Asean trade projection bullish

Region’s business leaders more optimistic than all other global peers that US-China friction won’t dent their prospects, says HSBC

Brushing aside worries about protectionism, Southeast Asian businesses have the most bullish trade outlook in the world, a new HSBC report has found.

Expecting more production to swing Asean’s way, businesses are pivoting investment into supply chain technology to turn global trade tensions from a headwind into a tailwind.

The findings come from the HSBC Navigator global survey involving 8,500 businesses in 34 markets in the fall of this year. Within Southeast Asia, more than 1,000 views were sought in five markets: Singapore, Malaysia, Thailand, Indonesia and Vietnam.

Asean is one of the most bullish regions for trade and commercial activity. This is despite having the highest proportion of businesses that expect protectionism to rise. According to the report:

86% of Asean firms are positive about their company’s prospects in foreign trade — more than any other trade bloc and higher than global average of 77%.

75% of Asean businesses believe that governments are becoming more protectionist in their key export markets — the highest reported of all trade blocs and much greater than the global average of 63%.

“Asean businesses are overwhelmingly bullish on their commercial prospects and fully expect protectionism to rise,” said Tony Cripps, CEO of HSBC Singapore. “This seems counter-intuitive at first glance and it certainly raises the question of whether they are underestimating the trade risks that come with rising protectionism or are shrewdly seeing opportunity amid trade disruption.

“Either way, supply chain diversion is coming Asean’s way and businesses need to be ready.”

SUPPLY CHAIN WINNERS

China and the US have so far been the focus of protectionist trade policies, but that there may be an indirect impact on the Asean bloc given the region’s high level of exports to both countries.

At the same time, the report finds that tariffs also open up opportunities for Asean markets in areas such as electronics, textiles and automotives.

Asean countries like Thailand and Malaysia already have existing production networks in electronics, especially in hard disk drive (HDD) assembly. Thailand exports about the same amount of finished storage units to the US as China does, which would make it relatively easy to shift assembly there, especially since Chinese shipments of HDDs to the US are now subject to at least a 10% tariff.

Other members of the bloc like Singapore, the Philippines and Vietnam also produce a variety of electronic components, while Vietnam and Indonesia have become increasingly competitive in light manufacturing and textile exports.

In textiles, Malaysia, Thailand, Indonesia, Philippines and Vietnam’s exports of apparel and textile products nearly triple from $24.4 billion in 2001 to $71.8 billion in 2014. In 2016, its textiles exports were 42 billion. The next Asean country, Indonesia exported $16 billion worth of goods.

“Moving production to low-cost countries in Asean is nothing new and a shift in production to the region would be a continuation of what’s already happening,” said Mr Cripps. “The trade tensions may prompt an acceleration of this trend in the short-term which will positively affect countries with existing production capacity like the Philippines and Vietnam.

“But shifting supply chains on a large scale is not something that can happen overnight. If trade tensions linger, Thailand, Malaysia and Vietnam are likely to see selective gains from export diversion.”

TECH UPGRADE NEEDED

With increased production on the cards for Asean’s supply chains, technology will be a key element in managing any ramp up in capacity. It seems that this is a focus for many Asean businesses.

According to HSBC Navigator, 37% of survey respondents in Asean are focused on increasing the use of digital and technology within their business (versus 28% globally). Moreover, increasing use of technology is the top change planned to supply chains in the next three years among Asean respondents (34%) which is higher than the global average (27%)

“While we’re hopeful of a resolution to US-China trade protectionism, Asean businesses should prepare for trade tensions to remain over the medium term,” said Mr Cripps.

“Management teams that are considering shifting supply chains to Asean have to ask themselves many questions: ‘Is there local capacity, how are these plants receiving raw materials, do they have people capacity, should they build new plants — are they even allowed to?’

“In the face of this, technology will be a common thread for consideration and will be key to increasing competitiveness and appeal.”

If trade tensions linger, Thailand, Malaysia and Vietnam are likely to see selective gains from export diversion. TONY CRIPPS CEO, HSBC Singapore