The phrase China +1 captures the strategy that many large manufacturers are following to increase the diversity and resiliency of their supply chains by moving some China-based sourcing to other countries. This trend has been shaping up for several years on the back of rising geopolitical tensions, trade wars and tariffs, as well as increasing labour costs in an evolving Chinese economy.

When the COVID-19 crisis first broke out in China, businesses had no backup plans for getting their finished goods or raw material. The pandemic hence became a timely reminder for companies to reinvigorate their supply chain resilience. In this context, they have increasingly turned their gaze southward to the dynamic markets of ASEAN as the natural next-stop for diversifying their supply chains.

Together, ASEAN’s ten member states form an economic powerhouse. Nonetheless, businesses will need to consider the region’s diverse complexities and contradictions to extract real value when selecting a regional outpost. Engaging a partner with strong regional network and insights will empower businesses to mitigate costly risks, draw better connections, and ease the overall transition process.

Key considerations for diversifying supply chains in ASEAN

When looking to move manufacturing from China to ASEAN, it is important to first determine precisely what is to be accomplished by doing so. Every company looking to supplement their supply chain should decide what is most important for them, their products, markets, IP protection, supply chains, and business direction – before deciding on a country or supplier that most closely satisfies their short and long-term goals.

How and where to pursue a +1 strategy will be highly dependent on a company’s business needs. Some manufacturers might be focused on reducing product manufacturing costs, for which Indonesia might be more suitable due to lower labour costs. Meanwhile, others that manufacture the same products might be focused on enhancing quality via technology, where Thailand may be more suitable.

When looking at specific industry sectors like textiles, clothing, automotive, or petrochemicals, proximity of raw materials would also play an important role in choosing the locale. Vietnam for instance is the third largest exporter of textiles globally. Thailand is the region’s largest automotive manufacturer, while Indonesia and Malaysia are the largest producers of crude oil.

More recently, following a model set by China itself, ASEAN countries have also put forward preferential policies, incentives, and grants to attract overseas investment in targeted industry verticals. For example, both Vietnam and Thailand have been aggressively promoting high-tech manufacturing like aerospace, medical devices, and robotics to move higher up in the regional value chain.

It is also important to consider existing free trade agreements (FTAs) as they have a direct impact on the movements of goods across international borders. ASEAN in general, is well integrated with world trade and has FTAs with several countries, which includes the Regional Comprehensive Economic Partnership (RCEP) with China, Japan, Australia, South Korea, and New Zealand.

Apart from their advantages, all ASEAN countries also experience their own barriers to business ownership and investment. Taxation for example is a concern in the Philippines, but not so much in Thailand and Vietnam. In terms of regulatory quality, rule of law, and control of corruption, Malaysia and Thailand usually fare better among the others.

Last but not least, a deep understanding of the time and costs associated with the logistical process of exporting and importing goods, and associated government regulations, is significant for manufacturers opting for ASEAN as an alternative. Each destination country needs to be carefully researched to see what parameters suit their needs to obtain the most ideal business advantages.

Navigating ASEAN with capital, connectivity, and insights

With a strong network presence in all 10 ASEAN countries, Maybank is uniquely positioned to support businesses embarking on a China +1 strategy in ASEAN. We use our capital, connectivity, and insights to help our clients identify their key priorities and best practices to uphold in their supply chain transformations.

The investment required for building and maintaining regional supply chains will vary depending on a company’s needs. Through our end-to-end cash management services for working capital as well as comprehensive range of Trade & Supply Chain Financing solutions, Maybank helps companies identify their most viable +1 alternatives and the right investment required for the transition of operations.

Businesses looking to transition their operations to ASEAN need a bank familiar in navigating the different regulatory and financial environments of markets across the region, supporting banking and payments across a diversified ecosystem for trade, tapping on digital and mobile payment platforms, providing financing, as well as insurance.

Maybank is one of the first banks in ASEAN to launch a truly regional cash management system with two electronic channels to enhance our clients’ liquidity management and transaction execution: Maybank 2E-Regional Cash (RC) and Maybank Trade Connex. Both products offer greater regional connectivity with a seamless gateway to process trade finance transactions across all 10 ASEAN countries, as well as China.

Beyond our integrated transaction banking and supply chain financing services, Maybank’s decades worth of experience in ASEAN markets empowers us with unique insights to help clients navigate the regulatory and business landscapes. In addition, our ESG framework enables us to work with stakeholders across all tiers of the supply chain to implement climate, environmental, and social commitments.

A China +1 strategy opens a range of considerations that requires a detailed analysis of cost and non-cost factors based on individual commercial and economic drivers. With careful supply chain planning and a deep understanding of the region, corporates can be well-prepared to build a resilient and sustainable supply chain in ASEAN.

To learn more about how Maybank can support companies with their China +1 supply chain strategies in ASEAN, please reach out and connect with our team.