Strategic investments and competition under uncertainty in the ASEAN/AEC: Real options and game theory

The Association of Southeast Asian Nations (ASEAN) intends to create the ASEAN Economic Community (AEC) as a single market, which is expected to be fully completed by 2020. The AEC will boost the competition in ASEAN's internal and external markets, which will spur innovation. Creative innovation will change the production technology to generate enhanced value products and services. Generating this new technology requires R&D investments. This study discusses the strategic investment decisions which businesses in ASEAN will have to face in a highly competitive environment under uncertain growth conditions by systematically outlaying several plausible strategic investment outcomes. The game-theoretic real options approach is used to analyze the valuation of the flexibility of the strategic timing and interplay of strategic investments in ASEAN members' firms, contingent on various market scenarios.