Leaders of the Association of Southeast Asian Nations gathered in Indonesia last week for the 42nd Asean Summit. In the chairman’s statement, the 10-country political and economic bloc said it was “determined to make Southeast Asia the centre of regional economic growth and an engine for global growth through robust cooperation, including in the food, energy, health and finance sectors”.
Despite macroeconomic headwinds, including persistent inflation in some countries, a likely global economic slowdown and weaker demand, there are indeed strong fundamentals driving long-term growth in this potential powerhouse – Southeast Asia’s
proximity to China, its land mass and access to considerable natural resources. In particular, the manufacturing and renewable energy sectors could represent key growth engines for the region and may benefit more broadly as the region develops.
Manufacturing is an approximately US$14 trillion industry and accounts for around 15 per cent of the global economy. There are multiple steps to making any product, from aeroplanes and refrigerators to a pair of trainers. Sub-components are sourced from just about everywhere, and manufacturing trade flows are deeply interconnected. They depend on just-in-time schedules.
Greater connectivity in manufacturing has been facilitated by decades of globalisation. However, protectionism, disagreements over critical technologies and the
abrupt dislocation of supply chains caused by the Covid-19 pandemic have raised questions over whether the business model for global manufacturing is still fit for purpose.
For decades, foreign companies have used low-cost-country sourcing strategies with a strong focus on China. But companies are
increasingly looking towards Southeast Asia as an alternative to Chinese supply chains and manufacturing. With decoupling gathering pace, Apple, for example, has encouraged its suppliers to
move production out of China and now a significant proportion of AirPods are made in Vietnam.
Another electronics giant, Samsung,
stopped its smartphone, television and personal computer factories in China in 2019 and 2020. Its global production is now
based in Vietnam. Sportswear brands such as
Nike and Adidas have also shifted a significant part of their production from China to various Southeast Asian countries such as Vietnam, Thailand and Indonesia.
