Southeast Asia’s prominence within global manufacturing, trade and supply chains has been fueled by a large and low-cost workforce, shifts in production, and the region’s booming consumer base.
However, these favourable demographics won’t be enough to sustain future growth, particularly as other Asian markets - including India and western provinces in mainland China – emerge as strong competition.
Safeguarding firms against these outside commercial risks requires a shift in thinking and a clear commitment to digitisation and technology innovation across business, industry and government.
This past year, COVID-induced lockdowns drove many Southeast Asian firms to connect with customers, suppliers and staff online.
However, as business normalcy slowly returns, we’re observing that many regional companies have seen this period of digital adoption as a short-term switch rather than a strategic shift.
Having made the shift to digital, companies need to forge on and not let momentum stall. It’s particularly important for Southeast Asian-based companies for three reasons:
First, the region’s key sectors (electronics, textiles, automotive, and pharmaceuticals) are highly competitive. A majority of companies within these supply chains use technology to elevate their value in the eyes of customers, buyers and suppliers.
Second, multinationals have supply chain shifts in mind. The EY Capital Confidence Barometer survey reveals that 67% of Asia-Pacific executives are taking steps to change supply chains, compared to 52% globally.
Third, the speed and scale of digital adoption within the region.Recent research from Bain, finds that ASEAN’s growing population has more consumers coming online than any other region in the world.
As Southeast Asia becomes more central to global supply chains, firms will use technology, and particularly data, to establish relevance, value and stickiness. Examples include creating end-to-end transparency and visibility of order and stock levels, developing digital connections across internal functions, integrated planning, forecasting and monitoring insights, and understanding consumer trends and predictions.
Embedding a technology innovation mindset, and putting money into innovation is a hard sell amid falling revenues, but the reality is that continuous investment will open up value-creation possibilities.
Innovation and digital reform must go beyond individual businesses to also include an all-of-industry response, particularly within the supply chains that matter so much to ASEAN. Tangible steps will help to attract investment from abroad.
First, there is an opportunity for industries to create stronger ecosystems by moving and mobilizing its sector in the same direction.
The ASEAN automotive sector has been doing this through its advocacy programme to shift electric car (EVs) production to the region. Just this week, the Indonesian government announced that EV production will be placed on a ‘priority list’ to encourage foreign investment. ASEAN governments hace also been lobbied to develop incentives to encourage consumers to make the switch to EVs including installing priority lanes and free parking. Beyond that, the industry has worked to develop workers’ skills with tie-ups to universities, and help car parts manufacturers diversify their production to EVs.
A second avenue is in elevating an industry’s digital standards and practices. A good example is the development of trade digitisation, including removing legal requirements of physical documentation. Lockdowns meant that essential “in-person” reviews of billions of documents, that cross the trading system on any given day, have been jeopardised.
Digitisation has the potential to divert that while increasing the velocity of trade. Organisations are working towards this goal. For example, HSBC has worked on digitising the letter-of-credit process using blockchain technology and has managed to reduce transaction times from 5-10 days to under 24 hours. The same technology can be applied to other trade processes heavily reliant on paper and couriers in the future.
Another area could be the way industries respond and adapt to changing payment systems. ASEAN’s traditionally cash-based economies will see digital payments triple to USD1.5trn by 2030, with the share of consumer-to-business payments rising to around 66% (from 35% in 2019).1
We expect to see impressive growth in digital payments due to a combination of rising smartphone penetration, and growing merchant acceptance of QR code payments. This is already having a profound effect on regional treasury centres. HSBC has seen a 300% increase in real-time payment volumes in 2020 compared to 2019 as we have helped regional treasury clients digitize their payments collections processes.
Across all of these areas, industry bodies can be catalysts for change.
The onus is clearly on ASEAN businesses and industries to make digitisation work for them, their customers and their sector.
But there’s also a role for governments.
The ASEAN Digital Integration Framework Action Plan and the ASEAN Framework on Digital Data Governance are two examples of platforms which, if implemented, could bring about greater ease of business.
Any effort to protect data, support digital trade and build more seamless digital payment infrastructure will benefit business. Consistency in these rules and regulations supports companies to expand into new markets.
Reform could further boost international trade. Legislation to recognise e-bills of exchange would simplify trade as paper documentation is removed. This would also increase the amount of financing available to smaller companies.
Rising incomes, consumption and manufacturing have made ASEAN a historically attractive investment destination. ASEAN’s success will increasingly be shaped by further productivity increases, ease of doing business, and strong regulatory frameworks.
Underpinning all of this will be the full embrace by companies, industries and government to digital technology and innovation. But this is not something that can wait.
A contribution piece by Cherie Teng, Head of Corporate Banking, HSBC Singapore was first published in The Business Times on 1st March 2021.
This is the third of a five-part series on the key pillars that will drive sustainable prosperity for the Asean region, including Singapore, in the coming decade or more.
1 HSBC Global Research: ASEAN NEXT, 14 October 2020