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‘Southeast Asia has some of the world’s fastest-growing markets’
In several ways, ‘The Great Supply Chain Migration–Breaking Down the Cost of Doing Business in Asia’, a TMX report published early this month, has opened the eyes of governments, investors and think tanks where each country of Southeast Asia stands.
The TMX study can easily be equated with a pocket edition of what the highly regarded The Economist’s Annual Report publishes every year. Yet the TMX went a step further in detailing other crucial aspects of doing business such as comparative cost assessment for all countries, labour standards and availability, logistics, readiness for digitalisation and the general business environment.
The author of the report Rebecca An told Khmer Times Business Editor/Mentor Ashok Patnaik what it took to prepare the report and how Southeast Asia with abundant natural resources and rapid economic growth could be a promising manufacturing base for many companies.
KT: Your report ‘The Great Supply Chain Migration – Breaking down the Cost of Doing Business in Asia’ had generated a great deal of interest from every nation in Southeast Asia. Your reaction…
Rebecca An: This report points out that Southeast Asia is a very dynamic and diverse region, where each country has its own advantages and disadvantages and is at a different stage of the manufacturing value chain. We have noted through our work and experience over the years that the diversity across the region is often not well understood, particularly by companies operating outside the region.
Hence, our aim with the report was to provide a comparative analysis to highlight where each country stands with regards to supporting different types of manufacturing, and the costs involved.
We are very pleased with how the report has been received by businesses both within Southeast Asia and outside the region. While most companies have a good understanding of the costs and unique challenges of doing business in the countries that they are based in, I think it has been interesting for them to see all these laid out as part of a comparative study with other markets.
At the same time, it is great that we can offer companies operating outside of Southeast Asia a report that talks to the types of sectors that each country is well suited to support from a manufacturing standpoint, and where each country sits in the value chain. This helps them to better understand the diversity of countries within the region.
KT: What broad parameters did you rely on while arriving at conclusions about each economy?
Rebecca An: It took us several months to complete the report, as we looked at each element from multiple angles in order to present a well-rounded perspective. Based on our experience working with investors in diverse sectors, we understand the concerns and requirements that drive their decisions about where to locate their next manufacturing outpost. It is a complex decision that most companies invest considerable time and resources into.
For example, the cost is certainly one key element in the decision-making process, so we started by creating a baseline scenario that provides a comparative cost assessment for all countries. Beyond cost, companies also need to consider other qualitative factors, such as labour standards and availability, logistics, readiness for digitalisation, and the general business environment. For that, we developed a model to analyse costs alongside qualitative factors so each country could come up with its own conclusions.
It is important for companies to weigh up all costs and qualitative factors, alongside their specific business objectives, when making the important decision of where to locate their manufacturing – there is no one size fits all approach. This was what we wanted to showcase in our report.
KT: How easy or difficult it was for you to collect the data of each country?
Rebecca An: The complexity of data collection largely depended on the country itself, as we collected data from both secondary and primary research. We use published online resources from widely known local and international sources as a starting point, and then conducted interviews with experts in real estate, logistics, and human resources, as well as investors who have operated in Southeast Asia to validate and supplement the findings.
We were careful in the selection of sources and made sure we cross-referenced multiple sources for each piece of data to ensure accuracy. That said, our report is intended to be used as a guideline, as many companies will have unique operating requirements that may impact the costs of some elements. The report provides a comprehensive comparative analysis, but companies considering establishing manufacturing in Southeast Asia need to review the business case based on their own specific situation.
KT: Southeast Asia is becoming the centre of attention for doing business…
Rebecca An: When we look at internal resources that Southeast Asia offers, such as the extensive labour pool, rapid economic growth, and abundant natural resources, the region is a promising manufacturing base for many companies. The region has some of the world’s largest, fastest-growing markets and an extensive, existing manufacturing base that spans light, heavy and high-tech industries.
External factors such as the trade war between the US and China, Covid-19 global supply chain disruptions and some of the biggest free trade agreements (such as the Regional Comprehensive Economic Partnership, or RCEP) are only further strengthening the region’s competitiveness as a manufacturing base and in global trade.
With more companies now focusing their attention on the resilience of their supply chains and avoiding the risks of relying on only a few countries for the production of goods, Southeast Asia is seen as an attractive destination for relocation. Countries throughout the region have already benefited from the China plus 1 (or more) approach that many companies have adopted to de-risk their supply chains.
Southeast Asia is also attractive not only from a cost perspective, but the good connectivity it has with other markets. Its rapidly growing consumer market is also an added appeal for businesses to locate factories near one of their fastest-growing sales markets.
KT: Going forward – say in a decade or two – how do you see the Southeast Asia region?
Rebecca An: We believe the region will recover from the Covid-19 pandemic and return to high economic growth numbers, which will then allow it to continue evolving as a major manufacturing hub. We foresee the region continuing to support different manufacturing clusters: electronics, automobiles, packaged foods, apparel, semiconductors, biopharmaceuticals, and aerospace components.
As highlighted in our report, each country is supporting a different level of the value chain. We see that many countries in the region will continue moving further up the value chain, increasing their capability to provide greater value and more specific manufacturing requirements.
With many countries showing signs of a rapidly growing middle class, it is likely that more of the products manufactured in Southeast Asia will also be for consumption within the region.
Lastly, ecommerce is a driving force for growth in many sectors around Southeast Asia. We believe that the region will continue to adopt more technology and digitalisation as part of the supply chain and that the trend for online sales will continue. As a result of this growth in ecommerce, we see opportunities for companies to focus on manufacturing more customised batches of products in smaller, more flexible facilities that are located near end-consumers within the region.
KT: Last but not least, what are the most pressing challenges you confronted in the course of preparing the report?
Rebecca An: A key challenge was the differences between all the manufacturing industries we reviewed. Companies have different overall objectives and different considerations. With that in mind, it was challenging to come up with the most reasonable baseline scenario and assumptions that companies and readers would relate to. To address this, we conducted further research into the size and scale of the average manufacturing setup to establish the baseline scenario. The second challenge was to standardise the data from all the countries because each country has its own methodology for gathering and formatting data, and its own process for calculating costs.
Source: https://www.khmertimeskh.com/501014726/southeast-asia-has-some-of-the-worlds-fastest-growing-markets/