As the rhetoric from the US White House swerves from combative to compromise and back again, uncertainty in the global trading environment is creating potential pitfalls for emerging markets the world over. In the Association of South-East Asian Nations (ASEAN), which counts China as its largest trading partner, member states watch with trepidation as President Donald Trump ramps up threats of levies on nearly all Chinese products shipped to the US.
Not only could an escalation in the trade dispute between the world’s foremost economic powers lead to falling demand for ASEAN-made products in China’s industrial value chain, there are also fears that South-east Asian nations could be flooded with Chinese exports of steel, aluminium and other commodities once destined for the US, thereby depressing prices and squeezing out domestic producers.
President Trump’s fixation on reducing the bilateral trade deficit with the country he labels a “strategic competitor” is accompanied by his administration’s concern over “Made in China 2025”, the ambitious 10-year blueprint that seeks to place China at the forefront of advanced manufacturing by enhancing the enabling technologies and spearheading progress in the emerging industries, such as artificial intelligence (AI), robotics, biotechnology, and electric and automated vehicles.
US objections are ostensibly about unfair competition in the form of local content requirements and generous state subsidies and incentives for Chinese firms, but they belie bigger concerns that the US is losing its competitive edge. Indeed, Made in China 2025 poses a much more potent long-term threat to the US’s economic primacy than any bilateral trade deficit.
With a population of 1.4bn people, which is accustomed to an intrusive state that stores and utilises their personal information at will, China has a vast data sample at its disposal that places it in pole position to commercialise and scale up innovations in any industry where big data can advance the process of automation and the provision of AI-led services and solutions.
Forget the trade war – if Made in China 2025 is successful in enabling the country to pull ahead of its competitors in the development of next-generation industries, the US risks losing the battle for the future, as the world becomes more dependent on Chinese innovations that will profoundly change our lifestyles and revolutionise the ways we conduct business.
ASEAN, too, needs to pay attention to China’s drive for industrial and technological supremacy, not only because the South-east Asian region is already a prime target for the export of Chinese innovations in everything from railways to smartphones, but also because the emphasis on local content requirements in the 10-year plan could limit opportunities for ASEAN manufacturers to play a lucrative, long-term role in China’s industrial value chain. To remain competitive in an era of rapid technological change, ASEAN governments have begun to articulate their own visions for industrial innovation.
Thailand 4.0
Perhaps more than any other emerging ASEAN market, Thailand has succeeded in crafting a coherent blueprint for adaptation to the so-called Fourth Industrial Revolution.
It is now two years since the Thai government unveiled “Thailand 4.0”, the overarching vision that aims to position the country as a leader in advanced manufacturing and services. The vision is supported by the Eastern Economic Corridor, an ambitious plan for developing the eastern seaboard as an integrated hub for high-value industries, intended to catalyse some $45bn in investment.
In outlining a clear national strategy, Thailand seized the initiative from ASEAN’s other industrialised emerging markets, although more work is needed at a governmental level to ensure businesses fully understand the opportunities arising from Thailand 4.0. At present, Thailand is largely reliant on foreign investment to move up the industrial value chain in areas such as electric vehicles, robotics and aerospace. The long-term challenge lies in cultivating Thai entrepreneurs capable of spearheading the domestic development and inventive application of next-generation technologies.
Making Indonesia 4.0
Indonesia has only recently articulated a national strategy for advanced manufacturing following the April 2018 unveiling of “Making Indonesia 4.0”. The blueprint identifies five priority sectors – food and beverages, automotive, textiles, electronics and chemicals – where Indonesia seeks to become a global leader.
Already the world’s 16th-largest economy by GDP, Indonesia’s industrial sector benefits from a large, dynamic internal market, buoyed by a rapidly growing middle class among a population of over 260m people. While the national strategy makes it clear that the country seeks to utilise advanced technology such as AI, the internet of things and robotics to enhance industrial productivity, much will depend on the success of the Indonesian government’s flagship infrastructure drive to reduce bottlenecks in an archipelagic country that stretches more than 5000 km from the Indian Ocean to the South Pacific.
Philippine Inclusive Innovation Industrial Strategy (i3S)
Although Philippine industry generally operates further down the value chain than its ASEAN peers mentioned above, the government of the rapidly growing nation is pursuing an Inclusive Innovation Industrial Strategy (i3S) that seeks to ensure its industrial sector can meet the challenges and embrace the opportunities arising from regional integration and advanced technologies.
The i3S prioritises the development of 12 key industries: automotive; electronics and electrical; aerospace parts; chemicals; tool and die, iron and steel; garments, textiles and furniture; shipbuilding; tourism; IT-business process; agribusiness; construction; and infrastructure and logistics.
While emphasising that the private sector and free market enterprise will be the main engines of growth, i3S seeks to create the enabling environment and necessary innovation ecosystem through the establishment of industrial clusters, investments in human resource development and improvements in the business environment, particularly for small and medium-sized enterprises.
Like Indonesia, the Philippines must overcome significant bottlenecks created by infrastructure gaps across its archipelagic terrain, with President Rodrigo Duterte administration’s Build, Build, Build programme likely to be successful in improving productivity over the medium to long term, although the relatively high cost of power will continue to weigh on competitiveness until adequately addressed.
Human capital and the rise of the robots
As they confront the challenges posed by China’s determined pursuit of industrial and technological supremacy, the emerging economies of South-east Asia cannot afford to neglect their human resources as they develop and refine their adaptation strategies.
A December 2017 report by McKinsey suggests that up to one-third of the global workforce could be displaced by automation by 2030, and even workers who will not be required to switch occupational fields will need to significantly adapt their skill-sets to work alongside increasingly advanced machines.
In our recently published Business Barometer: OBG in ASEAN CEO Survey, we asked executives across six member states (the Philippines, Indonesia, Thailand, Vietnam, Myanmar and Malaysia) to pinpoint which skills are in greatest need in their respective labour markets in this era of rapid change. As a collective sample, some 31% of respondents across the participating countries chose leadership as the most in-demand skill, whilst 28% opted for engineering, 15% for research and development, and 13% for both business administration and computer technology.
As such, it seems that in the eyes of the ASEAN business community at least, the development of the technical skills required for emerging and evolving industries is secondary to the need to nurture visionary leaders capable of charting the course through the brave new world of AI, robotics, automation and other transformational technologies.
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