According to an analysis by consulting firm Bain & Co., there are tremendous chances of benefit for a number of Southeast Asian countries because of the trade war between the United States and China which is forcing a large number of global companies that are currently engaged in manufacturing and fabrication work in China to rethink their production strategy and place of production. Many are opting to move at least some production units outside of China to avoid the trade tariffs imposed on Chinese products by the US.
The report from the consulting firm claims that the region, which has turned out to be an exporting base for the world, would stand to face hardships in the short term. According to Satish Shankar, managing partner for Southeast Asia, a majority of such global companies in the region have the US as a major exporting market.
“Certain intermediate exports that go into China, and then onto the U.S., are going to be impacted in industries such as textiles and electronics,” he said. “However, in the long term, we feel pretty confident that ASEAN is a very attractive alternative supply chain base for companies looking to diversify away from China.”
10 countries in the region including Singapore, Thailand and Vietnam, comprises the Association of Southeast Asian Nations (ASEAN).
The small and medium enterprises in Southeast Asia would benefit from the adoption of more technologies into their daily operations and the region could be transformed into a market that would have $1 trillion opportunity for manufacturers as companies consider moving their supply chains into. Bain predicted.
“It is the fifth-largest economic bloc, comparable in size to the U.K. and India.”-Satish Shankar, Bain & Co.
Since July, additional tariffs on an extensive list of Chinese products have been levied by the Trump administration of the US. And while protectionism has been denounced by Chinese President President Xi Jinping, Beijing had retaliated to the US tariffs with import tariffs of their own on U.S. imports.
A slated meeting Xi and the US President Donald Trump at the upcoming G-20 summit on Nov. 30 and Dec. 1, is one that is being anticipated for quite some time and would be one that would be closely watched in the hope of seeing some clues about a possible winding up of the trade war between the two largest economies of the world and the global trade returning to where it was.
Shankar said that large global companies would continue to move some of their supply chains to Southeast Asia even of there is a tone down in the trade war between the US and China.
“For two reasons,” he said. “One is that the process is already underway and the experience companies are having in places like Vietnam and Thailand have been positive. Second is, it’s just good business practice to ensure that you are diversified and you don’t have concentration risk with things like your supply chain.”
(Adapted form CNBC.com)