Many companies are looking at South-east Asian nations as an alternative to China as a manufacturing and supply engine as the Covid-19 pandemic has become a new factor in risk assessments.
“Companies definitely evaluate how countries are managing Covid-19 risk as they make investment decisions in the current environment. In particular, transparency in government response is critical,” said Ms Kellie Meiman Hock, managing partner at global consultancy McLarty Associates.
For instance, decisions regarding essential versus non-essential industries must be consistent to allow companies to reasonably assess the impact of movement restrictions on their business, she told The Straits Times.
Relying on China as the sole source has proved to be an expensive lesson, Bangkok-based Dr Pavida Pananond, a professor in the Department of International Business, Logistics and Transport at Thammasat University’s Business School, told ST.
“Multinationals can’t afford another disruption like that,” she said. “Doubts on China’s earlier attempt to hide the pandemic do not help increase trust in their system, and therefore countries that can show evidence of good governance in tough times like this will be considered more favourably.”
Firms have surprised themselves when digging into the dynamics of their supply chains, Mr Ernie Bower, president and chief executive of BowerGroupAsia, told ST. “Some of the world’s top companies honestly hadn’t made the assessment before they had to that around Asia there are countries where they have choke points; in other words, they cannot make iconic products or critical inputs to those products if one country is taken out.”
He said companies have to figure out “what’s the better business strategy in terms of creating redundant or supporting supply chains, if you have an emergency with China”.
In the United States, the pandemic has given new ammunition to some who believe that “everything should be made in America”, said Mr Marc Mealy, senior vice-president for policy at the US-Asean Business Council in Washington.
And although some believe that not everything should necessarily be made in America, the pandemic does provide another reason for making things outside China, he said in an ST interview.
“That fits into Asean’s interests, because Asean is a viable commercial supply chain location,” he added.
American companies have begun assessing and evaluating how governments in South-east Asia are responding to the shock, Mr Mealy said.
Thus far, locating manufacturing or sourcing suppliers has mostly been a question of low costs and efficiency.
“Now it’s going to be ‘we care about costs’, and ‘we want to be efficient’, but ‘we also want to know what place offers the best resilience’,” Mr Mealy said. “If something does happen, which governments are smart, and which governments are not so smart.”
Added Dr Pananond: “Other factors are costs of operations, ease of doing business, which are becoming more significant as firms look for more than just cheap labour.”
Mr Bower said the assessment from companies across several sectors – from Europe, the US and even in Asia – has been that in the region, Singapore and Vietnam had handled the pandemic well.
Malaysia, Thailand and the Philippines were seen to be in the next tier.
Their response was “bumpy and inconsistent, but in the end, governments have been able to respond so far, because we are still in the middle of this”, he said.
“The country that caused the most concern and may get hurt in the post Covid-19 world is Indonesia,” he cautioned. “They did not respond early and then responded drastically and inconsistently after they recognised the enormity of the situation.”