The Association of Southeast Asian Nations (Asean) is playing less of a reinforcer manufacturing role and slowly reducing China’s dominance. The most immediate impact of Covid-19 is the shocks, disruption, and delays in Asian supply chains due to border restrictions and fluctuating trade.
Many companies are revising their former supply chain dependence on China, increasingly relocating their supply chains to alternative locations such as Indonesia, the Philippines, Vietnam and other developing nations. This, in turn, leads to much regionalisation of Asian supply chains and affects inward foreign investment into greenfield and brownfield projects.
The disrupted landscape has strengthened Asean as another manufacturing hub in Asia, as countries within the bloc are major beneficiaries of regionalisation. Major outliers, such as Japan, South Korea, Taiwan, Hong Kong, Australia and New Zealand, are also revising their competitive strategies against the China and Asean manufacturing hubs.
Although the China+1 strategy has started to weaken, the country should retain its regional manufacturing dominance until the bloc, outliers and smaller developing nations catch up.
Technology, digital transformation, automation and artificial intelligence/machine learning (AI/ML) play important roles in enhancing agility, expediting product redesign to enable manufacturers to increase sourcing diversity and simplify assembly. Digitalisation now empowers companies to improve transparency by tracking their raw material sources, using satellite and mobile phone data, linking digital platforms with their contract manufacturers, seeing what inventory they have, and redirecting their products from physical stores to online fulfilment and distribution centres.
In addition, companies can revise their marketing strategy to focus on goods they currently have, and AI/ML systems can quickly detect changes in consumer preferences and quickly change their up-selling, up-sizing and omni-channel marketing tactics. Such agile shifting value chains make cross-functional teams critical where marketing teams work closely with procurement, strategic planning and change management teams, reducing the effectiveness of traditional long-range planning tools in such quickly disruptive and ambiguous environments. Even distributor or supplier search in Asean has become more difficult owing to travel restrictions and dependence on online meetings.
Trade tensions also affect many high-value goods. Higher tariffs are, in turn, passed onto consumers who demand seamless purchase journey experiences.
A crisis causes casualties, but also presents new opportunities and competencies. Innovative organisations now must adopt new agile methods in planning and operations, heavily deploy cross functional teams, and assess how digitalisation can be used effectively to reduce cost, simplify processes and execute shorter go-to-market plans.
Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services. E-mail: firstname.lastname@example.org
This article first appeared in the April/May print edition of fDi Intelligence. View a digital edition of the magazine here.