Instead, many are opting to reshore by moving factories back home or diversifying operations within the region. This marks a profound change for Asia, a region that owes much of its economic ascendancy in the past three decades to a vibrant trade sector. So, as trading patterns change and manufacturing footprints adjust, how will Asia adapt to these sea changes ahead?
In our new report “Factory Asia 4.0” we deep dive into the factors that are upending Asia’s supply chains (from tariffs to COVID), as well as the underpinnings of a continued trade boom ahead. We think the intersection of supply chain shifts, new automation technologies, and the focus on sustainability will change the face of manufacturing, thereby presenting opportunities for investors to take part in this journey.
We are confident that the Asian trade engine remains alive and well. In fact, we see a vibrant future of intra-regional trade empowered by advanced technologies and supportive governments.
Notably, despite the undercurrents pulling parts of the supply chain to other regions, we expect Asia’s share of global trade to increase further over the next decade. As the pandemic has shown, China remains a critical supplier of key goods, for which there is no easy replacement. Asia is also highly cost-competitive, enjoys a strong ecosystem of established logistical infrastructure, provides supportive policies, and has built a competent workforce with a wide spectrum of skillsets to operate across the manufacturing value-added chain.
Offsetting the reshoring push is a rise in regionalization. The landmark Regional Comprehensive Economic Partnership (RCEP) is expected to boost intra-Asian trade by lowering tariffs among participating nations, encouraging investment by governments to bolster infrastructure, and providing vital access to financing channels.
Asia should also benefit from the increased use of new digitalization and automation technologies throughout the manufacturing value chain. For investors, Asia’s leading technology enablers—e.g., 5G equipment makers, electric vehicle battery suppliers, leaders in robotics and artificial intelligence, etc.—should see a surge in demand for their products and services.
Also, sustainability considerations are at play as new supply chains take hold. With asset owners and managers raising their own stewardship standards, companies that score highly in ESG ratings should see greater investor interest.
Change is afoot, and we see opportunities for Asia to reinforce its status as the world’s leading manufacturer. Investors, too, could take advantage of the shifting tides in Asia’s supply chains.
Main contributor: Min Lan Tan, Head of APAC Investment Office
For more, reach out to your UBS Financial Advisor for a copy of the full report – Sustainable supply chains: Factory Asia 4.0, May 2022.
