Why invest in ASEAN?
Integrated Supply Chain
ASEAN provides an effective platform for investors to utilize and maximize its value chain.
The varying levels of economic development in ASEAN coupled with each country’s industry specialization allow greater complementation among local and multinational companies (raw material supply and high value chain) and locational complementation between member countries (labor force and natural resources). Market-seeking and efficiency-seeking FDIs may leverage on these complementation and increase their involvement in the regional supply chain.
The ASEAN Investment Report 2012 discusses how newer member countries of ASEAN are attracting more efficiency-seeking FDI because of their comparative labour cost competitiveness. It cites as an example the cases of Cambodia, Indonesia, and Viet Nam which in recent years benefitted from receiving FDI from Malaysian or Thai companies in textiles and garments which require an ample supply of low-cost labour. Similarly, some land-constrained ASEAN countries encourage investors from agriculture and plantation industries to operate in neighboring countries in ASEAN that have abundant lands.
The practice of finding another ASEAN country to complement current operations has led ASEAN-based investors to deepen their engagements with the region. Increasingly, multi-national companies in ASEAN are adopting production strategies that involve horizontal and vertical multi-plant operations in two or more ASEAN countries for strategic and economic reasons. The ASEAN production network is used as part of the companies' regional value chain that is within integrated business arrangements and linked with different functions and operations (i.e., marketing, research and development, manufacturing).
ASEAN’s entry into different free trade agreements enable companies to tap and trade with supporting industries and suppliers based in the region and in partner countries. Access to goods, raw materials, or product components for final assembly and production increased as tariff for more than 5,000 product lines were reduced to 0-5%. In fact, data shows intra-ASEAN trade improved in the last few years, acquiring 25% of the region’s US$ 2.4 trillion trade value in 2011. China and Japan follow ASEAN in the list of top trade sources, with 11.7% and 11.4% of the region’s total trade.
Integrated regional or global supply chains are widely utilized in FMCG, garments, automobiles, and electronics industries.
Case study: Procter & Gamble
P&G is one of the largest consumer goods companies in ASEAN, employing more than 4,500 people across 6 countries in the region. It has 8 manufacturing sites, 8 mega distribution centres, and a business service centre in ASEAN.
Singapore is the regional headquarters for P&G in the Asia Pacific, hosting regional business units as well as global business units. In October 2013, Singapore will be home to P&G's Innovation Centre, a US$250 million purpose-built R&D centre. The Philippines, meanwhile, hosts the company's business service centre while Thailand serves as the marketing hub for beauty and fabric and homecare products.
P&G has manufacturing operations in Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam. Its diversified manufacturing footprint in ASEAN covers the full spectrum of the company's value chain. For instance, P&G's US$50 million oleo-chemicals plant in Malaysia processes feedstock from Indonesia and Malaysia into chemicals that go to other P&G plants in ASEAN and other parts of the world as raw materials. In Thailand, P&G's haircare manufacturing plant is the company's largest haircare export plant in the world, while P&G's Cabuyao plant in the Philippines is P&G's largest multi-category manufacturing in Asia.
Note: Case study on P&G was lifted from the ASEAN Investment Report 2012
Reasons for Investing in ASEAN
ASEAN is a choice destination for ASEAN and international investors. Investors enjoy profitable operations and commit to deeper engagement in the region as shown by strong reinvestment and sustained growth in foreign direct investments (FDI). FDI stock in the region has quadrupled within a little more than a decade. In 2011, FDI stock exceeded US$1 trillion compared with only US$266 billion in 2000.