In 2024, the value chain in the Asia-Pacific region is undergoing profound changes. After the RCEP agreement comes into full effect, more than 90% of goods trade in the region will achieve zero tariffs, the ASEAN-China, Japan and South Korea industrial chain will accelerate integration, and the advancement of the Indo-Pacific Economic Framework (IPEF) will also inject new impetus into regional economic cooperation. Against this background, the restructuring of the global supply chain has brought a new round of value chain integration opportunities to the Asia-Pacific region. In particular, the industrial upgrading and infrastructure investment in emerging markets such as India, Vietnam, and Indonesia are reshaping the regional industrial division of labor.
Currently, the value chain in the Asia-Pacific region is showing three core transformation trends . First, the development of industrial clusters has become increasingly obvious. A new pattern of the electronics industry has been formed with Singapore as the technology research and development center, Malaysia as the high-end manufacturing base, and Vietnam as the large-scale production base. Advantageous industrial clusters such as software services in India, automobile manufacturing in Thailand, and resource processing in Indonesia are also constantly being strengthened, and regional industrial synergies have been significantly improved. Secondly, digital transformation is accelerating across the board. The annual growth rate of digital trade in the region exceeds 30%, and the scale of cross-border e-commerce exceeds 3 trillion US dollars. Singapore, Japan, and South Korea continue to increase investment in digital infrastructure, driving the entire region to develop rapidly in areas such as smart manufacturing, digital payment, and supply chain finance. New business formats such as India’s digital economic ecosystem, Indonesia’s e-commerce platform, and Vietnam’s smart factories are booming. The third is to accelerate the green and low-carbon transformation. After Japan and South Korea successively released carbon neutrality timetables, countries such as Singapore and Thailand also introduced clear emission reduction roadmaps. This has promoted the rapid development of green industrial chains such as new energy, energy conservation and environmental protection, and circular economy. It is expected that by 2025, green industry investment in the Asia-Pacific region will exceed US$500 billion.
In this context, companies need to fully grasp the new features of regional value chain integration:
- In terms of industrial chain: electronic manufacturing is transforming from a single production base to a regional collaborative network, the automotive industry is upgrading from a traditional supply system to a new energy ecosystem, and digital services are transforming from outsourcing to innovation-led leadership .
- At the technical standard level: regional certification mutual recognition is accelerated, intellectual property protection is upgraded, and cross-border data flow rules are unified .
- Infrastructure field: regional logistics network optimization, digital payment interconnection, and supply chain financial service innovation .
These changes create both challenges and opportunities. Enterprises need to deeply understand the evolution of regional value chains, accurately grasp industrial layout opportunities, and optimize the allocation of global resources, so as to win development opportunities in the process of economic integration in the Asia-Pacific region.
This article will systematically analyze the current status of value chain integration in the Asia-Pacific region from the dimensions of policy coordination, industrial complementarity, technical standards, and customs clearance convenience, and combine it with typical cases to provide practical reference for enterprises. At the same time, it will also focus on introducing the latest industrial policies, access rules and support measures of various countries to help enterprises accurately connect with regional development opportunities.
Map of the current situation of the value chain in the Asia-Pacific region
In the second year since the RCEP framework was fully implemented, the value chain in the Asia-Pacific region has shown new integration features. According to the latest statistics, total trade among RCEP member states will reach US$11.8 trillion in 2023, a year-on-year increase of 16.5%. The level of industrial synergy within the region has increased significantly, and the value chain vertical integration index has increased from 0.68 in 2022 to 0.76 in the first quarter of 2024.
As far as the new value chain pattern is concerned, three core industry corridors have been formed. The first is the high-tech industrial corridor with Japan-South Korea-Taiwan as the core, which dominates high-end links such as semiconductors and precision manufacturing. Japan occupies 70% of the global market share in the field of semiconductor materials, and South Korea accounts for 44% of the world’s memory chip manufacturing. . The second is the electronics manufacturing corridor based on Singapore-Malaysia-Thailand-Vietnam, which undertakes mid-to-high-end manufacturing of consumer electronics, automotive electronics, etc. In 2023, the export volume of electronic products in this corridor will reach US$475 billion. The third is the digital service corridor supported by India-Indonesia-Philippines, which has formed complementary advantages in software development, data processing, shared services and other fields, with annual service exports exceeding US$200 billion.
Judging from the positioning of each economy in the value chain, it shows obvious gradient distribution characteristics:
Japan focuses on the research and development of key components and the production of high-end materials, and remains a global leader in auto parts, industrial robots, optical components and other fields. Its R&D investment accounts for 3.4% of GDP, and it ranks among the top in the Asia-Pacific in terms of innovation indicators such as robot density and number of patent applications.
South Korea has built a complete industrial system in the fields of semiconductors, display panels, and battery manufacturing, and its semiconductor exports will reach US$88 billion in 2023. At the same time, it is accelerating the layout of emerging industries such as hydrogen energy and Yuan Universe, and plans to invest US$100 billion in the development of future industries by 2025.
Singapore strives to build a regional headquarters economy and innovation center and has attracted more than 7,000 multinational companies to set up regional headquarters. Its investment in emerging fields such as financial technology, biomedicine, and clean energy continues to increase. In 2023, the financing amount of innovative enterprises will reach 28 billion US dollars.
Vietnam is transforming from OEM manufacturing to industrial upgrading and has become the world’s third largest exporter of electronic products. Its high-tech manufacturing output value will account for 38% in 2023, and its supporting capabilities in 5G equipment, new energy vehicles and other fields will be significantly improved.
With its huge digital talent pool (more than 1 million IT graduates annually), India continues to rise in the global digital service value chain. Its IT service exports will reach US$145 billion in 2023, and its competitiveness in emerging fields such as artificial intelligence and cloud computing continues to increase.
Relying on its rich natural resources and vast market space, Indonesia is accelerating the development of new energy and digital economy. In 2023, its investment in the electric vehicle industry chain will exceed US$15 billion, and the scale of its digital economy will reach US$124 billion.
Judging from the layout of key industrial chains, the Asia-Pacific region will present a new distribution of investment hot spots in 2024. The new energy vehicle industry chain, with Thailand’s Eastern Economic Corridor as its core, is driving the development of Indonesia’s nickel resources and the construction of Vietnam’s parts and components supporting system. It is expected that the regional investment scale will exceed US$30 billion in 2024. Driven by this, the semiconductor industry chain has also accelerated its reorganization. Singapore and Malaysia have increasingly prominent advantages in packaging and testing, Vietnam has emerged as a new force in the field of OEM manufacturing, and India has shown great potential in chip design by virtue of its talent advantages.
At the same time, the construction of digital economic infrastructure is in the ascendant. The formation of data center corridors with Indonesia, Singapore, and Malaysia as the axis is accelerating, and new investment is expected to reach US$20 billion by 2025. This digital infrastructure boom has further promoted the regional integration of the biopharmaceutical industry chain. Singapore and Japan have deepened cooperation in the field of innovative drug research and development, India continues to maintain its dominant position in the production of generic drugs, and South Korea is rapidly catching up in the field of biopharmaceuticals. . What deserves particular attention is that driven by the goal of carbon neutrality, the green energy industry chain is becoming a new hot spot for regional investment. Indonesia has deployed large-scale photovoltaic manufacturing, Vietnam has accelerated wind power development, and the Philippines has given full play to its geothermal energy advantages to jointly build an Asia-Pacific A new map of green energy.
The layout trends of these emerging industrial chains not only reflect the direction of industrial upgrading in the Asia-Pacific region, but also provide companies with a clear reference for investment layout. Enterprises can choose the optimal location combination based on their positioning in the industrial chain to maximize cost-effectiveness. At the same time, it is also important to note that with the adjustment of regional economic policies and the advancement of industrial upgrading, the value chain layout will continue to be optimized, and companies must establish a dynamic monitoring mechanism to grasp market changes in a timely manner.
Analysis of the role of core economies’ value chains
The deep integration of the value chain in the Asia-Pacific region is inseparable from the leadership and coordination of core economies. Based on the latest data in 2023 and market performance in the first quarter of 2024, the role positioning and development trend of the six core economies in the regional value chain have emerged.
Japan continues to consolidate its position as a regional leader in technological innovation. R&D investment will reach US$178 billion in 2023, maintaining global leadership in industrial robots, new energy vehicles, semiconductor materials and other fields. Especially in the high-end manufacturing sector, Japanese companies control 92% of the global photoresist market and 70% of the semiconductor silicon wafer market. Leading companies such as Panasonic and Sony are accelerating their deployment in cutting-edge fields such as hydrogen energy and solid-state batteries. It is expected that investment in these fields will increase by 25% in 2024. It is worth noting that Japan is driving Southeast Asian countries to improve their manufacturing capabilities through industrial alliances, and has established 50 technology transfer centers in Thailand and Indonesia.
Relying on its successful experience in industrial upgrading, South Korea is leading the transformation of regional manufacturing into intelligent and high-value manufacturing. South Korea’s total exports in semiconductors, display panels, battery manufacturing and other fields will reach US$235 billion in 2023. Enterprise groups such as Samsung and SK are advancing the “Digital Transformation 2.0” plan and are expected to invest US$200 billion in emerging fields such as artificial intelligence and the Yuanverse. Especially in the field of electric vehicle batteries, Korean companies have deployed multiple production bases in Indonesia, Malaysia and other places to form a complete regional supply network.
Singapore is transforming from a traditional trade hub to a high-end service integration center. As of the beginning of 2024, it has attracted 85 of the world’s top 100 companies to set up regional headquarters. In the field of financial technology, Singapore’s regulatory sandbox has incubated more than 300 innovative projects; in the field of biomedicine, the conversion efficiency from laboratory to commercialization ranks first in Asia. It is particularly worth mentioning that Singapore is building a “Digital Economic Partnership Alliance” and signing digital trade agreements with Japan, South Korea, Australia and other countries to build new rules for the regional digital economy.
Vietnam’s industrial status has achieved a leap-forward improvement, transforming from a simple manufacturing base to an industrial cluster. In 2023, the export value of high-tech products will reach US$112 billion, accounting for more than 40% of total exports for the first time. In the northern region, industrial clusters led by electronics manufacturing have begun to take shape, and global technology giants such as Apple and Samsung continue to expand investment. In the central region, the new energy vehicle industry chain is accelerating its formation, and as of early 2024, it has attracted more than 50 complete vehicle and parts companies to settle in.
India is reshaping the regional value chain with its digital service advantages and huge market potential. India’s IT service exports will exceed US$145 billion in 2023, and its global digital service outsourcing market share will reach 55%. It is worth noting that India is transforming from traditional IT services to innovative services, with high-end digital services such as artificial intelligence and cloud computing accounting for 35% of revenue. At the same time, India is promoting the “Manufacturing Upgrading Plan”, providing industrial incentives totaling US$30 billion in electronic manufacturing, new energy and other fields to attract the layout of regional industrial chains.
Indonesia, with its rich natural resources and vast market space, has become an important integrator of the regional value chain. In the field of new energy industry chain, Indonesia’s nickel resource reserves account for 40% of the world’s and has attracted more than 30 billion US dollars in investment to build new energy materials industrial parks. In the field of digital economy, Indonesia’s e-commerce market has reached US$85 billion, and digital infrastructure such as payment and logistics has been rapidly improved. Especially in terms of clean energy transformation, Indonesia plans to build Southeast Asia’s largest green industrial park by 2025, which will drive the development of low-carbon industries in the entire region.
The coordinated development of these six major economies is reshaping the competitive landscape of the value chain in the Asia-Pacific region. When formulating regional strategies, enterprises need to fully consider the unique advantages and development dynamics of each economy and select the optimal market combination based on the positioning of the industrial chain. At the same time, it should also be noted that with the deepening of regional economic policies and the acceleration of industrial upgrading, the role of each economy is still evolving dynamically, and a flexible strategic adjustment mechanism needs to be established.
Regional value chain integration evaluation system
Based on the 2023 Asia-Pacific regional economic cooperation data and the latest policy developments in 2024, we have constructed a complete regional value chain integration evaluation system to comprehensively measure the coordination level of the regional value chain from four dimensions.
In terms of policy synergy, trade facilitation under the RCEP framework has achieved remarkable results. According to the latest statistics, customs clearance time in the region has been shortened by an average of 42%, and commodity customs clearance costs have been reduced by 35%. Especially in terms of mutual recognition of electronic documents, 13 member countries have implemented full electronic certificates of origin, which has greatly improved trade efficiency. Tariff barriers continue to be reduced, with 92% of products in the region achieving zero tariffs, of which the tariff reduction rate for industrial products has reached 96%. However, there are still certain challenges with non-tariff measures. The number of technical trade barrier (TBT) notifications will reach 428 in 2023, a year-on-year increase of 15%, mainly in the fields of electronic products, medical devices and food safety.
Industrial complementarity has taken on new characteristics. In terms of industrial supporting capabilities, the localization rate of the regional supply chain has increased to 68%, an increase of 8 percentage points from 2022. Taking the electronics industry as an example, the number of local supporting companies in Vietnam increased by 50%, and the number of Malaysian precision manufacturing companies increased by 35%. The complementary advantages of resources have been further strengthened. Key resources such as Indonesia’s nickel ore, Malaysia’s rare earths, and Vietnam’s rare metals have formed a positive interaction with the technological advantages of Japan and South Korea. Market interoperability has been significantly improved. Cross-border e-commerce transaction volume in the region has reached 3.2 trillion US dollars, with an annual growth rate of more than 40%. Digital payment interconnection is accelerating.
The convergence of technology standards is accelerating. As of the first quarter of 2024, there will be 1,856 unified technical standards in the region, covering key areas such as automobiles, electronics, and medical care. The scope of mutual recognition of certification continues to expand, with 15 mutual recognition agreements in effect, and the product categories for mutual recognition of certification results have expanded from the original 428 categories to 635 categories. The intellectual property protection system is increasingly improving. In 2023, the mutual recognition procedures for patent applications in the region will be simplified, and the review cycle will be shortened by an average of 35%. Especially in the field of digital economy, breakthroughs have been made in the coordination of cross-border data flow rules and network security standards.
The construction of infrastructure connectivity has achieved remarkable results. The efficiency of the logistics network has been greatly improved, the number of high-standard logistics centers in the region has increased by 30%, and there are more than 50 smart port and airport renovation projects. Digital infrastructure construction is accelerating, 5G network coverage has reached 85% in major economic zones, and total investment in regional data centers will exceed US$28 billion in 2023. Important progress has been made in the interconnection of payment and settlement systems. 17 economies in the region have achieved direct settlement in local currencies, reducing cross-border payment costs by 45% and improving settlement timeliness by 60%.
Based on a comprehensive assessment of these dimensions, we established the Regional Value Chain Integration Index (RVCI). The RVCI will reach 0.76 in 2023, an increase of 0.08 from 2022, indicating that the integration process of regional value chains continues to deepen. From a regional perspective, the ASEAN-Japan-Korea value chain has the highest degree of integration (0.82), followed by ASEAN-India (0.71) and ASEAN-Australia and New Zealand (0.69). From an industry perspective, the electronics industry chain has the highest degree of integration (0.85), followed by automobiles (0.79) and textiles and clothing (0.73).
This evaluation system provides an important reference for enterprises to formulate regional strategies. Enterprises can evaluate market access costs, supply chain layout efficiency and operational risks based on performance in different dimensions, thereby making more accurate investment decisions. At the same time, it should also be noted that with the adjustment of regional economic policies and the advancement of industrial transformation, indicators of various dimensions are still changing dynamically, and enterprises need to establish a continuous monitoring and evaluation mechanism.
Specific to the practical level of enterprises, it is recommended to focus on the following three aspects: first, make full use of trade facilitation measures under the RCEP framework to optimize the supply chain layout; second, strengthen technical cooperation with regional innovation centers to improve product standardization levels; finally, Actively connect with digital infrastructure construction and promote business digital transformation. Through multi-dimensional collaborative development, enterprises can seize opportunities in regional value chain integration.
Value chain integration opportunities in key countries
Based on the latest market dynamics and industrial policy changes in 2024, Vietnam, Indonesia and Thailand, as key countries for regional value chain integration, each present unique development opportunities. The following will conduct an in-depth analysis from the dimensions of industry characteristics, policy support, and market prospects.
Vietnam is transforming and upgrading from traditional manufacturing to high-end manufacturing. In terms of the electronics manufacturing industry chain, electronic product exports will reach US$128 billion in 2023, of which high-tech electronic products account for more than 60% for the first time. A complete electronics manufacturing ecosystem has been formed in the northern region. Not only are there large manufacturing bases for global leading companies such as Apple and Samsung, but they have also attracted more than 400 supporting companies to settle there. The “High-tech Industry 2025 Plan” launched by the government provides multiple incentives such as land and tax, and is expected to attract US$50 billion in new investment in the next three years. The textile and clothing industry is transforming towards smart manufacturing and green manufacturing, with exports reaching US$44 billion in 2023. Of particular concern is that Vietnam is vigorously developing new energy vehicle supporting industries and has planned and constructed three new energy vehicle industrial parks in the north and central areas. It is expected that by 2025, it will have an annual production capacity of 500,000 vehicles.
With its rich natural resources and huge market space, Indonesia has demonstrated unique advantages in value chain integration. In terms of the mineral resources industry chain, Indonesia is promoting the deep processing strategy of nickel resources and has attracted more than 40 billion US dollars in investment to build a new energy materials industrial park. The export value of nickel-based products will reach US$28.5 billion in 2023, a year-on-year increase of 45%. The agricultural product processing industry chain has been accelerated, and the deep processing capabilities of advantageous products such as palm oil, coffee, and tropical fruits have been significantly improved. The “Food Industry 4.0” plan launched by the government focuses on supporting infrastructure construction such as smart manufacturing and cold chain logistics, and is expected to drive US$100 billion in industrial investment. The digital economic ecosystem is booming. The scale of the digital economy will reach US$95 billion in 2023, and digital basic services such as e-commerce, payment, and logistics are rapidly improving. Especially in the field of financial technology, five unicorn companies have been cultivated, and the mobile payment penetration rate exceeds 85%.
Thailand is relying on its industrial foundation and location advantages to create a new generation of regional value chain hub. The automotive industry chain is the most competitive field. Car production will reach 2.2 million units in 2023, of which new energy vehicles will account for 25%. The “Eastern Economic Corridor” has attracted eight of the world’s top ten automobile manufacturers to set up production bases, leading to the formation of a cluster of more than 2,500 parts and components supporting enterprises. The food processing industry chain has been upgraded with the help of the “Kitchen of the World” strategy, and food exports will reach US$35 billion in 2023. Especially in the fields of functional foods and convenience foods, Thai companies are accelerating their expansion into high value-added links. The tourism service industry chain is undergoing digital transformation and will receive 40 million international tourists in 2023, with tourism revenue reaching US$65 billion. The “Smart Tourism 5.0” plan launched by the government focuses on the development of new business formats such as medical tourism and senior care tourism, and is expected to drive US$100 billion in investment in related industries by 2025.
Based on the industrial characteristics and development trends of these key countries, companies can adopt differentiated market entry strategies:
In Vietnam, it is recommended that companies focus on supporting opportunities in electronic manufacturing, especially in segments such as 5G equipment and new displays. At the same time, we can lay out the new energy auto parts industry and seize opportunities for industrial transformation and upgrading. It is recommended to choose key industrial parks in the north and central part of the country to enjoy policy support and cluster effects.
In Indonesia, it is recommended that companies focus on the new energy materials industry chain, especially in the fields of deep processing of nickel resources and battery materials. There are also huge opportunities in the digital economy, especially in the construction of digital infrastructure such as payment and logistics. It is recommended to enter the market through local partners to reduce operational risks.
In Thailand, it is recommended that companies focus on opportunities in the new energy vehicle industry chain, especially in core components such as power batteries and electronic control systems. At the same time, high-end food processing and special tourism services can be deployed to seize the market opportunities brought by consumption upgrades. It is recommended to give priority to key development areas such as the “Eastern Economic Corridor” and enjoy a sound business environment.
It should be noted that these market opportunities and challenges coexist. When enterprises deploy in the market, they need to fully assess local business risks, establish an effective supply chain management system, and maintain good interaction with local governments and industrial communities in order to achieve sustainable development.
Enterprise value chain integration strategy
Based on the latest market access policies and corporate practical experience in 2024, we put forward systematic suggestions on how companies can efficiently access regional value chains, focusing on the three key dimensions of entry thresholds, localization paths, and risk prevention and control.
In terms of analysis of entry thresholds, the policy environments of various countries present new characteristics. Vietnam revised the “Foreign Investment Law” in early 2024 to implement negative list management for foreign investment in manufacturing, with the list items reduced from the original 468 to 235. Especially in key areas such as electronic manufacturing and new energy, restrictions on foreign shareholding ratios have been removed, the approval process has been simplified, and the average approval time has been shortened from 45 days to 15 days. Indonesia adopts an “industry-oriented + regional differentiation” access policy and provides “one-stop” approval services in priority industries such as new energy materials and digital economy. However, it still implements strict control over mineral resource investments, and foreign shareholding ratios are The upper limit is 49%. In terms of qualification requirements, various countries have generally strengthened environmental protection standards and technical specifications. For example, Thailand requires auto parts companies to obtain IATF16949 certification, and Indonesia requires food processing companies to pass HACCP certification.
Localized path design requires multi-dimensional collaborative advancement. In terms of the construction of the supplier certification system, it is recommended to adopt the “echelon + professional” management model. Taking Vietnam’s electronics industry as an example, leading companies generally establish a three-tier supplier system: core suppliers (accounting for about 20%) need to meet global unified standards, key suppliers (accounting for about 50%) implement regional standards, and general suppliers (accounting for about 50%) need to meet global unified standards. Approximately 30%) implement localization standards. Talent localization is a key challenge. According to statistics, there is a gap of more than 150,000 local mid- and senior management talents in the region. It is recommended to adopt a dual-track system of “introduction + training”: on the one hand, attract overseas talents through a competitive salary system, and on the other hand, cooperate with local universities to establish a talent training base. In terms of channel construction, the trend of digital transformation is obvious. The regional B2B e-commerce platform transaction volume will reach 450 billion US dollars in 2023, with an annual growth rate of more than 50%. It is recommended that enterprises use online channels as an important supplement, especially in markets with active digital economies such as Indonesia and Thailand.
The construction of risk prevention and control system is increasingly important. Compliance risk prevention requires special attention to emerging areas, such as data security, environmental protection, etc. Among the compliance incidents of foreign-invested enterprises in the region in 2023, 45% will be related to data compliance and 35% will be related to environmental compliance. It is recommended that enterprises establish a full-time compliance team and conduct regular compliance audits, especially in markets with tightened regulations such as Indonesia and Vietnam. Supply chain risk management is facing new challenges, and uncertainties such as extreme weather and geopolitics are increasing. It is recommended to adopt a “multi-source supply + inventory optimization” strategy, maintain at least 2-3 supply sources for key raw materials, and maintain core component inventory at a level of 45-60 days. Exchange rate risk hedging also requires innovative ideas. In addition to traditional forward foreign exchange and currency swaps, local currency settlement can be considered to reduce risks. Currently, there are 17 bilateral local currency settlement agreements in effect in the region.
From a specific corporate practice level, successful value chain integration requires the formation of systematic solutions in the three dimensions of market access, localization promotion and risk management.
In terms of market access, companies should give priority to areas with clear investment policies and standardized administrative approval processes. Taking the industrial park in northern Vietnam as an example, its complete investment service system and transparent access standards have shortened the average establishment time of enterprises by 40%. At the same time, companies need to plan qualification certification work in advance, especially in fields with high technical standards such as auto parts and electronic manufacturing, which often require a certification cycle of 6-12 months. In addition, it is also critical to establish a regular communication mechanism with local governments and industrial parks, which will help companies grasp policy trends in a timely manner and speed up the project implementation process.
Localization promotion requires a progressive strategy. In terms of supplier localization, companies can set three-year rolling goals and ensure that the goals are achieved through regular evaluation and dynamic adjustments. Taking the Indonesian market as an example, leading companies generally achieve a localization rate of 30% in the first year and more than 60% in the third year. Talent localization is another focus. It is recommended that companies set up training centers in core cities to attract and retain talents through competitive salary systems and clear promotion channels. In terms of channel construction, the “online + offline” integration strategy is becoming more and more important. Especially in markets with a high degree of digitalization, online channels can often bring 30-40% of incremental business.
Risk management requires the establishment of a normalized mechanism. Regularly conducting compliance risk assessments has become a standard action for enterprises, especially in emerging areas such as data security and environmental protection, and a comprehensive review is conducted at least once every quarter. Building supply chain resilience is equally important. Companies can identify potential risks in advance by establishing early warning mechanisms and regular stress tests. In terms of financial risk management, the comprehensive use of forward foreign exchange, currency swaps and other tools, combined with innovative solutions such as local currency settlement, can effectively control the impact of exchange rate fluctuations. Practice shows that companies that adopt diversified risk management strategies have operational stability significantly higher than the industry average.
Analysis of investment layout cases
Through case analysis of companies’ investment layout in the Southeast Asian market in recent years, we can extract useful experiences and lessons to provide reference for subsequent companies.
In terms of successful cases, CATL’s new energy industry layout in Indonesia is a model. The project will be put into operation in 2023, with a total investment of US$5 billion, adopting an integration model of “mineral resources + industrial park”. By forming a joint venture with local leading companies, we can quickly obtain high-quality nickel ore resources, and at the same time lay out a complete industrial chain from raw materials to battery packs in the industrial park. One year after the project was put into operation, it has achieved an annual output value of more than 2 billion US dollars and created more than 5,000 jobs. Its successful experience lies in: accurately grasping the policy opportunities for the development of new energy industry in Indonesia; reducing resource acquisition costs through joint venture models; adopting localized management, and more than 80% of employees are local talents.
Another typical case is the transformation and upgrading of a Japanese auto parts company in Thailand. The company will invest US$200 million in intelligent transformation of its Thai factory in 2022, introduce a flexible manufacturing system, and realize dual-line production of traditional parts and new energy auto parts. Through digital transformation, production efficiency has increased by 40%, product defect rates have been reduced by 60%, and it has become a regional supply center. Key points for its success include: accurately predicting industry transformation trends and deploying new energy fields in advance; making full use of Thailand’s complete automotive industry supporting facilities; and focusing on technological innovation and talent cultivation.
In terms of failure cases, the investment lessons of a Chinese FMCG company in Vietnam are particularly profound. The company invested US$50 million in building a production base in 2021. However, due to a lack of understanding of local consumption habits, deviations in product positioning and market demand, and a marketing strategy that overly copied Chinese experience, the market share continued to decline, and was eventually significantly reduced at the end of 2023. business. This case warns us: localization research must come first; channel construction needs to be adapted to local conditions; and brand communication must be consistent with local culture.
Through in-depth analysis of the above-mentioned success and failure cases, we can extract several key insights.
First of all, localization strategy is the cornerstone of successful investment. It can be seen from the successful experience of CATL and Japanese parts companies that deep localization is not only reflected in talent recruitment, but also extends to all aspects such as corporate governance, supply chain management and marketing. It is particularly noteworthy that the localization process must take a step-by-step approach, first quickly acquiring local resources and market knowledge through joint ventures, mergers and acquisitions, etc., and then gradually expanding the scope of independent operations. Data shows that companies that adopt a progressive localization strategy have a project success rate about 40% higher than direct comprehensive localization.
Secondly, innovation capabilities and transformation and upgrading are the keys to maintaining competitiveness. The case of Japanese parts companies shows that continuous investment in technological innovation and digital transformation are important guarantees for companies to maintain their leading position in the market. It is recommended that enterprises benchmark against international advanced levels in the early stages of investment and reserve room for upgrades in aspects such as factory planning and equipment selection. Practice has proven that companies that consider their development space in the next 3-5 years at the early stage of investment have an average return on investment that is 25% higher.
Third, industrial ecological construction has more advantages than single investment. The successful case of CATL shows that integrating upstream and downstream resources through the industrial park model can not only improve operational efficiency, but also enhance integration with the local economy. Data shows that companies that adopt the industrial cluster model have supply chain costs that are on average 15-20% lower than those of companies working alone, and they have obvious advantages in raw material supply and policy support.
Fourth, risk prevention and control must run through the entire project cycle. Failure cases warn us that omissions in early market research, insufficient understanding of local culture and other issues may lead to project failure. It is recommended that enterprises establish a full-process risk management system of “pre-investment assessment – mid-investment monitoring – post-investment optimization”. In particular, compliance risks must be taken seriously. More than 30% of the failure cases of foreign-invested projects in the region in the past two years were related to compliance issues.
Fifth, talent strategy must be long-term. Case studies show that talent factors play a decisive role in both successful and failed projects. It is recommended that enterprises formulate long-term talent development plans, including localization of core management teams and construction of technical talent training systems. Data shows that companies that have established a complete talent training system have 50% higher management team stability and significantly improved production efficiency.
Finally, enterprises must establish a flexible strategic adjustment mechanism. The market environment in Southeast Asia changes rapidly, and companies need to be able to respond quickly. It is recommended to conduct regular strategic evaluations and adjust investment strategies in a timely manner according to market changes. Practice shows that companies that can adjust their strategies in a timely manner can maintain stable development even when the market environment deteriorates.
These empirical insights are not only applicable to the manufacturing industry, but also have reference significance in emerging fields such as the service industry and the digital economy. When formulating investment strategies in Southeast Asia, enterprises should combine their own characteristics and the actual conditions of the target market and flexibly use these experiences to maintain an enterprising spirit, operate steadily, and achieve sustainable development.
Future Prospects and Suggestions
Looking forward to the next three to five years, the Southeast Asian regional value chain will present new development trends and characteristics.
The restructuring of the industrial chain is accelerating. Under the trend of regionalization of the global industrial chain, Southeast Asia is expected to undertake more high-end manufacturing links. Taking the electronics industry as an example, it is expected that Vietnam’s share in the global electronics manufacturing industry chain will increase from the current 5% to 8% by 2025, of which high value-added products will account for more than 40%. The new energy industry chain will also rise rapidly, and Indonesia is expected to become the world’s second largest battery material production base in 2026.
Digital transformation is advancing in depth. Southeast Asia’s digital economy is expected to maintain an average annual growth rate of more than 30% and exceed US$350 billion by 2025. Especially in fields such as electronic payment and smart logistics, innovative applications are emerging rapidly. Taking Indonesia as an example, the digital payment penetration rate is expected to reach 95% in 2025, and the scale of cross-border e-commerce will grow by more than 50% annually.
Green development has become mainstream. Countries’ carbon neutrality commitments promote industrial upgrading, and regional renewable energy investment is expected to reach US$100 billion by 2025. Singapore has announced that it will impose a carbon tax on high-carbon-emitting companies from 2024, and other countries are also accelerating relevant legislation.
Based on these trends, we recommend that companies focus on the following investment opportunities: first, the entire new energy industry chain, including power batteries, photovoltaic components, energy storage equipment, etc.; second, digital infrastructure, such as data centers, 5G networks, smart logistics, etc.; The third is high-end manufacturing, especially smart manufacturing upgrades in electronics, automobiles and other fields.
However, companies also need to be wary of the following risks: First, there are policy risks. Industrial policies of various countries may be adjusted. For example, Indonesia has begun to restrict raw ore exports. Secondly, there are market risks. Intensified regional competition may lead to overcapacity. It is recommended to carefully evaluate the scale of investment. Finally, there are Operational risks include challenges in supply chain stability, talent reserves, etc.
For companies that plan to enter or expand investment in Southeast Asia, we make the following suggestions: they should adopt a “cautious and aggressive” strategy and implement it step by step based on sufficient research. It is recommended to select 1-2 key countries as pilot projects first, and then consider regional expansion after accumulating experience. In terms of investment methods, you can consider quickly entering the market through mergers and acquisitions, joint ventures, etc. At the same time, it is necessary to establish a complete risk management system, especially investing sufficient resources in supply chain security, compliance management and other aspects.
At the specific operational level, companies should pay special attention to several key points: strengthen communication with local governments and industrial parks to keep abreast of policy trends; pay attention to supplier cultivation and help local companies improve supporting capabilities; focus on talent localization and establish long-term Training mechanism; adapt to local business culture and respect differences between countries. Only in this way can we seize the opportunities in the reconstruction of Southeast Asia’s regional value chain and achieve sustainable development.
