How Manufacturing & Sourcing From ASEAN Nations Helps Build Resilience

The 2000s have made Asia the world’s largest trading center. With China leading the charge on manufacturing in Asia, global trade changed how it worked as retailers & wholesalers switched to sourcing from Asia and Asian manufacturers to reduce production costs and drive revenue. As the 2010s progressed, other countries in the region followed suit, establishing manufacturing centers and distribution networks.

With changing geopolitics and the after-effects of the 2020 pandemic, global trade is changing face again. During the pandemic, businesses realized that sourcing from just one country could be detrimental. In addition, recent geopolitical tensions around the world, global sourcing is becoming a go-to strategy for most major businesses.

The first priority for many businesses is to multi-source from is Asia and the constituent ASEAN countries.

About ASEAN

ASEAN or the Association of Southeast Asian Nations is a political union of 10 countries in Southeast Asia that aims to promote government cooperation between the member states to accelerate economic and social development in the constituent countries.

Constituting nearly 10% of the world’s population and 6.5% of the global GDP, ASEAN is one of the largest government coalitions in the world. Another goal of the ASEAN countries is to improve regional stability in the area and promote peace. Here are the 10 current members of the ASEAN coalition.

• Brunei
• Cambodia
• Indonesia
• Laos
• Malaysia
• Myanmar
• Philippines
• Singapore
• Thailand
• Vietnam

ASEAN has helped its constituent countries make considerable economic development and growth over the years. As an organization itself, it has signed multiple free trade agreements and trading between the intra-ASEAN countries is basically tariff-free.

Despite the effects of the pandemic, ASEAN countries seem to be going strong and continue to grow YoY. The changing situation in China and its slow decline as a manufacturing powerhouse has made businesses around the world consider ASEAN countries as manufacturing hubs.

The table above shows basic information for imports into the USA originating in the 10 constituent ASEAN countries between Jan & Dec 2022.

Benefits of Sourcing from ASEAN Countries

There are many benefits to sourcing from ASEAN countries. Let us get right into them:

Reduces Dependence on China

One of the main reasons why businesses are diversifying into ASEAN countries is to reduce their dependence on China. While China is still the leading manufacturing hub, the recent disruptions in global supply chains are a good indicator of the need to diversify sourcing in supply chains.

Sourcing from ASEAN countries helps businesses keep their supply chains flowing and mitigate the impact of potential disruptions. In addition, ASEAN countries are close to China’s shipping lanes. This makes diversifying to these countries much easier since most businesses can leverage their existing trade routes and keep costs under control.

Low Costs

The exchange rate between Yuan and USD was one of the main reasons why so many businesses established their manufacturing in China. The exchange rate helped keep manufacturing costs under control.

ASEAN countries can compete with the Chinese Yuan since their currencies are equally compelling. Businesses can shift manufacturing to these countries easily without affecting their bottom line too much.

Infrastructure

Over the last decade, ASEAN has grown exponentially. From major metropolitan centers such as Singapore & Kuala Lumpur to manufacturing hubs such as Cikarang & Hai Phong, ASEAN countries have ramped up their development and continue to grow.

The countries are rapidly developing their infrastructure across various industries making sourcing easier for your business. In addition, the countries have a growing & dynamic local economy, creating a healthy investment opportunity for global businesses.

Supply Base

Your existing Asian suppliers are likely to have a good word-of-mouth network in South-East Asian waters. There is also fierce competition between logistics and freight forwarding companies in South East Asia.

You can leverage this competition to negotiate better deals and get personalized services for suppliers, NVOCCs, shipping carriers and more. You can, in fact, drive your shipping costs down if you negotiate good deals. To find suppliers in South East Asia, you can utilize Trademo Intel which hosts a database of over 10 million buyers, and suppliers globally.

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Trade Agreements and Economic Zones

ASEAN countries are part of major Trade Agreements. For example, they follow the UN charter, have trade agreements with Australia and China under RCEP, and have good relations with the US.

There are specialized economic zones across South-East Asia and several government initiatives and the governments will actively help create infrastructure for your business if needed.

Challenges of Sourcing from ASEAN Countries

It’s not all good though! One thing to keep in mind is that ASEAN countries are still developing economies. Here are some challenges you might face as a buyer in ASEAN markets -

Product Quality

China has a 25-year head start over ASEAN countries. While manufacturing hubs across ASEAN countries are improving, one thing to note is that they are still relatively new players in the global supply chain market.

Guaranteeing good product quality is going to be a key challenge for businesses. Investing in quality control will be extremely important when sourcing from ASEAN countries for now.

Lack of Raw Materials

Depending on your product category, the availability of raw materials may be an issue. While this might not affect you directly, it does affect your suppliers from the region. This will, in turn, affect the scalability of your South-East Asian supply chains.

Supply Chain Visibility

Visibility within your Southeast-Asian supply chains is going to be crucial. Leveraging a good supply chain management strategy is key when establishing supply chain relationships in the region.

Building Resilience while Sourcing from Asia

Building a resilient supply chain while sourcing from Asia is made difficult by the fact that it can affect organizational efficiency, increase costs, and require more resources. With modern businesses adopting agile strategies, it becomes necessary to balance efficiency when building resiliency in their supply chains.

However, the need for diversification of supply chains makes it worth the cost and effort. Since Southeast Asia is in the same geographical region as China, you might actually end up saving money and resources in the long run. If you’re looking for buyers and suppliers in the ASEAN region, you can explore Trademo Intel’s supply chain intelligence data sets.