Philippines, SE Asia seen to benefit from shifting supply chains

MANILA, Philippines — British banking giant HSBC is encouraging the Philippines and other countries in Southeast Asia to improve production technology and capacity as well as pursue regional integration to take advantage of the shifting supply chains to the region due to the US-China trade war.

Michael Brennan, head of wholesale banking at HSBC Philippines, said the changes in global trade are causing businesses to re-visit their supply chain investment and capacity strategies.

 “We are yet to see this convert into wide-scale shifts to Southeast Asia. Shifts in supply chains takes years due to structural changes in production technology, labor costs and emerging consumer markets,” Brennan said.

For the Association of Southeast Asian Nations (ASEAN) to convert its much-touted supply chain potential, Brennan said the region needs to build more visibility and credibility among international firms, particularly in their ability to handle and deliver production orders.

According to Brennan, the Philippines has been ahead of the pack over the years through the rise of the business process outsourcing (BPO) sector catering to healthcare, finance and accounting, software development and legal outsourcing around the world.

Likewise, Brennan said the Philippines’ manufacturing sector also has the competitive advantage of available skilled workers in aerospace, shipbuilding and automotive.

For his part, HSBC Philippines president and chief executive officer Graham FitzGerald said the Philippines has an advantage in terms of demography.

 “The Philippines continues to have significant potential with its rising middle class, whose income is seen to exceed spending power of Italy’s middle class by 2030. Add to that its literate, young and digitally connected population and a government that is pushing for a better infrastructure in the country – there is plenty of upside potential,” FitzGerald said.

With trade tensions and rising production costs affecting other markets, comments abound that supply chains are shifting to Southeast Asia because of the region’s growing economies and consumer markets.

However, latest evidence seems to suggest that multinationals are choosing to stay put.

The hot buttons that would matter for both large and small firms include how ASEAN could deliver competitive production costs, and how technology and innovation are being introduced to improve productivity.

It will also come down to the relationship factor and whether businesses  feel confident that orders will be serviced on time and on budget.

At a government level, this will require educating international firms about the regulatory frameworks, tax incentives, and free trade zones, along with demonstrating the improvements in ports and rail and other transport infrastructure.

Likewise, ASEAN governments would be required to demonstrate a pathway to longer-term initiatives to remove the non-tariff barriers around the flow of goods across the region, the development of skilled labor, and the protection of intellectual property, cybersecurity, and movement of commercial data across borders.

“While trade relations between the world’s major economies like China have generally been positive and steadily growing, there is a lot of ground still to cover within ASEAN to further improve the intra-regional flow of trade and investment. Agility and responsiveness to these challenges by ASEAN governments and corporates will determine whether the region’s supply chain potential can be realized amongst international firms who are re-examining their options,” FitzGerald said.