US Vice President Kamala Harris’ recent visit to Southeast Asia underscores the deepening of economic ties between the US and ASEAN - highlighting the bloc’s integral role in US supply chains. The importance of this relationship is also reflected in the strengthening trade flows between the two regions. Over the last few years, merchandise imports from the US to ASEAN have registered strong growth, while US FDI inflows into ASEAN accounted for 25% of the total in 2020.1
As ASEAN grows in stature as a commodities supplier and manufacturing base, US businesses must reinforce their relationships in ASEAN and build new ones to reduce supply chain risks and tap new growth opportunities. This strategy was echoed by panellists at a recent webinar titled “Borderless business: Capturing future growth for US companies in ASEAN”.
“Strengthening relationships with key partners becomes so important with the volatility we’re seeing in the supply chain,” said Quentin Roach, Senior Vice-President, Supply Chain and Global Supplier Management and Chief Procurement Officer at Mondelēz International.
Increasingly, more companies around the world are including ASEAN in their ‘China Plus One’ diversification strategy on the back of US-China tensions. Additionally, businesses that enjoy closer ties with their supplier base in the region are also gaining an edge over the competition. Research shows that strong buyer-supplier relationships are key to business resilience,2 a finding that is being corroborated by real-world experiences during the pandemic.
“We've relied on some of our core suppliers to deliver on our commitments during COVID-19,” said Robert McIntosh, Senior Vice-President, Global Fulfilment, Logistics and Trade at Dell Technologies.
Support sustainable business practices
Enhancing these relationships includes helping suppliers to improve their processes and develop more sustainable business practices. This is especially important with corporations increasingly being held responsible for the actions of companies within their supplier network.
A recent study found that MNCs that collaborate more closely with their suppliers on sustainability practices are more successful at overcoming problematic issues.3 With urging from their internal and external stakeholders, American corporations are taking significant steps in this direction.
For example, Chicago-based Mondelēz International, one of the world’s largest food and beverage companies, recently announced a partnership to develop a sustainable commercial cocoa farm in Indonesia.4 This is in addition to the company’s efforts to proactively help local suppliers and farmers improve their livelihoods, communities and environments, with investments in satellite monitoring, and research and development.
Such efforts serve the dual purpose of creating more robust and resilient regional supply chains whilst helping suppliers of American businesses meet their environmental, social, and corporate governance (ESG) goals and bring them in line with global standards.
“US corporations, their shareholders and the communities they operate in are demanding greater focus on sustainability. To achieve their ESG goals, businesses must advance their sustainability agenda by sharing best practices with the various partners they work with across their ecosystem,” said Steven Cranwell, Chief Executive Officer, Americas at Standard Chartered.
Leverage the supply chain advantage for business growth
Companies with operations in ASEAN also benefit from the region’s thriving emerging economies. Their increasingly affluent and urbanising consumer markets are a key investment attraction, as noted by a survey of US companies currently active in ASEAN.5 Among the survey respondents, 70% cited access to the large and growing ASEAN consumer market as a key driver of their investments in the region.
ASEAN proves even more attractive for companies that rely on the region for the majority of both their raw materials and consumer base. “Indonesia is a great example for us. We're making massive investments into our supply chain in the country because it helps us serve the consumers we have there and in the region,” noted Mondelēz’s Roach. “In the last quarter alone, we saw 16% growth in emerging markets, inclusive of ASEAN, and about 5% growth over the last two years.”
However, webinar panellists cautioned against treating ASEAN – home to several countries, each with its own culture, demographic, type of government and regulatory framework – like a single economic bloc, and making investments without first understanding the nuances of each market.
“Many companies have met with the unfortunate situation where they tried to sell in individual ASEAN markets and would only find out, after they exported their products, that there was a customs restriction or required documentation that they didn’t know about,” said Wendy Cutler, Vice-President and Managing Director, Asia Society Policy Institute. “When companies decide on the market they're going to trade and invest in, it’s important that they take the time to understand the country’s policy framework.”
US businesses are advised to perform their due diligence to find the right partners and advisors with local know-how who can help them successfully navigate the individual business and political environments of each market.
“There are various ways to do that, and companies can work with financial institutions, government agencies, and industry associations to access their target markets,” said Standard Chartered’s Cranwell. “Where I've seen it work best is when businesses establish a local presence, implement the appropriate risk frameworks and tap local talent and partnerships.”
As ASEAN becomes more deeply integrated into the global supply chain, American businesses that recognise the region’s diversity and strike the right kind of local partnerships will see the biggest success.