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ASEAN as a global manufacturing hub

Insights from the webinar 'Connecting EU and UK Businesses to Growth Opportunities in ASEAN'

Over the past two decades, ASEAN has become an international hub for manufacturing, driven by steadily increasing investment flows and GDP growth. Today, rising labour costs, supply chain concerns and geopolitical tensions are the key drivers for international businesses to further diversify their manufacturing into ASEAN, with Singapore, Indonesia and Vietnam receiving 80% of new FDI inflows in 2019. 1

Below is a summary of insights from our ASEAN as a global manufacturing hub session at our recent webinar titled ‘Connecting EU and UK Businesses to Growth Opportunities in ASEAN’. The segment features Marc Moeschlin, Sales Director, Southeast Asia, Bolloré Logistics Asia-Pacific; Pamela Phua, Cluster General Director, Vietnam, Singapore and Indochina, AkzoNobel; and Thibaut Giroux, Chairman, CCI France-Vietnam (CCIFV). It was moderated by Tim Evans, CEO, HSBC Vietnam.

A changing manufacturing landscape

Central to ASEAN’s growing attractiveness as a manufacturing hub is the upgrading of its production processes. Industry 4.0 technologies, including advanced robotics, 3D printing and real-time digital factory simulation are enabling manufacturers to expand from labour-intensive assembly work into producing higher-value goods such as machinery and electronics.

For investors, these technological improvements are noteworthy because they indicate a regional manufacturing capacity that can accommodate a wide range of goods and support a growing number of sectors. This progress goes hand-in-hand with the embrace of digitalisation, which is enabling businesses in the region to gain greater control and security over their supply chains.

Another important trend is the China Plus One strategy , whereby businesses avoid an overconcentration of their supply chains in China by diversifying their networks into one or more Southeast Asian markets. Given this approach, many firms are relocating their manufacturing into ASEAN, with markets such as Vietnam seeing a significant boost in activity.

Those operating in the region view this as a long-term shift, reinforced by a desire among businesses to shorten lead times by localising manufacturing. As Thibault Giroux explained, “This is not to replace China…we have to work together in other opportunities, in other countries to achieve diversification.”

Finally, ASEAN’s free-trade agreements, including the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), are also set to boost trade and manufacturing activities in the region. In a trading bloc that thrives on the comparative advantages of its markets, these agreements will further integrate ASEAN and promote the region’s attractiveness as a manufacturing hub.

E-commerce’s impact on manufacturing

Manufacturing is transforming at a rapid pace, with e-commerce as a key factor in this process. In ASEAN, e-commerce has quadrupled over the past three years and is expected to grow to US$300 billion by 2025, three times its current size.2 With 40 million new internet users in the region since 2020, online shopping is changing both consumption and production dynamics.

The growth of e-commerce is also making ASEAN more self-sufficient from a manufacturing perspective. With companies looking to produce closer to their customers to meet changing demand, supply networks are regionalising and collaborations with last-mile delivery firms are being formed to reach even the furthest flung consumers in each market.

This is particularly impacting industries such as fashion and cosmetics, which are seeing rapid growth in Malaysia, Singapore and Thailand. Consumer goods are also experiencing increases in demand in Vietnam, which is expected to see an additional 10 million buyers enter the market by 2025.

The imperative around sustainability

Sustainability is quickly becoming a core business value in ASEAN driven in no small part by end-users. Companies like Bolloré Logistics are investing in sustainable infrastructure and renewable energy to meet the growing demand among their clients. Bolloré Logistics also works with its customers to reduce their carbon footprints through a variety of measures, including reducing single-use plastic, producing more sustainable packaging and increasing the adoption of hybrid or electric-vehicle fleets to replace diesel trucks.

AkzoNobel, whose sustainability motto is ‘People, Planet, Paint’, is seeing an increase in demand for environmentally-friendly products in ASEAN. This trend is symbiotic with the company’s values around sustainability and has led AkzoNobel to further invest in achieving carbon neutrality across its manufacturing operations. “We are not only very conscious of our sustainable manufacturing, but we also make sure we offer product designs that have the least impact on the environment,” said Pamela Phua.

Opportunities for foreign investment

ASEAN is a diverse region, and many markets are implementing measures to make their manufacturing sectors attractive for investment. For example, in 2018 Malaysia launched Industry4WRD, a digital strategy aimed at optimising the conditions for technology-driven production processes and the usage of skilled labour in the manufacturing sector.3

While in Indonesia, “Making Indonesia 4.0” is an initiative to digitalise the country’s manufacturing capabilities and create competitive advantages across its automotive, electronics, chemicals and food and beverage sectors.4

It will be important for international businesses to keep a pulse on these initiatives to capture the opportunities emerging from them.

Getting involved

Manufacturing in ASEAN is growing at a rapid pace across sectors and product categories and the diversity of markets offers a range of in-roads for foreign investors to get involved. For more information on the opportunities in ASEAN, please contact your relationship manager.