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COMMENTARY

Sustaining Asean resilience amid global economic worries

DESPITE ongoing US-China trade tensions, the Association of South-east Asian Nations (Asean) seems to have developed a certain level of immunity to the current economic concerns facing the world economy. A miniature ecosystem of intra-regional trade between diverse markets, Asean's trade is somewhat insulated from the larger effects of world superpower tensions. However, work remains to be done to ensure that the region maintains its immunity and continues to work towards a stronger logistics network.

A vital reason to work towards more Asean economic self-sufficiency is the fact that small and medium enterprises (SMEs), the lifeblood of economies, are increasingly going global. As a result, logistics service providers are becoming incredibly important to SME stakeholders, partners and consumers, even more so for SMEs which operate on lean resources. Due to the current digital landscape, converting to digital business is not merely an option but a necessity for companies. A Bain and Company report notes that staying digitally relevant fuels businesses' development by providing them opportunities. However, it also exposes them to the risks of unpredictable global changes.

A second reason to nurture the Asean trade ecosystem is to further realise the potential of the region. Based on a report by Google and Temasek Holdings, South-east Asia's digital market could exceed US$273 billion by 2025. With 630 million people, a growing middle class and rising Internet penetration, the region is poised to be the next gold rush for e-commerce.

Cognisant of the need to fortify economic development, the 2018 Asean Summit aimed to improve market access, integrate regional services sectors and create a free and open investment environment. This promoted Asean as a low-cost alternative for manufacturing, and in light of a then-looming US-China trade war, the region gained a bumper crop of new orders when businesses sought to shift production away from China. A survey from AmCham found 430 American companies in China considered South-east Asia their next-best manufacturing alternative, and many followed through with that sentiment.

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It's clear that the Asean region is rife with opportunity and poised to flourish. Yet, two important obstacles to reaching that potential linger. First, no matter how fast technology and order volumes progress, infrastructure can remain a limiting factor. Second, unpredictable external factors always risk derailing trade routes. That is why building and strengthening infrastructure and human relationships will lead the way in transforming Asean into the logistics hub it is ready to become.

NEXT STEPS FOR GROWING ASEAN

Infrastructure plays a pivotal role in ensuring that logistics practices operate smoothly. However, markets in differing stages of economic development translate to vast inequalities in infrastructure development.

While developed economies like Singapore invest in "smart" infrastructure, developing economies like Cambodia, Laos and Myanmar lag in even basic infrastructure. Beyond insufficient access to resources, inherent vulnerability to typhoons and earthquakes repeatedly disrupts these countries' infrastructures and trade links. Moreover, political corruption, bureaucracy and red tape raise import taxes, further hindering the region's economic ambitions. These markets have a different set of concerns from developed economies, resulting in misaligned goals and unscalable processes. The result is logistical inefficiency and stymied growth.

Indeed, inequality in Asean's infrastructure development challenges the full realisation of the logistics ecosystem for the region, especially when it results in a lack of capital required for the industry to continue growing. However, some opportunity exists in technology's ability to provide real-time tracking of freight orders and handle punctual shipments of unplanned freight. This can help bypass some infrastructure-related issues that disrupt trade routes as well as offer attractive avenues for financial investment.

The second element in growing Asean's economic immunity is a system of networks of a different type - relationships. When trade becomes unpredictable, as it inevitably does, business leaders will depend on logistics service providers they trust to develop solutions by leveraging their experiences and relationships in working with the largest, most sophisticated shippers in the world. Trade links can break, but if strong enough relationships across logistical networks prevail, businesses retain the confidence that they can overcome these challenges.

Of course, these relationships are not established overnight and are not always easy to maintain. While companies can focus their energies on developing the right network of contacts and market awareness, this is often outside the scope of their primary business. On the other hand, logistics service providers have vast experience in building these networks and maintaining strategic relationships that expand capacity. Industry expertise and technological solutions are their core business objectives. Because of this, logistics service providers are essential collaborators for businesses, helping to assess risks, identify opportunities and guide them through change. These networks of strong relationships will eventually result in a robust ecosystem resistant to uncertainty and disruption.

AN AUSPICIOUS FUTURE

As ongoing global trade tensions show, uncertainty is inevitable. Asean currently enjoys some degree of immunity to international trade challenges. However, it is important to strengthen the region's resilience to ensure SMEs survive and the area realises its full potential. Through investing in infrastructure and building a stronger network of relationships, it will only be a matter of time before the Asean region is fully prepared to weather any global economic turbulence.

  • The writer is vice-president of global forwarding, Asia, at C H Robinson