Southeast Asia: Snapshots Reveal New Asia Rising
The place: Singapore. The time: October 2006. Ear-splitting drums and energetic lion dancers welcome dignitaries onto the stage for the official launch of Rockwell Automation's Asia Pacific Business Center. “The Center will be the world headquarters for several of our product lines and undertake the entire value chain: from R&D to engineering and from manufacturing to marketing,̶...
The place: Singapore. The time: October 2006. Ear-splitting drums and energetic lion dancers welcome dignitaries onto the stage for the official launch of Rockwell Automation's Asia Pacific Business Center.
“The Center will be the world headquarters for several of our product lines and undertake the entire value chain: from R&D to engineering and from manufacturing to marketing,” announced Mr. David Johnson, vice president and general manager of the center. “The intention is to have 50% of [Rockwell Automation] revenue generated from outside the U.S. by 2009, and the Asia Pacific Business Center plays a pivotal role in this undertaking.”
The place: Vietnam. The time: November 2006. Intel announces it will increase the size of the plant under construction in Ho Chi Minh City to 500,000 square feet, and up its investment to US$1 billion. By 2009, it will be the largest single factory within Intel's assembly and test network.
“This will probably lead not just to other investments by Intel, but other investments in the high-tech electronic community here in Vietnam,” said Intel chairman Mr. Craig Barrett. “Its output will serve the world marketplace, not just the Southeast Asian marketplace, and not just the Vietnamese marketplace.”
Grant Thornton's International Business Report 2007, which polled some 7,200 business leaders in 32 countries, finds Asian business owners to be the most confident in the world, with India, the Philippines, and Singapore in the top four.
These are just some snapshots of the Asia Pacific region. Once largely perceived as a low-cost source of goods destined for the world's Wal-Marts, the Asia story now increasingly involves higher-valued, more complex manufacturing for worldwide markets, as well as global responsibility for engineering, design, and supply chain hub activities.
As the region's economies continue to expand and living standards rise, significant consumer markets are increasingly being established within Asia itself, pushing companies to establish production sites to satisfy burgeoning local — rather than just Western — demands.
With most of the world's media attention understandably focused on the two rising giants of China and India, it is perhaps to be expected that much less is known about the region known as “Southeast Asia.” Southeast Asia is best defined as the countries within ASEAN (Association of Southeast Asian Nations), a group formed in 1967 to, “accelerate economic growth, social progress and cultural development in the region, and to promote regional peace and stability.”
Rather like the European Union, ASEAN (pronounced a-see-an) has expanded over the years. The five founding members (ASEAN-5)—Indonesia, Malaysia, Philippines, Singapore, and Thailand—were joined by another five: Brunei in 1984 and, more recently, Vietnam, Laos, Myanmar, and Cambodia.
There are rather extreme differences in development level among the 10 nations, as illustrated by Singapore's GDP per capita of about US$25,000 and Myanmar's less than US$200 GDP per capita. With small but wealthy Brunei almost wholly driven by its oil and gas reserves, manufacturing activities in the region are essentially concentrated within six key countries: the ASEAN-5 plus rapidly rising Vietnam.
The 2003 SARS epidemic followed by two major macroeconomic shocks — the 1998 Asian Financial Crisis and the 2001 US recession — affected the region, but the last three years have seen Southeast Asia return to very healthy GDP expansion levels. For 2007, forecasts are for growth of above 5% in the six major ASEAN economies. And leading the pack with an expected 8% growth is Vietnam.
“With the country's economic expansion, huge infrastructure development, human resources, and WTO [World Trade Organization] entry, I really do see Vietnam as the next big Asian tiger,” says Mr. Kersi Aspar, managing director of Yokogawa Vietnam. The Japanese process automation company established its first subsidiary in Vietnam in October 2006.
“We are primarily targeting the oil and gas, chemical/petrochemical, and power sectors,” explains Mr. Aspar, who is leading the company's efforts to capture a slice of the investments that are slated to pour into the country with increasing velocity over the next five years.
Effects of China's rise
China's rise and rapid acceleration, especially over the last decade, did give rise to gloomy predictions of a “hollowing out” of Southeast Asia manufacturing. Although there has been activity displacement, this has not been in line with the more pessimistic forecasts. Indeed, between 1994 and 2004, the region's global manufactured export share held constant at 4.4%, while increasing in value by more than 60% to US$134 billion.
Take the case of high-cost Singapore, which may have been expected to suffer most from the China onslaught. The manufacturing component of its GDP actually increased by more than 10% in the 1994-2004 period. Furthermore, it has committed to maintaining manufacturing as a key pillar of the economy, setting a target to double output value to S$300 billion (US$ 195 billion) by 2018, and generating 21,000 jobs annually in the process.
“The assumption that higher-wage, manufacturing-based, export-oriented economies will, as a matter of course, hollow out their manufacturing in favor of China must be challenged, given the experience of Southeast Asia,” noted Morgan Stanley economist Mr. Daniel Lian in 2005. He cited as evidence Singapore's success in upgrading its manufacturing to higher value-add and diversifying its dependence on electronics to sectors like pharmaceuticals and petrochemicals.
One aspect that does need attention, especially in the less developed Asian nations, is infrastructure. At a December 2006 conference in Tokyo organized by the Asian Development Bank (ADB), it was revealed that Asia as a whole needs to spend U.S. $300 billion over the next 10 years on transport, communications, power, and other infrastructure elements to support the extensive production networks on which the region now so heavily depends.
“Overall, the quality and quantity of infrastructure in Indonesia, the Philippines, Thailand, and to some extent Malaysia, may already be inadequate with the requirement to remain competitive,” says the ADB report. There are thus growing opportunities for automation technology providers to profit from electricity, water, and transportation projects needed to keep the region powered, healthy, and connected.
Concerns also relate to the levels of skilled personnel necessary to develop and upgrade the region's industries. A recent survey by PwC (Pricewaterhouse Coopers) revealed Asian companies lagging behind North American and European counterparts when it comes to talent management programs.
“Technology executives must upgrade talent management capabilities in their companies and create innovative programs in order to attract, develop, and retain the best talent,” noted Mr. Greg Unsworth, PwC's Asia Pacific technology industry leader.
Overall, examining the various indicators, analyses, and on-the-ground sentiments, it is difficult to recall a more favorable time for Asia. China and India are charging ahead at breakneck pace; Japan is out of its long, post-bubble stupor; Korean brands like Hyundai, Samsung, and LG are becoming world beaters; and, with reports of their death being greatly exaggerated, the countries of Southeast Asia remain key nodes in the global manufacturing network.
An especially positive sign is the rise of domestic consumer demand and intra-regional trade. This is bolstering the ability of the region's manufacturing sector to withstand a slowdown in the U.S.– its traditional Achilles heel. Rising levels of plant automation and sophistication, along with value chain extensions, are dispelling the notion of Asia as simply being a convenient location for low-cost, low-tech manufacturing.
Bob Gill is editor of Control Engineering Asia, which primarily covers Southeast Asian countries with regular e-newsletters and English-language publications issued nine times per year. Information includes case studies, technical articles, and local news and product information.
ASEAN-China Free Trade
Southeast Asian countries are well-positioned to benefit from the rise of their larger and fast-growing neighbors, China and India. According to Frost & Sullivan, manufacturers will seek to diversify country risk in their supply chain, so investments will continue to take place in ASEAN, even though there may still be a greater investment increase concentrated in China. Furthermore, China itself presents a large domestic market where demand is increasing, providing opportunities for ASEAN exports.
One impetus for the latter is the proposed ASEAN-China free trade agreement (ACFTA) set to be implemented by 2010 to create the world's largest consumer market (1.7 billion people). Already, China's share of ASEAN exports is rising rapidly and further economic integration should serve to reduce Southeast Asia's sensitivity to the vagaries of the US consumer. A similar agreement with India (AIFTA) is planned for 2011.
ABB opens Singapore technology center
Earlier this year, ABB announced the opening of a dedicated Control Systems and Products Regional Action Center in Singapore. The center will provide technical and training support for automation customers, as well as regional sales support, marketing, and business development functions throughout the region. ABB Singapore was established in 1971, and currently employs about 900 people.
According to ABB, the center will help the company focus on this high-growth region with power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact.
Kenneth Tan, director of services cluster for Singapore's Economic Development Board, was guest of honor at the opening ceremony on Jan. 16, 2007. Congratulating ABB on the facility, Tan said, “ABB is effectively leveraging Singapore's advantages to grow its business in all aspects. With its Global Marine Engineering Center, also located here, ABB affirms Singapore's reputation as a key business and technology hub for businesses.” ABB Singapore opened a Center of Competence for its Marine business unit in 2006, and a Center of Excellence for its pulp and paper business in 2005.
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