Is Southeast Asia becoming increasingly attractive for global plastics processing?
Or to paraphrase one of the global manufacturing consultancies, with some of China's manufacturing “up for grabs,” can Southeast Asia take advantage?
The region's definitely getting more attention, for a couple of reasons. There's local economic potential (10 countries and 600 million people in the Association of Southeast Asian Nations bloc) and global reasons, like the U.S. government's “pivot” to Asia, including the potentially big (if it happens) Trans-Pacific Partnership trade pact.
Some regional plastics processors are gearing up.
Malaysia's Lee Soon Seng Plastics Industries Sdn Bhd has seen exports drive growth and is in the middle of a $5 million upgrade. In a July 29 investor presentation, it noted that exports have doubled in the last five years, while its local sales rose only 30 percent.
It said it's seeing more interest from developed countries in sourcing from the ASEAN region. David Cheng, corporate affairs manager for the company, said the export growth is also the result of more automation in its 40 thermoforming machines and investment in new extrusion capacity.
The company's business development director Tai Chin Lian also told Plastics News last year that rising costs in China are driving some customers to look for alternative locations, which benefits the company.
Not a new point, but a recent McKinsey report “Understanding ASEAN: The Manufacturing Opportunity,” backed that up, noting that while China remains “the goliath of global manufacturing… foreign investors are increasingly turning their gaze southward” to the ASEAN region.
The big potential for closer economic integration of the ASEAN Economic Community, which started in January, is a reason, it said.
Not everyone sees it so positively. A March report from the Malaysian Plastics Manufacturers Association said that while there are both challenges and opportunities in the trade deal, multinational companies in the country “are not expanding, some are relocating” to places like Indonesia and Vietnam.
It complained of a “less conducive manufacturing environment” in Malaysia, with more government emphasis on the service sector and “selected high-end manufacturing.”
A Philippines plastic pipe maker and compounder, Crown Asia Chemicals Corp., expressed similar ambivalence about the ASEAN Economic Community, which lowers tariffs to try to bind the regional economies closer.
Crown, in its recent IPO prospectus fretted that the zero-tariff regime of the AEC could “significantly reduce the company's cost advantages” by bringing new players into its local market.
From those comments you get the impression some in the region's plastics industry are a little on edge about AEC, worried that it will bring more changes than they can handle.
If they're on edge, that to me suggests opportunities for globally-minded plastics firms if they can take advantage of ASEAN's economic integration and bring technology or better management know-how as a competitive advantage.
While the ASEAN economy is very diverse, taking in everything from Singapore to Myanmar, McKinsey sees the ASEAN trade agreement building integrated supply and value chains across the region, which could undercut some of the huge advantages China has right now.
“Some of China's manufacturing is up for grabs,” it said, and that “could still create an opening for Southeast Asian economies to become the next ‘factories to the world.' “
Cheng from Lee Soon Seng is in the camp of those who see positives: “AEC will result in positive growth for LSS as AEC will bring about transparency, unified customs clearance, ease of doing business in a very complex community [and] thus this will augur well for us in exporting.”