The manufacturing sector will play an important role in ASEAN’s economic development for decades to come, the same way it has for other Asian nations (Japan, South Korea, China) where vast populations have moved from less productive agrarian work to more productive factory jobs.
Southeast Asia has experienced a strong CAGR of 5.5% in terms of its manufacturing output over the last decade and is now responsible for almost 4% of the global manufacturing output. As can be seen from the evolutionary curve of countries (see below), while the majority of the ASEAN countries have moved out of the agrarian state, many are still in the industrialization phase and are likely to continue to see growth of the manufacturing sector for the next 10 to 20 years.
As the less industrialized countries of Indonesia, Vietnam, the Philippines, Myanmar, and Cambodia move from agrarian societies to manufacturing ones, multinationals should expect consumption dynamics to evolve. As people move from less predictable farming sector to the fixed-wage manufacturing sector, they tend to experience strong income growth, increasing their capacity to consume. Even companies not exploring manufacturing opportunities in the region need to be monitoring this trend. Manufacturing makes outsized contributions to trade, research and development (R&D), and productivity. The sector generates 70% of exports in major manufacturing economies, both advanced and emerging, and up to 90% of business R&D spending
Moreover, as costs rise elsewhere and the addressable market becomes larger, companies should explore the viability of moving production to the region using a total factor performance analysis. ASEAN countries can play a complementary role to China within several industries (FSG’s clients can find the in-depth analysis on this topic here).
FSG’s Seven Crucial (Less Talked About) Facts about ASEAN
This update is Part Two of a seven-part series of quick insights that I will be publishing over the next few weeks on the ASEAN region (see full list here). These have been selected carefully based on FSG’s numerous interactions with regional executives. I will discuss the topics which have proven to have high importance for senior executives of western multinational companies and ones with a lack of coverage in the business spheres. Next week’s update: ASEAN as one of the biggest investors in itself, giving birth to Multi-ASEAN Corporations (MACs).