ASEAN’s supply chains are also deeply integrated with its neighbors in Northeast Asia. Economists typically use the geese pattern to explain the region’s division of labor, with Japan being the technological leader vis-à-vis newly industrialized and developing countries. Frequent cross-border transportation of goods during the production life cycle in networks of multinational enterprises (MNEs) leads to vibrant regional supply chains, in maximizing the competitiveness of national economies in terms of cost and technology. .
The new RBI quarter takes a deep dive into the electronics and automotive industries, the main drivers of the region’s merchandise exports, and explains the nature and trends of alternative value chains in Asia. The typical textile and clothing industry is more prominent due to its consumer goods character, but it is mainly related to his CLMV (Cambodia, Laos, Myanmar and Vietnam) and only accounts for a small portion of exports. It doesn’t work.
As ASEAN has a strong footprint in both the electronics industry and automotive production, it will play a greater role in reconfiguring global value chains aimed at increasing supply chain resilience.
Consolidation of regional divisions of labor has seen the expansion of Japanese, Korean, and Chinese multinationals as strong (and alternating) leaders, similar to the wild goose paradigm. However, the region’s industry faces the challenge of FDI-driven industrialization based primarily on the technology inputs and supplier chain networks of multinational companies rather than competitive indigenous enterprises.
There are many obstacles ahead
Therefore, Southeast Asia will never replace China as the world’s factory overnight. To achieve this, supply chains need to become more efficient and integrated. Currently, trade between ASEAN countries still faces many obstacles. On the other hand, a lack of quality infrastructure impedes the seamless flow of goods in the first place. Meanwhile, important regulatory and legal agreements between countries are lacking, as regional conflicts and national ambitions get in the way of fruitful agreements.
Moreover, heavy dependence on Chinese products poses further obstacles to the region’s ability to become a new global working platform. Similarly, the transition to a low-carbon economy poses a major challenge for Southeast Asia. If we don’t achieve this quickly enough, the region’s competitive advantage could quickly disappear.
We believe that the trend will not completely reverse, but rather that risk-averse production strategies will gain further momentum, leading more and more multinational companies to reduce their exposure and build supply chain roles in Southeast Asian countries. I expect it to start. As a natural consequence of this process, an increasing share of global value chains will almost automatically shift to the region, which may help Southeast Asia recreate the conditions that made China a global manufacturing powerhouse.
We would like to thank Yu Wang for his contribution to this article.
