Against the backdrop of US-China tensions, the COVID-19 pandemic and climate change, businesses around the world have been revising their supply chain strategies for greater resilience. It’s no different for Taiwan, despite maintaining a relatively buoyant economy with growth forecast for 2021 expected to be the fastest in recent years.1 For it to stay ahead, greater diversification is necessary.
A manufacturing powerhouse and home to one of the world’s largest semiconductor chip manufacturers,2 Taiwan has actively sought to strengthen ties with its Asia counterparts since the mid-1990s. The introduction of the New Southbound Policy under President Tsai Ing-wen has seen Vietnam, Malaysia and Thailand emerge as the favourites for Taiwanese tech corporations seeking to diversify their operations. Successful bids by Taiwanese firms for government infrastructure projects in ASEAN also went up significantly in the immediate years following the policy launch.3
“Taiwan recognises that its continued success hinges on the economic diversification of both its industry and its market,” said Ian Anderson, Chief Executive Officer of Standard Chartered Bank (Taiwan) Ltd., in his opening remarks at the “Borderless Business: Capturing Taiwan-ASEAN Trade Opportunities” webinar. “This will urge Taiwan to forge commercial relationships with other regions, including ASEAN, which presents a major growth opportunity for Taiwanese companies.”
Indeed, ASEAN has many unique characteristics working to its favour: a rapidly maturing supplier base, strong regional trade links and global trade agreements, as well as a sizable and fast-growing consumer market.
The ASEAN advantage
One clear trend is the acceleration of ‘near-shoring’ due to a combination of social, geopolitical and climate factors.4 For Taiwanese enterprises, the diversity of ASEAN presents an ideal landscape for shortening their supply chains. A Taiwanese e-commerce business, for instance, could use Vietnam as a manufacturing base, and the Philippines for contact centre services.
“Vietnam has seen the fastest growth in electronics exports. It is one of the top performers in the past few quarters and has become the largest exporter among ASEAN countries,” noted Standard Chartered’s Edward Lee, Chief Economist for ASEAN and South Asia.
Overall market sentiment and cost competitiveness are also driving up interest in ASEAN. “About a decade ago, Taiwanese businesses were also eager to invest in Southeast Asia but cost considerations at that time saw them invest in China instead,” explained webinar panellist, Tony Phoo, Senior Economist for North East Asia at Standard Chartered Bank. “These companies continued to invest further in China to meet the needs of their customers and suppliers. However, many have moved to Southeast Asia in recent years in a bid to diversify their production lines.”
“Among the companies that moved their production lines out of China and Hong Kong in 2020, 73.3% have set up new bases in ASEAN,” noted Simon Wang, Executive Vice President at the Taiwan External Trade Development Council.
Statistics presented at the webinar highlight the stark reversal in Taiwanese investments. In 2011, 80% of investments from Taiwan went to China, while the remaining 20% went to Southeast Asia. However, in 2020, Southeast Asia accounted for 70% of Taiwanese investments with 30% going to China.
Webinar discussions also suggest that strong government support is another critical factor contributing to the ASEAN advantage. From combating the impact of COVID-19 on businesses to providing advisory services and tax incentives, business-friendly policies in countries like Malaysia and Vietnam are helping Taiwanese corporations navigate and overcome challenges.
For example, Malaysia is taking specific steps to help companies, such as facilitating business travel and offering 0% income tax, in addition to spending billions of dollars to revive the economy and fund its vaccination campaign.
“Besides our strategic location and market, Malaysia also has an established local supply chain, which is well-integrated into the global value chain,” said Syakella Zakaria, Director in the Taipei branch of the Malaysian Investment Development Authority.
In Vietnam, the government is taking an active role to beat back the recent COVID-19 outbreak in the south after experiencing success at controlling the pandemic last year. The country is committed to keeping industrial parks open and manufacturing operations running to limit global supply chain disruptions.5
“Taiwanese companies in Vietnam are doing well and their factories can still achieve 60-70% of capacity despite the pandemic,” noted Dr. Le Quang Tuan, Assistant to Representative, Head of Investment Division, Vietnam Economic and Cultural Office in Taipei.
Strong business confidence
Confidence in ASEAN is reflected in the results of a poll conducted during the webinar, which indicated that companies leveraging ASEAN to strengthen their supply chains are seeing their efforts pay off. Forty-five per cent of respondents said they have been spared from supply chain disruptions in their ASEAN operations while 25% indicated that the disruptions they faced can be solved within a month. Business confidence in ASEAN remains high, with 43% expecting to invest more heavily in ASEAN than China over the next one year.
The positive outlook is echoed in a recent survey of Taiwanese companies focusing on ASEAN. Most survey respondents expect positive business growth in the next 12 months, with 95% expecting revenue growth and 93% anticipating increased production.6
Despite the many challenges brought about by the pandemic, the resulting supply chain restructuring has unlocked new possibilities. “Businesses that capture the opportunities and solidify their role in the global supply chain will see limitless growth potential,” concluded Phoo.