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PH, other ASEAN members can spur opportunities in manufacturing sectors sans China, expert claims

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Ambassador Barry Desker
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By Monsi A. Serrano

The great Albert Einstein said, “In the midst of every crisis, lies great opportunity.” And this is how an expert sees the disruption caused by COVID19 as the pandemic hammers the global economy.

While we cannot deny the economic havoc brought by the coronavirus, this also brings opportunities for the Association of Southeast Asian Nations (ASEAN) economies that are able to adapt quickly to the emerging environment it is creating.

According to Ambassador Barry Desker, the distinguished fellow of S. Rajaratnam School of International Studies at Nanyang Technological University, Singapore, said the COVID-19 pandemic is clearly changing the manufacturing landscape in Southeast Asia.

In its wake, global companies are reorganizing their production and supply chains, said Desker in a recent webinar conducted by the Economic Research Institute for ASEAN and East Asia.

He also noted that the trend is to diversify supply chains, which will impact the East Asian model of just-in-time (JIT) production, distributed manufacturing, and reliance on China as a manufacturing hub.

Companies are now reviewing the need for regional headquarters and deciding on shifting their factories, Desker noted. Many are moving from a focus on JIT manufacturing for efficiency to just-in-case (JIC) operations for resilience.

The JIT approach reduces waste and increases efficiency by receiving inventory only as they are needed for production. In contrast, JIT is the method of holding excess inventories to be resilient and able to respond to a sudden increase in demand.

Desker said that as supply chains become diversified and reliance on China declines, “opportunities could arise for some of the countries in ASEAN.”

In the decade ahead, some manufacturers may adopt a China Plus One strategy with an active focus on ASEAN, he said. This is a strategy that seeks to avoid investing only in China and to diversify the business into other countries.

This could mean new investments in countries in ASEAN that can attract companies, said the economist.

To benefit from this opportunity, ASEAN countries must “have an ability to adapt to change to meet the new environment which is emerging.”

At the same time, they must also start preparing for a post-COVID world.

Desker also observed how the pandemic is reshaping the world of work, putting jobs at risk through the acceleration of remote work, artificial intelligence and automation.

Issues such as rising income inequality, environmental sustainability and low labor productivity will play a more central role after the pandemic, he added.

He also noted that “we are likely to witness new forms of protectionism,” putting at risk multilateralism, regionalism and open markets.

When jump-starting the economy, ASEAN policymakers need to think about all these issues and take the opportunity to restructure economically and socially to prepare for the long-term future.

Desker also stressed that amidst calls for nationalism and de-globalization, “it will be important that we recognize that we cannot live in isolation.”

For ASEAN to recover and grow post-COVID, Desker said member states should refrain from “trade-distorting measures” which could create difficulties as the region moves forward.

Instead, the regional governments should develop rules that are targeted against new types of protectionist policies.

He also urged them to assist small and medium enterprises (SMEs), as they are the ones suffering the most from the pandemic. To do this, SMEs can be plugged into the global economy via digital platforms to enable them to reach more suppliers and markets.

ASEAN must likewise prioritize the 2016 ASEAN Framework on Personal Data Protection and the 2018 Digital Data Governance Framework to enhance data management, harmonize data regulations, and promote intra-ASEAN flows of data.

Desker also recommended moving ahead with the ratification of the Regional Comprehensive Economic Partnership or RCEP, “which will enable ASEAN to bounce back from the current crisis.”

ASEAN must also look at how the ASEAN +3 financial cooperation arrangement known as the Chiang Mai Initiative Multilateralization can help ASEAN states lessen the effects of potential capital flight as it provides short-term liquidity via multilateral currency swaps.

Desker stressed that ASEAN economies need to work together to face what he called the “challenge of a generation.”

“It is not just the case of us looking at issues from within a domestic context, we also need to see how we can use the larger framework of ASEAN to push ideas which have resonance throughout the region.”

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