Thailand Among Asean Stars

McKinsey report paints a glowing picture of the Southeast Asian bloc.

One of the fastest developing and most influential regions in the world is ASEAN, Association of Southeast Asian Nations. Thailand is emerging as a standout player in this bloc and emerging markets are rapidly catching up, according to a new report by McKinsey.

“Asia’s Future is Now” showcases that the region is outpacing the rest of the world in business and technology development, while also noticing enormous changes in supply chains.

Between 2014 and 2017, before the trade war between China and the US, China saw a 3.1% decrease in labor intensive and manufactured goods. Meanwhile, Thailand saw a 0.2% increase and Vietnam a 2.2% increase.

While Vietnam is thriving, it is still moving towards Thailand, which had a 25% market share of labor-intensive manufactured goods in Asia, while Vietnam had 7%.

"Thailand, even before the trade tensions, was already the home of many multinational corporations and was an established automotive and petrochemical export hub," said Oliver Tonby, senior partner at McKinsey Asia. "Thailand is already ahead of the game with others catching up, so the big question now is how they stay ahead."

Since the trade ware began most of the supply chain movement has been towards Vietnam. This has been an excellent alternative for manufacturing outside China with Vietnam’s cheap labor and ease of business to work with.

These changing supply chains unlikely to be reversed as companies are looking for alternatives to Chinese manufacturing.   Mr. Tonby said that manufacturers are unlikely to return to be reliant on China once trade tensions cool off.

"Vietnam has been the darling in the last few years because of a variety of export opportunities," he said. "Thailand's growth has been good, but not stellar, while exports have been good, but surrounding countries are starting to catch up."

As ASEAN middle class increases so will consumption. This will lead to more intraregional trade in both Southeast Asia and Asia-Pacific.

"Asean should focus on reducing tariffs to increase integration and cooperation, as it is not set up to be anything near the EU," Mr Tonby said. "It's one of the fastest-growing regions in the world as trade between countries has become easier, and it has seen an uplift in the recent few years."

By 2040 Asia is on track to be responsible for 50% of global GDP. It is expected to drive half of all global consumption growth between 2015 and 2030 and half the market for personal luxury goods at 52%.

ASEAN is outpacing Europe’s and even North America’s tech sector as it produces a substantial shore of global unicorns. In Asia, firms are receiving unicorn status in just six years on average, compared with 10 in Europe, the Middle East and Africa (EMEA) and nine in North America.

"In Asia we will see complex value chains spanning multiple countries and multiple companies with integrated logistics networks spanning multiple countries and cities," Mr Tonby said. "We'll see growing spending on R&D, cutting-edge machine learning and advanced analytics, and we expect to also see Asia having a growing focus on innovation.

"It's not a question of when Asia will lead, but how it will lead."