Manufacturing is a key driver of economic growth for the Association of Southeast Asian Nations (ASEAN), accounting for approximately $670 billion, or 21% of the region’s GDP in 2018, and is expected to double to $1.4 trillion by 2028 according to the World Economic Forum. Furthermore, ASEAN has approximately $250 billion to $275 billion in incremental value at stake by 2028, representing a 35 to 40% increase in manufacturing value added (MVA) from productivity gains and the unlocking of additional revenue streams such as new products and quality improvements through the adoption of Fourth Industrial Revolution (4IR) technologies.
The last 18 months have been difficult for all global businesses, but the manufacturing sector, in particular, has been at the forefront of change. Plant owners were forced to respond to rapidly changing demand with newfound nimbleness, speed, and agility as the pandemic disrupted supply chains worldwide.
Flexibility, supply chain resilience, increased productivity, and sustainability are among the emerging business imperatives for the manufacturing industry today.
Governments Driving Adoption in ASEAN
While labour costs have been a major motivator for shifting manufacturing to Southeast Asia, they are not the only factor. The majority of industries are incorporating new technology and intelligent automation into their production processes. Starting a new factory in ASEAN will allow global manufacturers to start from scratch rather than upgrading/retrofitting their existing facilities. This is also evident in policy initiatives spearheaded by local government agencies to encourage local businesses to adopt digital or industry 4.0 technologies.
The Rise of IR 4.0 and its Impact on ASEAN Manufacturers
In AIBP’s 2021 ASEAN Innovation Survey, 95.5% of ASEAN manufacturers believed Industry 4.0 will bring transformation of existing businesses and/or new business models to their industries. Leveraging business process automation across the business (54.9%) and supply chain optimisation (50.4%) are key priorities for ASEAN manufacturers when fortifying resilience. (You may view more findings in AIBP’s 2021/22 ASEAN Innovation Market Overview here.)
Manufacturing companies globally have generally begun their digital transformation with plant and machine automation in order to reduce manual operations and increase physical throughput.
Carsem, a leading provider of turnkey packaging and test services to the semiconductor industry, also one of the 2021 AIBP ASEAN Enterprise Innovation Award Winners, highlighted three initiatives that were part of their digital roadmap, which has helped to increase productivity and reduce human intervention in their factory. All three initiatives are part of Carsem’s overall digital transformation strategy, and will be replicated in other Carsem factories in the coming years as the company strives to be fully automated in order to achieve the highest quality with zero defects. (Find out more about their winning case study here)
Significant Challenges in Getting ASEAN 4IR Ready: Technological Governance and Cybersecurity
Although centralised IT systems are frequently required for Industry 4.0 transformations, recent global cyberattacks have revealed a vulnerability in these highly interconnected systems. Toyota, the world’s largest carmaker, continues to deal with the impact of one of the biggest supply chain attacks globally. Two weeks ago, Toyota was forced to halt operations at 14 plants in Japan after one of its component suppliers was reportedly targeted by a cyberattack. Last week, Denso, a top Toyota supplier, was targeted by a ransomware attack.
Companies throughout ASEAN have not been spared from these attacks – INTERPOL’s ASEAN Cyberthreat Assessment 2021 highlighted that the top five most frequently attacked industries in ASEAN included manufacturing, retail, government agencies, healthcare, and construction. Although precautionary measures are obviously required, cybersecurity risks should not prevent ASEAN manufacturers from reaping the benefits of these new technologies.
With the accelerated adoption of the 4IR, the importance of technological governance and cybersecurity will grow. Emerging technologies will necessitate new and swift governance decisions, while increased technology adoption and use will heighten the importance of cybersecurity.
The Future Outlook of ASEAN Manufacturing
Manufacturers in ASEAN have struggled to claim the title of the world’s next factory, owing to low productivity rates. Industry 4.0 technologies can assist the region in overcoming this barrier. These technologies can help businesses not only modernise their processes and eliminate inefficiencies, but they can also give businesses the freedom to make bold strategic decisions and reinvent their own business models, providing a sustainable foundation for maintaining a competitive edge in the face of global competition.
As part of our upcoming ASEAN-wide series on the digital age in the manufacturing industry, we will be looking to address topics on Realising the Potential of the Digital Technologies in Supply Chain, Cybersecurity for Smart Factories in Manufacturing, and ASEAN Agribusiness Revolution in the Digital Age. You may register for these online focus group discussions here.
16 March 2022