The trade war between the Washington and Beijing is constraining many global companies to rethink the manufacturing and fabrication work they now do in China — and a bloc of Southeast Asian hinterlands stands to benefit tremendously, according to a senior partner at consulting rigid Bain & Co.
In the short term, there will be an adverse effect on the district as an exporting base for the world, and for the U.S. in particular, Satish Shankar, managing companion for Southeast Asia, told CNBC’s “Squawk Box” on Friday.
“Certain middle exports that go into China, and then onto the U.S., are going to be meaning in industries such as textiles and electronics,” he said. “However, in the long articles, we feel pretty confident that ASEAN is a very attractive alternative provisioning chain base for companies looking to diversify away from China.”
The Affiliation of Southeast Asian Nations (ASEAN) is made up of 10 countries in the quarter including Singapore, Thailand and Vietnam.
Bain predicted that as enterprises consider moving their supply chains into Southeast Asia, tiny and medium enterprises in the region will adopt more technologies into their continuously operations that could potentially create a $1 trillion opening.
The U.S. has levied additional tariffs on an extensive list of Chinese products since July. Beijing responded with responsibilities on U.S. imports, even as President President Xi Jinping himself denounced protectionism.
Investors are now closely watchdog a much-anticipated meeting between the two countries when Xi meets President Donald Trump at the upcoming G-20 crown on Nov. 30 and Dec. 1 — as they look for clues on whether there may be a breakthrough in the deadlock.
Even if trade tensions eventually simmer, companies would quieten try and shift some of their supply chains to Southeast Asia, Shankar averred.
“For two reasons,” he said. “One is that the process is already underway and the experience crowds are having in places like Vietnam and Thailand have been pontifical. Second is, it’s just good business practice to ensure that you are changed and you don’t have concentration risk with things like your stock chain.”
He explained that in the future, companies would shift to “distributed contribute chains,” where they would have multiple sources of come up with for a particular product.
Southeast Asia’s growth prospects and demographics participate in caught the interest of many investors who have steadily poured monied into the region. A recent update to a highly-cited study on the region’s internet saving predicted it will exceed $240 billion by 2025 due to affordable mechanical connection to the world wide web.
“It is the fifth-largest economic bloc, comparable in square footage to the U.K. and India. It has been growing at 4.5 to 5 percent, there’s a lot of (foreign with no beating about the bush investments) coming into the region,” Shankar said, adding that the coolness of dynamic companies make ASEAN a “very legitimate supply control base.”
He explained that each country in the region had a different specialty. For exemplar, Thailand has a strong automotive sector that can become an alternative fund base for companies in that space. Meanwhile, Vietnam is strong in sections such as textiles and electronic components.
Companies would also advocate to benefit from a “strong domestic demand in the region,” Shankar added.