a nation competes. It is vital to analyse competitive forces in the industry environment to identify opportunities and threats.
According to Michael E Porter’s well-known framework, there are five forces that shape competition which are the risk of entry by potential competitors, the intensity of rivalry among established companies within an industry, the bargaining power of buyers, the bargaining power of suppliers and the closeness of substitutes to an industry’s products. Therefore, it is important to formulate appropriate strategic responses as industry conditions change over time.
Barriers to Entry
Brunei’s fisheries industry as a potential competitor has the capability to enter global market. The barriers to entry is high as it is costly. It requires high capital requirements and operational costs. Important barriers to entry include economies of scale, brand loyalty, absolute cost advantages, customer switching costs and government regulation (Hill and Jones, 2009, pg. 46). An important strategy is finding ways to minimise those barriers. In order to achieve economies of scale, it includes cost reductions gained through mass-producing a standardized output and discounts on bulk purchases of raw material inputs. If the Government decides to enter on a large scale such as in seafood processing sector, it has to raise the capital required to build large-scale production facilities and bear the high risks associated with such an investment.
The Government can create brand loyalty through continuous advertising, patent protection of products, product innovation achieved through research and development programs, an emphasis on high product quality and good after-sales service. Local and overseas markets consider Brunei Darussalam’s food products synonymous with high quality and being safe ‘halal’. The market for halal products within and outside the region is tremendous. There are many well-known countries with high market share in global fisheries industry around the world. Thus, indicating high barriers to entry. (TradeInvest Africa, n.d.)
Nature of Competition
The intensity of the competition in the global fisheries industry can be considered high due to some factors which are industry competitive structure, demand conditions, cost conditions as well as the height of exit barriers. This is focused on some important aspects mainly on the price war. It is difficult to differentiate products in this industry and as a result the best strategy is to try to minimise its costs.
Industry structures vary and different structures have different implications for the intensity of rivalry. Demand for fishes is usually high and growing demand tends to moderate competition. Exit barriers include the need to maintain an expensive collection of assets at or above some minimum level in order to participate effectively in the industry. Hill and Jones (2009, pg. 273) claimed that competing in the global marketplace typically face two types of competitive pressures which are pressures for cost reductions and pressures to be locally responsive.
Bargaining Power of Buyers
In any industry including fisheries, the bargaining power of buyers is usually high especially when buyers around the world are demanding for better product quality and service. Therefore, powerful buyers should be viewed as a threat. For instance, the buyers can use their purchasing power as leverage to bargain for price reductions when they purchase in large quantities.
Bargaining Power of Suppliers
This is the ability of suppliers to raise input prices or raise the costs of the industry in other ways. Inputs include materials, services, labour and so on. It is important to note that changes in one or more forces in the macroenvironment can affect the competitiveness of the industry and also the attractiveness of the industry.
Threat of Substitutes
The existence of close substitutes is a strong competitive threat as this limits industry profitability. They can be both direct and indirect substitutes. Direct substitutes are other types of fish available in the global market. The consumers will be more likely to buy low price fresh fishes or seafood products. Indirect substitutes are other types of food such as chicken, beef and vegetables.
2.2 SWOT Analysis
SWOT analysis is an essential technique to understand the strengths and weaknesses of the business as well as looking at opportunities and threats. By identifying the weaknesses and uncover the threats can be easily managed and prevented earlier to avoid risks in the future.
The Government play an important role as they help SMEs in starting up business in terms of development of basic infrastructures such as location of fish farm. In aquaculture sector, consumers can enjoy fresh and good quality fish. For example, the retailers can choose any fish they want at the fish farm and the price will be based on weight. Apart from that, it is easier to hire foreign workers to work in any Brunei’s company since the Government give priorities.
In fisheries industry, Brunei may lack of specific experience and knowledge in operating the business. They also lack in marketing activities which is one of the most important aspects in businesses. Technology and shortage of skilled workforce are also other issues.
Fish and other form of seafood is a staple diet of a good majority of the population and it is almost necessity in one’s daily diet. The growth in consumption of fishes represents an opportunity for firms to expand their sales volume by targeting at the premium segment.
There are many types of diseases that can infect fishes. The examples of fish diseases are protozoan, bacterial, fungal, parasitic and viral. As the fish that lives in open sea can easily be affected by the disease. If this occurs, the firm or nation will face major losses and have to quarantine it. Most significantly, red tide becomes the main concern because this can endanger the fish rearing. This can be looked at when Brunei faced red tide, the demand levels for fish drop sharply as fears for infected fish. Although, advice and directions had been given but still the consumers were doubts to buy it.
Brunei has a tropical climate, with uniform temperatures ranging from 23ËšC to 32ËšC (73 – 89ËšF). Humidity is high about 80% all year round and annual rainfall varies from about 275 cm (110 in) along the coast to more than 500 cm (200 in) in the interior. Rainfall is heaviest during the northeast monsoon season, especially during November and December. Heavy rainfalls can affect the pH value of seawater. If too much rain, the seawater can change the water into acidic (above pH7). Thus, many fishes will die and lead to the loss production of fish to the firm.
Meanwhile, although Brunei is safe from unpolluted environment, but manmade pollution is unavoidable such as oil split. This has become the threat to the fish farm and fishing areas.
One of the objectives of this report is to arrive at certain recommendations and suggestions that might contribute to remedial or facilitator actions in which in turn could accelerate the development of SMEs such as fisheries industry in Brunei Darussalam to be known and compete globally.
3.1 Global Strategy
It is a strategic guide to globalization which involves the transfer of information, culture, technology, workforce and many more. It is effective when differences between countries are small and competition is global. It has advantages in terms of economies of scale, lower cost, coordination of activities and faster production development. Furthermore, Brunei practices open multilateral trading arrangements such as Asean Free Trade Area (AFTA) and General Agreement on Trade and Tariffs (GATT). These open trade policies are consistent with Brunei’s efforts in pursuing outward looking economic policies which will assist the country in expanding its industrial and primary resources-based industries. The Government of Brunei Darussalam can implement global standardization strategy which focuses on increasing profit margins through cost-efficiencies arising from economies of scale and economies of location. Thus, business model is based on pursuing a low-cost strategy on a large global scale (Hill and Jones, 2009, pg. 279).
3.2 Marketing Strategy
The business will not promote itself, advertising and promotions are the lifeline of a business. The Government should encourage entrepreneurs or companies to be expert in marketing activities. The marketing functions can be divided into sales preparation, corporate price policy, advertising, product design as well as selling methods. The entrepreneurs who sell their products themselves experience difficulties in all areas of marketing. Fisheries industry may face difficulties in marketing products due to poor quality, lack of knowledge of markets and marketing skills. In addition, this industry often lacks the knowledge to explore the niche markets. The owner entrepreneur often has no special skills in these matters and does not know where to obtain reliable information about market developments, advertising opportunities and better marketing channels. They also lack the resources to advertise and promote their products.
3.3 Market Development
Product quality is the primary consideration in marketing. Various measures may be taken to assist fisheries industry in developing their markets, both locally and internationally. The following steps may be taken to: create institutions to enhance product quality, encourage them to take up franchises and assist others to develop franchises, provide additional incentives to them to participate in trade fairs both at home and abroad, give special consideration in Government procurement, make greater effort by Government for developing marketing and management skills and institute special marketing board to handle the marketing of Brunei products.
3.4 Market Access
Market access at the national and international level should be boosted by enabling fisheries industries to take advantage of the opportunities for market expansion through the adoption of electronic commerce. The Government should provide better information on markets, make available electronic databases on business matching and facilitation services and assist them to access the export market through joint trade and investment promotion missions. The Government may consider imposing some tariff on those products that are competing with Brunei products until such time they are able to compete with foreign products. Since an appreciation of the Brunei dollar will increase the price of Brunei product, the Government should try to adopt suitable measures so that reasonable stability in the exchange rate may be achieved and maintained.
3.5 Competitive Advantage
The key to understanding competitive advantage is appreciating how the different strategies can create activities that fit together to make a nation unique or different from its rivals and able to consistently outperform them. Brunei should has a good industrial business model in order to gain a competitive advantage and achieve superior profitability and profit growth. The most valuable aspect is distinctive competencies. Brunei’s fisheries industry business model should encompasses the totality of how it will select its customers, define and differentiate its product offerings, create value for its customers, acquire and keep customers, produce goods or services, lower costs, deliver those goods and services to the market, organise activities within the industry, configure its resources, achieve and sustain a high level of profitability as well as grow the business over time (Hill and Jones, 2009, pg. 6).
Individual countries including Brunei have their own national competitive advantage which indicates their global economic value. According to Michael Porter, there are four attributes of a national or country-specific environment that have an important impact on the global competitiveness which are factor endowments, local demand conditions, competitiveness of related and supporting industries and intensity of rivalry. This framework can help to assess how tough it might be to enter global markets. Factor endowments are the cost and quality of factors of production. Brunei’s fisheries industry considers has good physical infrastructure such as ports, Muara Export Zone, Meragang Hatchery, Aquaculture Development Centre and many more. This may the competitive advantage that Brunei enjoys. On the other hand, Brunei gains competitive advantage if able to meet or exceed the high standards of products quality by domestic buyers before looking to break into the global market like European Nation. Hill and Jones (2009, pg. 102) claimed that to maintain competitive advantage requires focusing on efficiency, quality, innovation and responsiveness to customers as well as developing distinctive competencies.
3.6 Global Expansion
In order to achieve industrial global competitiveness for Brunei Darussalam’s long-term sustainability and development, expanding globally can enable to increase profitability and profit growth. Some factors to consider are expanding the market, realizing cost economies from global volume and realizing location economies. The strategic issues are to decide which foreign markets to enter, when to enter, on what scale and what kind of means should use to expand globally. Apart from that, establishing a joint venture with a foreign company is another alternative for entering a new market.
More rooms can be done for Brunei to enter the European Nation (UN) market in order to promote local fisheries products (Brunei Economic Development Board, n.d.). One important part is to meet international standards for export. The Hazard Analysis Critical Control Points training should be organised continuously by Fisheries Department (The Brunei Times, 2008).
3.7 Improving Fisheries Management
This should focus on all operational costs and processes including infrastructures, facilities, technology, workforce, raw materials and so on. Among the success factors of industry, good management skills in both general and business management are a very important factor for the success of industry. Inadequate management and technical inability is a very important constraint to industry development. There is an increase in the level of competitiveness of domestic and global markets which gives rise to a greater need for qualified and well-equipped managers and business leaders. All important factors of production should be improved such as adoption of new and suitable technology. Fisheries management could be further improved by moving towards maximum sustainable yields, ensuring economic management of fisheries and matching fishing effort to available resources (Europa, 2007).
Fisheries industry has great potential that contribute to the diversification of Brunei Darussalam’s economy. This industry can reach the global markets on a large scale and compete with foreign products. It is important to analyse both the national and global environment in order to achieve industrial global competitiveness and global competitive advantages. In my opinion, the best suggestion is focused more on business management especially marketing strategy. It is necessary to enhance industry dynamism by facilitating access to finance, markets, technology, human resources and information. It is not the sole responsibility of the Government. Private enterprises themselves must be prepared to play a bigger role.
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