A supply chain is only as strong as its weakest link, a fact underscored during the COVID-19 lockdowns that disrupted global goods movement. Southeast Asia has emerged as a major beneficiary in the push for supply-chain diversification, yet the risk of future disruptions looms large. Recent tensions in the Red Sea highlighted this risk, with shipping costs from Vietnam to Hamburg, Germany, more than tripling between December 2023 and January 2024, leading to longer delivery times and higher funding costs.
This scenario presents Southeast Asia with a unique opportunity to enhance its role in the current phase of globalization. The pandemic revealed vulnerabilities in international supply chains, long stretched thin by the pursuit of lower costs. These finely tuned "just-in-time" networks lacked the transparency and agility needed to respond to shocks, halting production and delaying orders. The use of paper-based documents further hindered trade finance by failing to adapt to rapidly changing circumstances.
In light of growing geopolitical tensions and global conflicts, there is an urgent need to strengthen international supply chains. One effective approach is to diversify regional networks, balancing "just-in-time" efficiency with "just-in-case" preparedness. ASEAN's neutral stance in global trade disputes, combined with its strategic location, makes it an attractive investment destination and production base.
According to HSBC Global Research, ASEAN is set to become the world's fourth-largest economy by 2030, offering a large consumer base. Companies are moving towards rationalizing supply networks, sourcing more components from neighboring countries rather than distant locations. An HSBC survey from late 2022 found that more than two-thirds of businesses planned to streamline their supply chains, preferring strategic ties with fewer suppliers. This simplification helps companies better understand and anticipate risks, whether related to sanctions or environmental and social concerns. Australia, for example, is investing billions to strengthen ties with Southeast Asia, including a $1.3 billion fund to support trade and investment.
Digitalization is also key to enhancing resilience in ASEAN. With an internet penetration rate of over 75% among its 670 million people, Southeast Asia is one of the most digitally enabled regions globally. Revenue from online commerce in the region surpassed $100 billion in 2023, an eightfold increase in eight years. Indonesia's digital economy alone is expected to reach $360 billion by 2030.
Instant payment platforms in the region help businesses avoid delays in cross-border transfers and reduce foreign exchange risks. More than three-quarters of businesses across Asia plan to increase digitalization in their supply chains, according to HSBC research. Digitalizing transactions provides valuable data for improving trade finance access, decision-making, cash management, and efficiency gains. It also meets the accountability standards expected by multinational companies.
For digitalization to be effective, collaboration among transport and logistics groups, supply chain managers, banks, insurers, governments, and regulators is essential. The successful integration of these technologies and strategies will significantly impact ASEAN's role in global trade networks and its economic growth trajectory. Ensuring resilience in the supply chain is crucial to avoid being the weakest link when the next trade shock occurs.
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