Three trends manufacturers need to know to tap into Asian opportunities

There is little doubt that the world’s gravity is shifting to Asia. Just take a look at this set of numbers: by 2017, Asia’s share of global real GDP (in purchasing-power-parity terms) had risen to 42 percent and is projected to reach 52 percent by 2040. Over the next decade, Asia is expected to drive 50 percent of future global consumption growth.

Similar growth patterns appear in Asia’s share of global flows across seven dimensions: trade, capital, people, knowledge, transport, culture, and resources. Asia is therefore shaping and defining the next phase of globalization. What do we need to know to thrive in the so-called “Asian Century”?

Here are a few major trends uncovered from the first Future of Asia report, which I co-authored - Asian flows and networks are defining the next phase of globalization.

• A complementary diversity creates a more resilient Asia

Instead of dividing Asia geographically, the report used factors including scale, economic development, interaction within Asia, and connectedness with the world to identify at least four distinct Asias: Advanced Asia (e.g. Australia, Japan, Singapore), China (as its own region), Emerging Asia (the ASEAN countries except Singapore), and lastly Frontier Asia and India (e.g. Sri Lanka, Pakistan, India).

Each Asia has a distinct and complementary role to play. For example, Advanced Asia and China have each developed a large innovation capacity, helping them grapple with declining working-age populations. By contrast, the combined economies of Emerging Asia and Frontier Asia and India are projected to add more than 400 million people to their labor pools in the next two decades. China, Emerging Asia, and Frontier Asia and India are expected to provide expanding market opportunities even as GDP growth in Advanced Asia is slowing down.

The balance among these varied characteristics has encouraged Asian integration and incubated new networks for industrialization and innovation. By working together, the Asian economies can fuel a broader, more sustainable and more resilient growth.

• As Asia’s industrialization deepens, intra-regional supply-chain networks are emerging

Asia-for-Asia supply chains are forming in response to factors such as the region’s maturing value chains, rising consumption, and increasing global trade uncertainty. We see three additional implications from Asia’s deepening industrialization:

First, with China shifting to R&D- and capital-intensive manufacturing, Emerging Asia and Frontier Asia and India are picking up their share of labor-intensive manufacturing. For example, manufacturing’s share of Vietnam’s GDP increased from 16 percent in 2007 to 22 percent in 2017.

Second, Emerging Asia’s lower labor costs and huge growth potential have been a big draw for capital and goods from Advanced Asia and China, reflecting the fact that the latter two Asias together account for 43 percent of Emerging Asia’s exports and 61 percent of its imports.

Third, despite some notable challenges (such as a significant skill gap in developing domestic manufacturing sectors), the Frontier Asia and India group of economies has significant scope to integrate further with their counterparts across Asia. Moreover, the large and young populations that are typical of the region, along with rapid urbanization, give it huge potential to deepen its industrialization. 

• “Multilocal” networks foster technology breakthroughs and leapfrogging

Multilocal innovations are happening in all four Asias. The combination of intra-regional funding and local innovation is shaping Asia into a global innovation powerhouse.

Advanced Asia and China will continue to prioritize and invest heavily in R&D and innovation. Among the world’s largest 3,000 companies, nearly 50 percent are based in Advanced Asia and China. While they open businesses or fund innovation activities in Emerging Asia and in Frontier Asia and India, the local companies and workforces can also benefit from the technology spillovers from these foreign companies.

Asia is rising and leading. To tap into Asian opportunities, we recommend to start by understanding Asian economies from a more integrated and intra-regional view—one that recognizes nuances of this diverse and dynamic region. Especially for manufacturers that are rethinking their Asian operational models and supply-chain footprints, the central questions to ask themselves include:

1.      Are we sufficiently relevant to Asia by being part of the intra-regional flows and networks?

2.      Have we identified and assessed the untapped market opportunities arising from the complementary characteristics of the four Asias?

3.      Have we started to foster a local ecosystem, empower local talents, and integrate into local culture?

4.      Have we invested in readying the workforce and closing skills gaps to ensure sustainable growth in Asia?

I will explain in my next article on how to thoughtfully address these questions in order to thrive in this Asian century.