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Now Under Threat Is Manufacturing, On Which Asia Has Long Relied On For Growth

Now Under Threat Is Manufacturing, On Which Asia Has Long Relied On For Growth
As technology changes the way manufacturers operate, Boston Consulting Group said in a new report, there will be likely erosion of the competitive edge for Asian economies — many of which depend on low-cost labor and exports for growth.
The consulting firm said that in a more cost-effective way, manufacturers are being able to make customized products in locations closer to their customers by technologies such as robotics and digital simulation. It explained that earlier, in order to achieve scale, standardized products in a handful of giant factories in low-cost countries was the standard practice in the traditional way and there is a shift in that way of production.
Foxconn, which used to make all of its electronics products in southern China, now assembles in Mexico and plans to manufacture in the U.S. as well while Adidas had moved some of its customized production to Germany, these two are just example among a number of manufacturers who are already doing that. 
The traditional models of manufacturing to propel "hundreds of millions of households into the ranks of the middle class and the affluent" have bene relied on in many countries in Asia since the end of World War II and this shift raises the risk of the largest loss for the region.
"(The shift) will compel Asian countries to change their value proposition when competing for manufacturing investments. Rather than offer themselves to multinational companies as havens of low-cost labor, these countries will have to compete on the basis of skills," BCG said in the report that was released in conjunction with the Singapore Summit 2017.
"And they will have to position themselves as locations where companies can reach important new markets and enhance their efficiency by leveraging the latest technologies at every point in the value chain," the company added.
Asia must look beyond exports for growth.
Also threatening Asia's export-led economic models are stalling global trade and rising protectionist sentiment in addition to the changes in manufacturing practices. Exports as a percentage of gross domestic product have declined over the years and are projected to fall further in many countries including China and Indonesia.
BCG said that as increases in wages outpace productivity, the cost advantage that Asia has been enjoying is also diminishing. Their wage gaps with the U.S. has been narrowing in China, Malaysia and Thailand.
The report suggested that those countries need to develop services industries that can deliver economic growth, and to step up their adoption of technology in order to thrive in the new environment.
Focusing more on driving domestic consumption, China is one country that is making the transition. While personal consumption is projected to reach $6.5 trillion annually by 2020, the GDP growth of the world's second-largest economy has slowed from over 10 percent in 2010 to around 7 percent this year.
The consultancy added that the economic model could be emulated by more countries. Already, in Indonesia, Malaysia, the Philippines and Thailand, the GDP contribution of services has surpassed that of manufacturing.
"The good news is that much of Asia is very well positioned to benefit from the digitalization of global business and the shift to services and domestic consumption," BCG said in the report, adding that the region's middle class — which is also among the world's most digital-savvy — is a prime target for the services industry.
"The rising affluence of Asian households suggests that the region will continue to be the world's biggest growth market for health care, education, financial services, entertainment and other services," BCG said.

Christopher J. Mitchell

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