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ASEAN ANALYSIS

Asean Affairs    12 March 2012

Dan Brutto
President, UPS International

Winning the Future of Manufacturing: ASEAN at the Crossroads of Opportunity


Manufacturing continues to be a critical growth engine for ASEAN economies, even amid recent challenges including easing global demand and flooding that affected production in Thailand.

But as Asian economies outpace the growth of developed markets, manufacturing itself is changing rapidly. The pace of innovation is getting faster, and businesses must adapt to stay relevant.

As a logistics partner to many manufacturers in Asia, we’ve identified three key trends that are shaping the manufacturing industry of tomorrow. These are: the emergence of disruptive new technologies, the changing role of labor, and the threat of protectionism.

First, new technologies, including artificial intelligence and 3D printing, are disrupting old patterns of production while opening new opportunities.

As the automotive and other industries have proven, industrial robots are ideal for repetitive tasks. In the future, these machines will talk to each other more, and they’ll adapt to specific purposes to improve manufacturing. For instance, they’ll identify problems and fix them. Or they’ll come up with new ways to improve product quality.

With this vast potential, businesses are ramping up research and development spending. For instance, Foxconn, one of the world’s largest manufacturing companies and one of China’s largest private employers, recently said they plan to add 1 million robots by 2013, according to the Economist magazine. The race is on to apply technology in factories and gain an edge on the competition.

Another disruptive technology, 3D printing, enables companies to effectively refine prototypes as easily as we print documents, letting businesses quickly test products before production, and speed time to market.

The second key trend is the increasing importance of labor skill. The secret to success in manufacturing today is not low wages but low unit labor costs. A skilled worker who knows how to use and care for equipment and uses time efficiently will beat less skilled competitors every time because that skilled worker makes goods at a far lower per unit cost.
Often, that advantage of having skilled and productive workers is the difference between profit and loss. The higher the value of the product, the greater the importance of skills and knowledge.

Furthermore, no longer do Asian factories make goods only for customers in developed economies. More and more, the customers are in Asia, and they have a thirst for manufactured goods.

As businesses compete to reach these new consumers, supply chains and production patterns will change. The trend of near-sourcing—making goods closer to consumers – will become more prevalent. The manufacturers that make the best use of labor and technology will win the hearts and minds of the emerging middle class and with them the future.

The third trend manufacturers need to watch is the growing risk of protectionism. For the last decade, trade barriers have fallen. But the horizon is clouded by potential disputes over natural resources, debt problems, or social upheaval. And there’s protectionism. Trade bashing in the United States is getting louder with the weak economy and the presidential election this November.

Asian nations are not immune to the temptations of protectionism. But ASEAN often sets an example of openness. Former political rivals have set aside differences to forge closer economic ties. The number of bi-lateral trading deals goes up every year, and we’re seeing the emergence pluri-lateral deals such as the Trans-Pacific Partnership, which involves nine nations. I believe pluri-lateral agreements are vital to the future of manufacturing, and ultimately the global economy.

With nations lowering barriers, trade within the Asia Pacific region has grown faster than trade with the rest of the world and already accounts for more than half of all exports. As a result of this leadership and vision of open trade, Asian economies are now the fastest growing in the world.

There is good reason for optimism.  Through 2025, global trade is forecast to increase 73 percent to more than $50 trillion. Much of that activity will take place intra-Asia, and globally positioned businesses will win this future.

Looking to the future, manufacturers with strong partnerships and a willingness to adapt in accordance to these three trends have excellent prospects for success.

The trading nations of Asia offer an example for the rest of the world as we build a globally connected economy for tomorrow.



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