Thailand among Asean stars
McKinsey report paints a glowing picture of the Southeast Asian bloc.
Asean is one of the fastest-growing and most dynamic regions in the world, with Thailand a standout player in the bloc and emerging markets quickly catching up, according to a new report by McKinsey.
"Asia's Future Is Now" paints a picture of the region outpacing the rest of the world in terms of technological and business development, while also seeing immense changes in supply chains.
For instance, even before the trade war between China and the US, between 2014 and 2017 China saw a 3.1% decrease in labour-intensive and manufactured goods, while Thailand saw a 0.2% increase and Vietnam a 2.2% increase.
But while Vietnam is growing fast, it's still catching up with Thailand, which had a 25% market share of labour-intensive manufactured goods in Asia, compared with Vietnam's 7%.
"Thailand, even before the trade tensions, was already the home of many multinational corporations and was an established automotive and petrochemical export hub," said Oliver Tonby, senior partner at McKinsey Asia. "Thailand is already ahead of the game with others catching up, so the big question now is how they stay ahead."
Still, most of the supply chain movement since the trade war began has been towards Vietnam, whose cheaper labour and ease of doing business have made it an ideal alternative for manufacturing outside China.
Mr Tonby said these shifting supply chains are unlikely to be reversible, as companies are looking for alternatives to Chinese manufacturing and are unlikely to return to a reliance on China once trade tensions cool off.
"Vietnam has been the darling in the last few years because of a variety of export opportunities," he said. "Thailand's growth has been good, but not stellar, while exports have been good, but surrounding countries are starting to catch up."
And as the middle class rises in Asean, so will consumption, leading to more intraregional trade both in Southeast Asia and in Asia-Pacific more generally.
"Asean should focus on reducing tariffs to increase integration and cooperation, as it is not set up to be anything near the EU," Mr Tonby said. "It's one of the fastest-growing regions in the world as trade between countries has become easier, and it has seen an uplift in the recent few years."
Asia is on track to account for 50% of global GDP by 2040. Between 2015 and 2030 it's expected to drive half of all global consumption growth and half the market for personal luxury goods (52%).
Its tech sector is outpacing Europe's and even North America's as it produces a substantial share of global unicorns. In Asia, firms are receiving unicorn status in just six years on average, compared with 10 in Europe, the Middle East and Africa (EMEA) and nine in North America.
"In Asia we will see complex value chains spanning multiple countries and multiple companies with integrated logistics networks spanning multiple countries and cities," Mr Tonby said. "We'll see growing spending on R&D, cutting-edge machine learning and advanced analytics, and we expect to also see Asia having a growing focus on innovation.
"It's not a question of when Asia will lead, but how it will lead."