The Future of Production in ASEAN

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Manufacturing has been a critical part of the development story in Asia. Japan was the first country in Asia to harness the power of export-based manufacturing to drive its development journey. Japan was followed by Singapore, Taiwan, South Korea, and Hong Kong. More recently China has picked up the mantle of using low-cost labour coupled with foreign investment to drive a powerful manufacturing export machine. Places such as Thailand and Malaysia have pursued a similar strategy, but to a lesser degree.
 
Export-based manufacturing has proven critical for many reasons:


  • It helps to earn valuable foreign currency

  • It drives investment into building infrastructure

  • It creates jobs as farmers migrate to the cities

  • It nurtures an eco-system of local SME suppliers that support the big foreign manufacturers. These SMEs then develop into bigger viable businesses

  • It delivers technology transfer and provides a way for workers to become educated, thereby driving up their productivity and in turn their incomes


 
The question today is whether the next generation of less-developed economies can also use export-based manufacturing as a path to prosperity.
 
Asia faces some issues that will support manufacturing development. Among these positive factors is the size of Asia’s markets. With more than half the world’s population, and incomes that continue to rise swiftly, Asia is the place to sell (and make) cars, phones, cosmetics etc.
 
However, this very Asian development model also faces many challenges:

  • The Fourth Industrial Revolution is re-writing the rules of manufacturing. As the cost of automation plummets, low-cost labour is a less effective strategy to attract manufacturing investment

  • As the 4IR takes hold, we see possibly the beginning of a trend towards re-shoring of manufacturing back to the rich world (eg Apple in the US and Adidas making shoes in Germany)

  • Some observers expect global supply chains to become more regional and even national in order to reduce delivery times and to make manufacturing more responsive to local tastes and local demand conditions. This potentially reduces the economies of scale that can be achieved when producing for the whole world

  • Global trade in goods remains flat. Possibly this is because the world economy is still relatively moribund. However, it may also be because cross-border trade is realigning around services and experiences (IT services, media and games, financial services, tourism, education etc)

  • Some foreign investment into manufacturing in Asia was undoubtedly supported by regulatory arbitrage (eg on environmental laws and labour conditions). But consumers increasingly expect supply chains to be clean, green and fair, no matter where the factories are based


 
The countries of the ASEAN region are varied in their level of industrialisation. At one end, Thailand is reasonably sophisticated, especially in areas such as electronics, automotive and food processing. At the other end, Cambodia and Myanmar are still largely agricultural economies, and their manufacturing sectors are dominated by low-end goods such as textiles.
 
But despite the differences, all countries in the ASEAN region are a very long way back from the productivity frontier. In Thailand, the most developed economy, per capita GDP is still only one tenth that of the US.

This project will analyse the big trends impacting manufacturing in ASEAN. It will examine the local context in ASEAN member countries, and their current competitiveness for manufacturing in the context of these trends. It will suggest ideas and policies for how the region can position itself for the future (possibly a framework for analysis or a policy toolkit). Expected outcomes are:


  1. A case study examining the Future of Production in ASEAN

  2. A dialogue series and/or set of workshops with the five governments, using the case study to kickstart important conversations  about how to respond to these ideas

  3. A set of lessons learned and best practices with broad relevance to all less-developed economies

  4. New opportunities for regional and private-public collaboration