Geopolitical tensions, particularly between the United States and China, have prompted many Asian countries to rethink their reliance on global supply chains. The trade war between these two economic giants has led to increased tariffs and trade barriers, making it more expensive and challenging to import goods. Consequently, countries like Japan, South Korea, and India are focussing on strengthening their domestic manufacturing sectors to mitigate the risks associated with international trade disputes.
The COVID-19 pandemic has served as a stark wake-up call, laying bare the vulnerabilities of global supply chains. The widespread lockdowns and restrictions disrupted the flow of goods worldwide, leading to shortages of critical medical supplies, electronics, and other essential items in many Asian countries. This experience has underscored the critical importance of having robust domestic production capabilities, prompting Asian countries to significantly ramp up their manufacturing capacities to ensure a steady supply of goods during future crises.
Sustainability is a key driver behind the shift towards localising production in Asia. The environmental impact of long-distance transportation and the carbon footprint associated with global supply chains have become major concerns. By producing goods locally, countries can make a significant contribution to global efforts to combat climate change. For instance, China’s investments in green technologies and renewable energy sources are not only supporting its domestic manufacturing sector but also promoting a more sustainable approach to production.
The role of technological advancement in enabling the localisation of production in Asia is evident. The adoption of automation, artificial intelligence and advanced manufacturing techniques has made it possible for countries to produce high-quality goods efficiently and cost-effectively. South Korea, known for its technological prowess, has been at the forefront of integrating smart manufacturing solutions into its production processes.
Looking at the domestication of production in Asia, countries worldwide have implemented various strategies, such as redirecting trade flows through intermediary nations, promoting domestic investment with subsidies and tax credits, and enhancing self-reliance through import substitution and research and development (R&D). On the corporate front, multinational companies (MNCs) in Asia and globally are adjusting by embracing the ‘China Plus One’ or ‘China Plus Two or Three’ models, which involve expanding their supply base beyond China while continuing to maintain a presence there.
Successful Localisation in Asia
Several Asian countries have successfully implemented localisation strategies to reduce their dependence on global supply chains. For instance, Japan has been heavily investing in domestic semiconductor manufacturing to reduce its reliance on foreign suppliers. The government has allocated significant funds to support research and development in this sector, aiming to become a global leader in semiconductor production.
India has launched the “Make in India” initiative to promote domestic manufacturing across various sectors. This initiative has attracted foreign investment and encouraged local companies to expand their production capabilities. As a result, India has become a major hub for electronics and automobile manufacturing. Another emerging player in the global supply chain is Vietnam, thanks to its strategic location and competitive labour costs. The country has been attracting multinational companies to set up manufacturing facilities, particularly in the electronics and textile industries.
Hurdles and the Way Ahead
While the trend towards localisation is gaining momentum, it is not without challenges. Building robust domestic supply chains requires substantial investments in infrastructure, technology and skilled labour. Additionally, countries must navigate regulatory hurdles and ensure that their domestic industries remain competitive on the global stage. Looking ahead, the localisation of production in Asia is expected to continue evolving. Governments and businesses are likely to collaborate closely to create favourable policies and incentives for domestic manufacturing. Moreover, the integration of digital technologies and sustainable practices will play a pivotal role in shaping the future of production in the region.
The trend of localising production in Asia reflects a broader shift towards economic resilience and sustainability. By reducing dependency on global supply chains, countries in the region are better positioned to navigate geopolitical uncertainties, respond to crises, and contribute to environmental conservation. As technological advancements continue to reshape the manufacturing landscape, Asia is poised to become a powerhouse of domestic production, driving economic growth and innovation for years to come.
