Southeast Asia, and particularly Thailand, cannot expect to see a wide-scale divergence of supply chains coming its way unless there are improvements in production technology and capacity, and regional integration, according to HSBC Thailand.
The comments made by the bank’s CEO in Thailand follow widespread discussion about the potential for supply chains to shift to Southeast Asia due to the region’s growing economies and consumer markets. The discussion has ramped up in recent weeks due to the US-China trade war and rising production costs affecting other markets. Despite the speculation, there has been little evidence of a wide-scale shift occurring to date.
Kelvin Tan, the HSBC Thailand chief executive officer, said, “The changes in global trade are causing businesses to re-visit their supply chain investment and capacity strategies, but we are yet to see this convert into wide-scale shifts to Southeast Asia, South Asia or other parts of the world.”
Rather than see a wide-scale shift to Asean, due to trade tensions, multinationals are diverging in their supply chain strategies with a mixture of localisation, offshoring and re-shoring activity emerging, he said.
“Shifts in supply chains have been a multi-year phenomenon due to structural changes in production technology, labour costs and emerging consumer markets.
“Businesses from China, Europe and the US want to see Southeast Asia, and Thailand in particular, further position itself as a viable alternative for lower-end production. [As well], initiatives – like the ‘Belt and Road’ – are further accelerating the region’s production capacity. However, to convert its much-touted supply chain potential, Southeast Asia needs to build more visibility and credibility amongst international firms, particularly in their ability to handle and deliver production orders,” said Tan.