How ASEAN can help European businesses build sustainable and resilient operations

Europe is ASEAN’s third largest foreign direct investment partner and the second largest trade and investment partner behind China. The European Union (EU) and the UK continue to maintain and strengthen their ties with ASEAN on all levels – from trade agreements to private sector partnerships and investments.

In recent years, the EU has made progress on individual free trade agreements (FTA) with several ASEAN member states.1 The UK, on the heels of Brexit, is also actively engaging with its ASEAN partners to pave the way for further trade and investments.

Singapore, for instance, is at the forefront of a new digital trade agreement with the UK,2 noted Kai Fehr, Global Head of Trade & Working Capital, Standard Chartered Bank, during the recent “Borderless Business: Sustainable business with the ASEAN market” webinar hosted by The Economist, which featured a panel of experts from Europe and ASEAN.

The recently concluded Regional Comprehensive Economic Partnership (RCEP) Agreement3 between ASEAN and Australia, China, Japan, Korea and New Zealand also opens up growth opportunities for European businesses with operations in ASEAN, allowing them to use the region as a gateway to other markets in the Asia Pacific region.

“The CEOs, chairmen and board members of European companies should review their global value chain, reassess new markets and the growth in Asia, and evaluate how their activities in ASEAN can help them get full access to markets in the RCEP and be globally competitive,” advised webinar panellist, Satvinder Singh, Deputy Secretary-General for the ASEAN Economic Community, ASEAN.

ASEAN is also well-positioned to be an important supply chain partner to European enterprises. “The pandemic has showcased the resilience of ASEAN’s supply chains,” said Fehr. “What used to happen in South China is now happening in Vietnam, which has become the powerhouse of ASEAN for electronic manufacturing. And it’s not just about the low labour costs. It’s also about the quality they have. Vietnam is a fantastic growth story for ASEAN, a remarkable reminder of how ASEAN is growing and shifting its capabilities faster than most supply chains in the rest of the world.”

Making a strategic contribution

ASEAN suppliers have grown in stature from being part of a cost-effective strategy to becoming strategic partners. “We are in the process of strengthening our global supplier footprint and really balancing out the number of suppliers to ensure competitiveness, performance, innovation and supply chain resilience,” said Christian Holzer, Chief Procurement Officer and Head of Supply Chain, Siemens Energy, at the webinar. “Before, companies largely used ASEAN suppliers to get the best price. But we see many of those suppliers have matured over the past years. We are now looking into selecting ASEAN companies with innovation power and a strong contribution to a more sustainable world to be among our strategic suppliers.”

Siemens Energy’s shift reflects the sentiment of almost 50% of European companies that participated in a pulse survey commissioned by Standard Chartered, who listed production diversification and the presence of a mature and reliable supplier base among the top three drivers for their investments in ASEAN.4

Singh believes that companies around the world, including Chinese conglomerates, realise the need to globalise and build a more sustainable supply chain. And that has meant increased foreign direct investment from China into the manufacturing value chains in ASEAN. A view echoed by Fehr, who shared that Standard Chartered’s clients are also shifting their priorities to supply chain resilience and financing, with many reaching out to the bank to discuss approaches to strengthen their current strategies.

However, investing in ASEAN is not without its challenges. Panellists pointed to the lack of a common regulatory framework, slow digital advancements in trade financing, and concerns over supply chain transparency5 as the main obstacles.

“The EU provides a common regulatory framework for medical products for all its member nations. This is currently missing in the ASEAN region,” explained Isabelle Conrot, Head of Global Logistics & Supply-Chain Operations at Roche. We always have to go local for each and every market, to understand the different regulations and get our products registered in those countries. This slows our speed to market and impacts access to medicines for patients in those countries.”

In addition, trade financing in ASEAN is still largely a paper-based business. According to Fehr, for the supply chain to be fully digital, all jurisdictions would need to work together to enable electronic titles that can be recognised across borders, using technology that’s available to all participants.

The panellists also agreed that transparency in the end-to-end supply chain is an important aspect. “Globally, there is an increasing number of sustainability laws and regulations, reflecting what societies, consumers and companies expect,” explained Holzer. “We need to be frontrunners in this transformation and convey the same expectations to our suppliers on all tiers, ensuring that they commit to the same standards for sustainability, human rights, environmental safety, anti-money laundering etc.”

Deeper collaboration ahead

The impact of shifting supply chain strategies will only be visible in the years to come, due to their scale and complexity. Nonetheless, the future remains bright for deeper cooperation between European businesses and their Southeast Asian counterparts.

The UK’s potential membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and its ASEAN Dialogue Partner status point to enhanced ties with ASEAN countries.

“EU and ASEAN used to be dialogue partners. Now we have elevated that relationship to being strategic partners and we’re already seeing increased momentum in areas such as the recently concluded negotiations on the EU-ASEAN Comprehensive Air Transport Agreement,6” noted Singh.  “There's the momentum now to address issues, find solutions and bridge gaps.”

1 https://av.sc.com/corp-en/content/docs/ASEAN-Trade-Corridor-Series_EU.pdf

2 https://www.gov.uk/government/news/uk-and-singapore-kickstart-negotiations-on-cutting-edge-digital-trade-agreement

3 https://asean.org/summary-regional-comprehensive-economic-partnership-agreement/

4 https://av.sc.com/corp-en/content/docs/ASEAN-Trade-Corridor-Series_EU.pdf

5 https://hbr.org/2019/08/what-supply-chain-transparency-really-means

6 https://asean.org/asean-eu-conclude-worlds-first-bloc-bloc-air-transport-agreement/

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