Southeast Asia stands to benefit from the relocation of firms from China as the mainland loses competitiveness, but investors may be deterred by a lag in ease of doing business in the Philippines, according to global insurance and reinsurance provider Swiss Re.
“There has been some tempering of globalization fervor over the last decade. For one, China has been gradually losing its cost competitiveness. In addition, the rising frequency of natural catastrophes resulting in costly disruptions to production, and new, digital technologies that can simplify and shorten supply chains, have also prompted global manufacturers to rethink their production and sourcing strategies,” Swiss Re Institute said in a report titled “De-risking global supply chains: rebalancing to strengthen resilience.”
Swiss Re noted that the COVID-19 pandemic showed that lockdowns had halted flows of goods across a globalized supply chain.
As global firms relocate, Swiss Re said “markets in Southeast Asia are set to benefit most as new host locations for parallel production activities.”
In particular, Swiss Re ranked Vietnam as No. 1 potential relocation site, followed by Cambodia, Malaysia, Thailand and the Philippines.
Swiss Re said these five countries ranked the highest in terms of their growth potentials, export-oriented models as well as competitive labor costs.
In the case of the Philippines, the annual cost of manufacturing workers in the country fell below $4,000 in 2019 from more than $4,000 in 2012, making it cheaper than China, Thailand, Malaysia, Indonesia, India and Vietnam, where labor costs mostly rose during the past few years.
“The capacity of South and Southeast Asian markets to attract foreign manufacturing investment has also improved over the years, particularly in areas like quality of infrastructure, logistics competence, institutional factors (bureaucratic ‘red tape’) and the availability of local supplier support,” Swiss Re said.
However, Swiss Re said that while Malaysia, Thailand and Vietnam were making inroads in ease of doing business, “Indonesia and the Philippines lag on this front.”
Last year’s Doing Business report of the Washington-based multilateral lender World Bank showed the Philippines ranked 95th behind Malaysia (12th), Thailand (21st), China (31st), India (63rd), Vietnam (70th), and Indonesia (73rd).
Also, the Philippines lagged behind in terms of logistics as those in China, India, Indonesia, Malaysia, Thailand as well as Vietnam were deemed better two years ago.
The Philippines’ local procurement rate of 29 percent in 2018 was also outpaced by China’s 66 percent, India’s 56 percent, Indonesia’s 42 percent, Malaysia’s 36 percent, Myanmar’s 32 percent, Thailand’s 57 percent and Vietnam’s 36 percent. INQ
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