This interview was posted on the media World Business Outlook on Nov 22, 2024 and can also be found at: https://worldbusinessoutlook.com/export-oriented-manufacturing-a-pathway-to-economic-transformation-in-southeast-asia/

Export-oriented manufacturing (EOM) has played a pivotal role in global industrialization and economic transformation. Emerging after World War II, it helped rebuild war-torn economies and stimulated growth in developing nations.

In East Asia, the "East Asia Miracle" (1960s–1990s) saw countries and territories like Japan, South Korea, Taiwan, Hong Kong and Singapore rapidly industrialize, reduce poverty and sustain economic growth through export-driven strategies. Southeast Asian nations like Malaysia, Thailand, and later Vietnam, adopted similar strategies to integrate into the global economy. Today, EOM remains a cornerstone of development in the region, contributing significantly to the expansion of the middle class and to the journey toward high-income nations.
“According to the latest data from the ASEAN Secretariat, manufacturing accounts for over 20% of ASEAN’s combined GDP, employs millions, and drives 75% of goods exports,” says Mr. Giuseppe Di Lieto, founder of the Singapore-based boutique consulting firm Exponasia Growth Partners. “While sectors like services and tourism are gaining momentum, manufacturing will remain a critical economic driver in the years ahead”. As the Southeast Asia countries embraced EOM, they experienced profound benefits:

- Economic Diversification: EOM shifted economies from dependence on agriculture and natural resource to reliance on a broad variety of manufacturing sectors, reducing vulnerability to commodity’s market cycles and price fluctuations.

- Job Creation: EOM generated millions of jobs, particularly for unskilled and semi-skilled workers, promoting upward mobility and social stability.

- Attracting FDI: EOM attracted capital, expertise and technology.
- Global Value Chains: EOM integrated economies into global production networks, offering access to international markets and advanced technologies.
- Economic Resilience: EOM diversified export portfolios improved resilience against global market disruptions.

Leveraging these advantages, EOM continues to drive Southeast Asia's economic growth and global competitiveness. This impact is evident in early adopters like Singapore, countries that have gained global prominence in recent decades such as Malaysia, Thailand and Vietnam, and those poised to emerge as the next players on the global stage.

Singapore: A High-Value Manufacturing Powerhouse

As a key player in the "East Asia Miracle," Singapore used EOM to transition from an underdeveloped economy to a high-income nation. In the 1960s, it embraced labor-intensive industries like textiles and electronics, creating jobs and attracting foreign investment. By the 1980s, Singapore shifted to higher-value sectors such as semiconductors, precision engineering, petrochemical and offshore engineering. This strategy fostered innovation and upskilled the workforce, allowing the nation to climb the manufacturing value chain. Today, manufacturing contributes around 22% to GDP and employs around 10% of the workforce, with significant contribution to advanced industries like pharmaceutical, medical technology, chip manufacturing and aerospace.

Malaysia: From Agriculture to the “Silicon Valley of the East”

Malaysia’s shift from an agriculture-based economy to a global manufacturing hub began in the 1960s with the First Malaysia Plan. A landmark moment occurred in 1972 when Intel established its first international plant in Penang, attracting major US companies like Broadcom, Dell, and Motorola. The 1990s saw further acceleration with strategic initiatives that drew multinational corporations, building a strong foundation for industrial growth. Today, manufacturing accounts for 23% of Malaysia’s GDP, employing 2.7 million people. Key industries include petrochemicals, automotive, electronics, and food production. Recently, Malaysia has planned on advancing into high-tech sectors, such as front-end semiconductor manufacturing and data centers, to enhance its position as an innovation leader.

Thailand: The “Detroit of Asia”

Thailand’s export-oriented manufacturing (EOM) strategy has established it as a global leader, particularly in automotive production. The industry began in the 1960s, driven by government efforts to industrialize. Early assembly plants from Japanese carmakers like Toyota and Nissan laid the foundation. Localization policies in the 1970s and 1980s attracted foreign investment, strengthening the supply chain. By the 1990s, trade liberalization and incentives attracted global automakers such as Honda and GM. Today, Thailand produces around 2 million vehicles annually, with a growing focus on electric vehicles. In addition to automotive, the country excels in petrochemicals, plastics, electronics, food processing, and textiles. This manufacturing diversity contributes 27% to GDP and employs 16% of the nation’s workforce.

Vietnam: The Rising Star in Southeast Asia Manufacturing

Vietnam’s rise as a manufacturing hub has been fueled by its strategic location, competitive labor costs, and favorable trade agreements. A key milestone came in 2007 with its WTO accession, attracting foreign investment. Over the past two decades, global companies like Samsung, Intel, and LG have set up operations, particularly in electronics. Textile and apparel production also thrives, benefiting from strong export markets in Europe and North America. Manufacturing now accounts for 25% of Vietnam’s GDP and employs 23% of the workforce. In recent years, there has been a shift toward higher-value industries, with the government promoting technological adoption to sustain growth and enhance competitiveness.

The Next Frontier of EOM in Southeast Asia

While Singapore, Malaysia, Thailand, and Vietnam are established manufacturing hubs of global relevance, a new wave of Southeast Asian nations is emerging:
- Indonesia: With abundant natural resources and a young workforce, Indonesia is set to become the next Southeast Asia manufacturing powerhouse. Challenges remain in regulatory reforms, workforce upskilling and infrastructure improvements.

- Philippines: Traditionally strong in food, beverage and electronics, the Philippines are expanding into higher value segments. Their English-speaking, skilled workforce and central geographical location make it attractive for investment, though infrastructure gaps persist.

- Cambodia: An established center for the garment industry, Cambodia is branching into electronics manufacturing. However, significant investments in infrastructure and workforce development are crucial for long-term competitiveness.

Lessons from the Southeast Asia’s Development Journey

The experience of EOM in Southeast Asia offers valuable lessons for developing economies:

- Focus on Export Markets: Integration into global trade networks drives economic growth by providing access to international markets, technology and expertise, which are essential for industrial development.

- Invest in Human Capital: Building a skilled, adaptable workforce is crucial for sustaining industrial growth and competitiveness. Technical education and proficiency in languages used in global business such as English, are key to meeting the demands of rapidly evolving global industries.

- Maintain Macroeconomic Stability: A stable fiscal and monetary environment attracts foreign investment, supports industrial growth and fosters investor confidence through consistent policies and transparent governance.

- Develop Infrastructure: Robust infrastructure—efficient transport, reliable energy systems, and advanced digital connectivity—lowers costs, attracts foreign investment, and supports local businesses.

- Develop Local Supply Chains: Strengthening local supply chains reduces dependency on global disruptions and supports sustainable growth. By fostering relationships between local suppliers and multinational companies, Southeast Asian nations create resilient, efficient ecosystems that drive innovation and enhance industrial competitiveness.

Charting a Dynamic Future in Export Manufacturing

As Southeast Asia continues to evolve, the lessons from its EOM success offer a roadmap for other developing economies. By focusing on export markets, investing in human capital, maintaining macroeconomic stability and developing essential infrastructure, ASEAN nations have built a foundation for long-term growth and competitiveness.

Mr. Giuseppe Di Lieto is optimistic about the future of manufacturing in Southeast Asia: “Current economic and geopolitical trends are set to provide strong momentum for ASEAN’s economies to remain relevant, competitive, and thrive. Moving forward, focus will remain on driving innovation, enhancing productivity and transitioning to higher-value manufacturing sectors.”
By embracing these strategies, ASEAN is positioning itself to navigate future challenges and continue its journey toward high-income economies, offering valuable lessons for other developing economies along the way.