When Japanese hygiene and household products maker Unicharm in 2020 launched a baby diaper containing an anti-mosquito capsule to help prevent insect bites in the humid climates of Malaysia and Singapore, it was a noteworthy example of consumer product innovation.
The company now plans to apply what it has learned in product development for these two Southeast Asian markets in a substantially larger arena: India Unicharm is expanding into the world’s second most populous country to capitalize on the rapid growth of India’s middle class, while expanding beyond China, a more established market where Unicharm faces intense competition.
Meanwhile, in Bekasi, outside Indonesia’s capital, Jakarta, Hyundai is busily completing construction on a US$1.5 billion automotive assembly plant. When it opens in the second half of 2021, it will represent the South Korean carmaker’s first manufacturing presence in Southeast Asia. One of the motivations of expanding production beyond China, where Hyundai has made vehicles for years, is to leverage the maturing supplier and manufacturing capabilities in Indonesia (population: 270 million), one of the most promising markets in Asia-Pacific.
These moves, and many like them seen throughout the region, reflect the powerful supply chain and consumer trends that were brewing before the COVID-19 pandemic. These trends include the growth of consumer markets across Asia-Pacific (see map) and a desire by some companies to diversify supply chains and manufacturing beyond China, due to the country’s increased costs and tighter regulations, in what has been called a “China plus” strategy. The growing maturity of local suppliers in other parts of Asia-Pacific is further supporting these companies’ decision to expand their manufacturing footprint to new territories, such as those in Southeast Asia.
This rebalancing has been accelerated by a series of disruptive events, most notably the rising frequency of transpacific trade disputes and the pandemic. These twin forces have pushed companies to confront how they rebalance supply chains and manufacturing footprints to take advantage of changing consumer and supplier trends, and, in the process, to build in resilience so that they can weather inevitable future disruptions.
Historically, this region has shown a great capacity to absorb and ultimately overcome powerful shocks and barriers to development. In the past two decades, setbacks such as the SARS (severe acute respiratory syndrome) outbreak of 2003, environmental disasters including the Japanese earthquake and ensuing tsunami in 2011, periodic political and social instability, and, in some countries, persistently weak infrastructure haven’t put a halt to the region’s impressive growth trajectory. However, the fundamentals that have enabled its growth and prosperity to this point are eroding and, as a result, so is the region’s capacity for handling change.
“Advanced Western economies have for a long time invested in manufacturing and exporting through Asia-Pacific, leading to the economic growth of many Asia-Pacific economies,” notes Tom Rafferty, Asia regional director of the Economist Intelligence Unit. “However, the recent trade tensions and the ongoing pandemic have caused a shift in this model, making it imperative for Asia to now look inward and collaborate regionally to foster growth.” Indeed, the supply chain arrangements that have helped power Asia-Pacific’s export-driven economies for the past quarter century now need to focus more on the region itself, while continuing to serve demand in Europe and the United States. That is because demand in those two markets has weakened just as markets across Asia-Pacific have matured to the point at which they…
Read More:Asia-Pacific’s rebalancing act