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Supply chain shift to Asean countries is accelerating

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Vietnamese employees welding in the body shop at the Ford automotive plant in the northern province of Hai Duong. HOANG DINH NAM/AFP

Supply chain shift to Asean countries is accelerating

The Nation (THAILAND)/ANN: GLOBAL trade tensions continue to dominate this year’s headlines and the shift of production to efficient Asean countries is accelerating.

Asean businesses are clearly paying attention and are making incremental changes to their supply chains, but is the pace of change fast enough?

HSBC’s global Navigator survey – which was launched this week and included the views of more than 8,500 corporates (1,000 in Asean) – finds Southeast Asia as the most trade-positive region in the world.

Moreover, Navigator reveals that business decision-makers in Asean view the global shift towards protectionism as increasing the value of their business.

Being positive towards both trade and protectionism seems a little counter-intuitive at first glance.

But dig a little deeper and it is clear that businesses are shrewdly seeing and capitalising on the opportunity amid the emerging trade disruption.

Shifts in production to Asean can – and are – happening quickly.

Thailand and Malaysia already have existing production networks in electronics, especially in hard disk drive (HDD) assembly.

Thailand exports about the same amount of finished storage units to the US as does China. Given Asean’s existing capacity, it makes increasing sense to shift assembly to Southeast Asia, especially now that Chinese shipment of HDDs from the US are subject to at least a 10 per cent tariff, making the move to Asean markets all the more compelling.

Singapore, the Philippines and Vietnam also produce a variety of electronic components, while Vietnam and Indonesia have become increasingly competitive in light manufacturing and textile exports.

Investment data already show an increased shift to Asean. Vietnam’s inbound manufacturing investment has grown by 18 per cent this year, while Thailand and the Philippines have both experienced a significant increase in net FDI.

Meanwhile Harley Davidson, Panasonic and Steve Madden said they will relocate production to the region.

But while there are immediate opportunities, supply chain networks aren’t linear, rather they are an ecosystem. So, it’s not as straightforward as a multinational corporation shifting production to an idle factory.

Businesses first need to take a view on the overall impact of tariffs on Chinese goods.

Factors including labour costs, shipping costs, and regulations need to be weighed to determine whether additional capacity will be built.

This has implications for Asean as a region and for individual suppliers.

For Asean, an increase in HDD exports is definitely welcome. But countries like Thailand and Malaysia need to move further up the electronics supply chain into higher value-add semiconductor fabrication, particularly of more advanced memory chips, to stay competitive.

This will require nations and businesses to invest in infrastructure, new facilities and the training of skilled workers. Economies that can improve the quality of their exports, and have more room for reallocation and further upgrading, stand a higher chance in capturing supply chain opportunities.

At an individual business level, suppliers across Asean need to accelerate the adoption of new technologies such as automation and robotics, perhaps even running smart warehouses. This can help enable an uptick in production capacity to meet global demands, increasing production efficiency and in-time delivery.

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