Virus leads companies to turn sights on SEA
HOW countries respond to and manage the Covid-19 pandemic is a new factor in risk assessments, analysts say, as companies increasingly look to Southeast Asia as an alternative to China as a manufacturing and supply engine.
“Companies definitely evaluate how countries are managing Covid19 risk as they make investment decisions in the current environment,” said Kellie Meiman Hock, managing partner at global consultancy McLarty Associates LLC.
“In particular, transparency in government response is critical,” she said. For instance, decisions regarding essential versus non-essential industries must be consistent to allow companies to reasonably assess the impact of movement restrictions on their business, she told The Straits Times (ST).
Relying on China as the sole source had proved to be an expensive lesson, Bangkok-based Dr Pavida Pananond, a professor in the Department of International Business, Logistics and Transport at Thammasat University’s Business School, told ST.
“Multinationals can’t afford another disruption like that,” she said.
“Doubts on China’s earlier attempt to hide the pandemic does not help increase trust in their system and therefore, countries that can show evidence of good governance in tough times like this will be considered more favourably.”
Companies have surprised themselves when digging into the dynamics of their supply chains, said Ernie Bower, president and CEO of government affairs and public policy consulting firm BowerGroupAsia.
“Some of the world’s top companies honestly hadn’t made the assessment before they had to, that around Asia there are countries where they have choke points; in other words, they cannot make iconic products or critical inputs to those products if one country is taken out,” Bower told ST.
Pulling supply chains out of China is more difficult than it sounds. The real question, he said, was “what’s the better business strategy in terms of creating redundant or supporting supply chains, if you have an emergency with China”.
In the US, the pandemic had given new ammunition to some who believe “everything should be made in America”, Marc Mealy, senior vicepresident for policy at the US-ASEAN Business Council in Washington.
And some believed not everything should necessarily be made in the US, but the pandemic does provide another reason for making things outside China, he said in an interview with ST.
“That fits into Asean’s interests because ASEAN is a viable commercial supply chain location,” he said.
The Covid-19 pandemic has introduced a new variable, or a new catalyst, to an evolutionary process already underway.
Before the pandemic, Vietnam, in particular, had been the beneficiary of some companies relocating operations from China there, partly due to the Sino-US trade war.
And US companies have begun assessing and eva luating how governments are responding to t he shock, said Mealy.
It is a question of “which government really seemed to have their act together in terms of crafting responses and which do they [the companies] perceive to be all over the show and making things more difficult”, Mealy said.
“And in a post-Covid-19 world when companies do these comparative analyses, this new metric is going to be one of those variables that are going to matter.”
Thus far, locating manufacturing or sourcing suppliers has mostly been a question of low costs and efficiency.
Mealy said: “Now it’s going to be ‘we care about costs’, and ‘we want to be efficient’, but ‘we also want to know what place offers the best resilience’.
“If something does happen, which governments are smart, and which governments are not so smart.”
Dr Pananond added: “Labour . . . is becoming less and less significant. Other factors are costs of operations, ease of doing business, which are becoming more significant as firms look for more than just cheap labour.”
Bower said in companies across several sectors – from Europe, the US and even in Asia – the assessment has been that in the region, Singapore and Vietnam have handled the pandemic well.
Malaysia, Thailand and the Philippines were seen in the next tier, their response “bumpy and inconsistent but in the end, governments have been able to respond – so far, because we are still in the middle of this”, he said.
“The country that caused the most concern and may get hurt in the post-Covid-19 world is Indonesia,” he cautioned.
“They did not respond early and then responded drastically and inconsistently after they recognised the enormity of the situation.”