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How ASEAN Can Move Up the Manufacturing Value Chain

For decades, export manufacturing has played a critical role in powering remarkable socioeconomic development across Southeast Asia. Yet while several other Asian manufacturing economies have evolved into global leaders in advanced industries and innovation, most of Southeast Asia is still viewed primarily as a location for low-wage assembly work.

The ten-nation Association of Southeast Asian Nations (ASEAN) now has a golden opportunity to move up the manufacturing value chain. A confluence of major trends is prompting companies across the world to rethink where and how they make and source their goods. As companies seek to make their supply chains more resilient against disruption, those in sectors ranging from medical technology to consumer electronics are looking to diversify their manufacturing footprints away from single sources and to produce goods closer to end markets—a focus that has intensified during the COVID-19 crisis. Next-generation Industry 4.0 technologies and mounting pressures on companies to lower their greenhouse gas emissions, meanwhile, are creating new opportunities by changing the game.

If manufacturers act boldly and imaginatively now, they will be well positioned to capitalize on these shifts. The region offers one of the world’s largest, fastest-growing markets and has an extensive manufacturing base that spans light, heavy, and high-tech industries.

What’s more, a new trade pact—the Regional Comprehensive Economic Partnership (RCEP)—is expected to significantly accelerate the flow of finished goods, inputs, and investment between Southeast Asia and trade partners such as China, Japan, South Korea, and Australia. This will create greater access to Asia’s biggest and most developed markets, lower the costs of importing manufacturing inputs, and make it easier for companies to build supply chains that leverage different advantages and skills across the region.

If ASEAN can take full advantage of these trends, we estimate that by 2030 the region can generate up to $600 billion a year in additional manufacturing output, increase annual foreign-direct investment in manufacturing by up to $22 billion, and create up to 140,000 new jobs a year.1 Building manufacturing ecosystems that are capable of realizing this potential will require greater investments in infrastructure and skills training. It will also require governments to follow through on commitments they have made to harmonize regulations.


ASEAN already has a range of well-established manufacturing clusters. These include electronics in Malaysia and Vietnam, automobiles and packaged foods in Thailand, machinery and petrochemicals in Indonesia, packaged foods and apparel in the Philippines, and semiconductors, biopharmaceuticals, and aerospace components in Singapore. The emerging economies of Southeast Asia have long been destinations for manufacturers seeking abundant low-cost labor, while Singapore has served as a hub for high-value R&D-intensive industries and trade-supporting services such as finance and logistics.

From 2015 through 2019, manufacturing exports from ASEAN’s ten member states averaged 5% annual growth—outpacing the global average of 3%. While manufacturing growth has been led by labor-intensive assembly work, there has also been strong export growth in higher-value goods such as machinery and electronics. (See Exhibit 1.)

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