For Supply Chains, a Divided World Needs ASEAN Bridge

ASEAN Bridge

By Arsjad Rasjid

The events of recent years have concentrated business minds around the world on the weak links in their established supply chains. In the search for reliable alternatives, they might well consider orienting their gaze in the direction of the ASEAN nations.

The nineteenth-century philosopher Thomas Carlyle once famously quipped, “Teach a parrot the terms ‘supply and demand’ and you’ve got an economist.” Today, in our volatile and globally interconnected economy, business leaders are having to contend with an ever-changing geopolitical landscape of supply chains, taking economists and decision makers back to basics.

The COVID-19 pandemic was a watershed moment in this regard. Faced with unprecedented disruptions, companies were forced to urgently recalibrate their global value chains, searching for immediate solutions and identifying future vulnerabilities. And while the pandemic has thankfully moved into the rearview mirror, businesses are continuing in these efforts to strengthen resilience in all aspects of their supply chains and operations.

Indeed, with the heightened economic volatility in recent years, from the Russia-Ukraine war and tensions between the United States and China, to the continued uncertainty in the international financial system, companies are now looking at their supply chains in the same way that investors look at their portfolios, with one word in mind: “diversification”.

One region which stands to benefit from this reorientation is the Association of Southeast Asian Nations (ASEAN). With a population of over 660 million – third behind only China and India – ASEAN is among the world’s fastest-growing regions, boasting a combined economy of $3.2 trillion. Its global foreign investment has grown from 7.8 per cent of global FDI in 2014 to over 11 per cent in 2021. In 2022, my country, Indonesia, alone saw over $43 billion in FDI, the highest in the country’s history.

signed dealsFurthermore, ASEAN’s robust labour pool and continued infrastructure development, both internal and cross-border, have catalysed its emergence as a go-to destination for businesses looking to diversify their value chains in an uncertain world. In recent years, leading companies have looked to our region for solutions, from Intel chip manufacturing in Malaysia, to Apple AirPods and Lego in Vietnam. Notably, both American and Chinese companies see ASEAN as a stable bridge and alternative production hub in an uncertain world of changing tariffs arising from US-China trade disputes.

In fact, geopolitically, ASEAN countries are uniquely positioned. Many of the region’s nations have successfully navigated the choppy waters of US-China relations, and maintain deep economic and people-to-people ties with both Beijing and Washington. As the current chair of ASEAN, Indonesia can further capitalise on this unique position. In a country which has long exemplified this “third way” approach, President Jokowi is among the few global leaders who enjoys a genuinely warm relationship with both President Biden and President Xi.

Demographically, ASEAN is also well positioned to reap the benefits of populations that continue to grow. Significantly, the region has a growing skilled workforce, which stands in stark contrast to Asia’s more developed economies that are contending with the long-term effects of population decline and an ageing labour pool.

Both American and Chinese companies see ASEAN as a stable bridge and alternative production hub in an uncertain world of changing tariffs arising from US-China trade disputes.

Furthermore, as ASEAN continues to become ever more indispensable to the international economic system, our partners are already looking to the region to play an enhanced role on critical global issues, from food insecurity to climate change. With rich agricultural resources, producing hundreds of millions of tons of rice, corn, sugar cane, and soya beans, amongst other staple crops, ASEAN has the potential to be a key player as the international community seeks to increase food outputs and diversify sources.

When it comes to the green transition, South East Asia is particularly pivotal to global efforts. Indonesia, for example, the region’s largest country, can boast vast nickel reserves (a key component in lithium-ion batteries), a growing labour pool, and a highly supportive government, positioning it to become a major global force in the electric vehicle field. In the last three years alone, it has signed deals worth more than $15 billion for battery materials and electric vehicle production, including with international powerhouses such as Hyundai, LG, and Taiwan’s Foxconn, who recently announced a joint venture with our own Indika Energy.

For businesses, investors, and political leaders alike, the process of reorienting value chains provides an opportunity to go back to first principles: when it comes to your supply, never put all your eggs in one basket. And diversifying towards ASEAN, with its stability, dynamism, and resources, makes sense for businesses across sectors, from East to West.

This article is originally published on June 02, 2023.

About the Author

Arsjad RasjidArsjad Rasjid chairs the Indonesian Chamber of Commerce and Industry (KADIN Indonesia) and the ASEAN Business Advisory Council (ASEAN-BAC), and is President Director of Indika Energy.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.