FRIDAY, March 29, 2024
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Asean’s fight to keep manufacturing edge

Asean’s fight to keep manufacturing edge

Fourth Industrial Revolution presents huge challenge to region’s under-skilled workforce – and massive opportunity 

The challenge facing Asean is clear – can this major manufacturing zone retain its competitive edge in the face of rapidly evolving technology and head-spinning change?
The question is fundamental to the region’s viability and sparked debate at the World Economic Forum (WEF) Asian meet in Phnom Penh last month.
Asean accounts for about 5 per cent of global manufacturing in value-added terms. It is the seventh-largest producer globally in the auto industry, employing about 800,000 workers.
Yet the region is not immune to the effects of 3D printing, robotics and automation. A recent International Labour Organisation survey indicated that Vietnam, Cambodia and Indonesia – all Asean members – have the highest number of workers at risk from automation. There are estimates that over 50 per cent of jobs in the region could be automated.
The WEF launched a “Future of Production” initiative to assess the readiness of countries to respond to the changes thrown up by the Fourth Industrial Revolution, as the WEF terms it.
Areas that will determine if Asean can rise to the challenge include:

Technology and innovation:
McKinsey Global Institute’s research says technology could potentially create US$25 billion-$45 billion of annual economic impact within the Asean region by 2030.
As costs rise in China, multinationals and manufacturers will look for new production sites. China’s labour costs have risen to $28 a day for the average factory worker, compared with around $7 in Vietnam and $9 in Indonesia. This represents an opening for Asean member states to establish themselves as bigger hubs of manufacturing.
But to do so, Asean needs to focus on developing innovation hubs and up-skilling workers to transform itself from a low-cost base to an attractive destination for new manufacturing investments.
Indonesian Industry Minister Airlangga Hartarto, who is working on the Future of Production initiative, said Jakarta has made transforming the manufacturing sector a policy priority. Among sectors like automotives, the Fourth Industrial Revolution can help make assembly lines more productive. Instead of producing one type of car, a line can produce different cars of different colours, lamps and designs, Hartarto added.
In other words, with the aid of automation and robotics, for example, existing processes and machinery can be revamped to improve productivity.
But technology is not just for the multinationals. Even agriculture and small farmers stand to benefit.
McKinsey’s Southeast Asia representative Oliver Tonby said: “Access to live information from sensors and analytics allows people to obtain insights and make more informed decisions. For a farmer, this means understanding how much water or nutrients the different parts of the plantation need, based on readings and weather data.”

Skills and education:
But a big concern is that Asean workers won’t have the skills to reap the potential of these technologies. While today’s young are thoroughly at home with mobile phones, they lack the requisite technical skills for work that adds value, such as the development of smartphone apps.
The WEF notes three types of talent are especially lacking in Asean – skills to analyse big data, knowledge of what data to request and how to look at the data generated, and IT expertise to implement the changes.
The lack of technical skills is something that Indonesia is aiming to address: “Through a revamp of the educational model, wherein Indonesia is emphasising more executive education on the Internet of Things and strengthening vocational education, the nation is encouraging its young to make the most of the new opportunities presented by the revolution,” Hartarto said.
The private sector can also play a role in terms of educating the workforce, according to Cham Prasidh, Cambodia’s Senior Minister for Industry and Handicrafts.
Five years ago, Japanese company Minebea set up a facility in the Phnom Penh Special Economic Zone. Last December, it opened its third factory, with total employment standing at about 20,000.
Employees were sent for training in Thailand and Malaysia, where manufacturing is more advanced. Workers in Cambodia will now make precision parts for smartphones, for example, a higher value-added process compared to the assembly work they used to do, and these parts will be exported to China, Japan, the United States and Europe.
While many continue to associate Cambodia with low-cost garment manufacturing, Prasidh said the experience with Minebea shows there is room for advanced technology in the country, “as long as we can create the environment for [the workers] to be trained and educated”. He added that mobility of talent in Asean is an important issue, and that “we should open borders for skilled workers to move from one country to another”.

Pan-regional networks:
Indeed, greater integration could produce productivity benefits worth up to 20 per cent of the cost base in many sectors.
This could come from the harmonisation of technical regulations, reducing the time taken to go from factory to shelf and preserve working capital, according to McKinsey analysis.
Indonesia’s Hartarto said harmonisation of standards could benefit the electronics and automotive sectors.
In the case of global packaged foods giant Unilever, harmonising regulations for registration and product approval is important. This means that products registered in one market can be sold across Asean without the need to register them again. Such harmonisation will lead to consistent standards, which in turn will reduce costs, improve logistics, increase speed to market and eventually give consumers access to more product choices at competitive prices, said Unilever regional president Pier Luigi Sigismondi.
As a region, Asean has many factors in its favour. With a population of more than 600 million and nominal GDP in excess of $2 trillion, integration among its 10 member countries offers immense potential, said Mauricio Zuazua, a partner with consulting firm AT Kearney. But the disparity between the 10 countries in terms of skills and level of economic development and resources as well as the challenge of coordinating their different interests makes the goal of realising Asean’s true potential a tall order.
The challenge is how to turn diversity into a strength through economic integration.

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