Localisation and regionalisation: changing landscape of global supply chain

The world has experienced unprecedented economic disruptions in the last two years, owing in part to Covid-19 pandemic-related containment measures that hampered mobility and resulted in reduced spending and consumption of goods and services. The situation has put the world's supply chain resilience to the test, as it has inevitably resulted in demand and supply shocks. To mitigate the economic impact of the pandemic, a diversification in supply and demand has occurred to make it easier to obtain essential raw materials and components, as well as faster distribution of finished goods and access to skilled labour markets or manufacturing facilities. Manufacturers worldwide have either localised or regionalised their production to reduce or even eliminate their dependence on sources that are perceived as risky.

China, the world's second-largest economy, is at the centre of the global value chain, because of its large market, extensive supply chain, large and efficient ports, and transportation networks, Recently, China, a major trading partner for the US, Europe, and Asia, has been hampered by the Covid-19 outbreak, debts, and a property downturn. Its expansion is expected to reach 8% in 2021 before slowing to 5.1% in 2022. Nonetheless, as markets stabilise, it is expected that growth will resume by 2023.

With the pandemic tapering off and more countries reopening, manufacturers are facing new challenges such as high raw material and energy prices, logistical bottlenecks, and inflations, while meeting consumers' low-cost demands and remaining consistent with technological advancements to readily reach economic viability. As well, digitalisation will continue to play a vital part in keeping production and distribution efficiency as well as closing the workforce gap.

Digitalisation: 4IR and digital economy in ASEAN

The ASEAN region, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, is a large market with a population of 661.9 million people. The expanding trading bloc is the world’s fifth  largest economy with a  total combined GDP of US$3 trillion in 2020, after the US with US$20.9 trillion;  China with US$14.7 trillion;  Japan  with US$5 trillion; and  Germany with US$3.8 trillion. The region has rallied behind the stringent containment measures and economic response during the pandemic. 

In order to usher in the post-pandemic economic recovery in 2022, the ASEAN must consider taking more bold steps towards manufacturing hubs, green infrastructure, digital investments, talent reskilling, and high-value food industries.  Given how digitalisation has helped businesses continue operations, despite contactless transactions, adoption of digital technology has become a must.

Most recently, Covid-19 has hastened the region’s digital shift, as digital technology has proven to be a critical driver of economic activity during the pandemic. To this end, the ASEAN Comprehensive Recovery Framework (ACRF), ASEAN’s whole-of-community exit strategy to Covid-19, which was launched at the 37th ASEAN Summit in November 2020, has sped up the region's digital transition, as digital technology has proven to be a critical driver of economic activity during the pandemic.

Enabling the Fourth Industrial Revolution (4IR) can boost ASEAN's competitiveness by increasing innovation, moving up value chains, creating jobs with better workforce capabilities and skills, lowering capital requirements, and increasing product customisation. ASEAN’s internet user base has risen to 440 million, accounting for 75% of the region's population. ASEAN's digital consumers have also increased by 60 million from 350 million since the pandemic. The digital economy in ASEAN’s six largest markets – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – is estimated to reach US$309 billion by 2025, up from US$32 billion in 2015, and collectively, is expected to reach US$1 trillion by 2030.

Circular economy: cradle-to-cradle sustainability

According to the World Economic Forum, over 92 billion tonnes of materials were extracted and processed in 2019, representing roughly half of global carbon emissions. Efforts to reduce global carbon emissions are obviously impeded by the linear take-make-dispose cycle. Enforcing a circular economy, which is restorative, regenerative by design, and makes effective use of materials and energy to retain their value by reducing waste and using natural resources sustainably, could lead to economic benefits worth up to US$4.5 trillion by 2030.

New product manufacturing from virgin materials can produce 22.8 billion tonnes/year of emissions. Circular economy strategies can nearly double the amount of materials reused, from 8.6% to 17%, while limiting the use of virgin materials. However, the circular economy has not been applied because the percentage of products and materials that are reused is decreasing, while CO2 emissions from natural resource extraction and processing, which account for roughly half of all current GHG emissions, are increasing. By 2050, raw material demand is expected to double.

ASEAN, which is still in its early stages of adopting the circular economy, is coming to grips with resource depletion, unsustainable raw material consumption, flaws in product value chains, and climate change, all of which are affecting the region's economic growth. Furthermore, the region is plagued by the consequences of poor waste management. According to the United Nations' ASEAN waste management report, the country generates a per capita of 1.14 kg/day of municipal solid waste (MSW). Indonesia produces the most municipal waste, generating 64 million tonnes/year.  Thailand produces an estimated 26.8 million tonnes/year; and Vietnam, produces an estimated 22 million tonnes/year per capita of waste.

Recycling: boosting value recovery of plastics

According to a World Bank report on Southeast Asia's plastic circularity, less than 25% of plastics available for recycling are recycled into valuable materials in Malaysia, the Philippines, and Thailand; while over 75% of the material value of the plastics is lost, equating to US$6 billion/year across the three countries, It is due to improper waste management and poor recycling of single-use plastics. This is a challenge the region must address.

Malaysia, which is home to about 1,300 plastic manufacturers, has a low recycling rate, owing to its recycling industry's focus on materials like transparent PET bottles, which are easy to collect and have a high value. A vast bulk of waste, such as food packaging, polystyrene products, and straws, go unrecycled due to lack of technology and an unappealing profitability. Moreover, there is a lack of local demand for recycled plastics as global oil prices (which affect the prices of virgin plastics) have remained volatile. Recycled plastics have to be 15–30% cheaper than virgin resins in order to be competitive. The country has launched the Roadmap towards Zero Single-Use Plastics 2018-2030, a comprehensive policy framework to regulate use of disposable plastics, increase uptake of biodegradable and compostable products including single-use medical devices and consumer product. 

The Philippines, which is responsible for an estimated 0.75 million tonnes/year of mismanaged plastics entering the ocean, is working to increase its plastic recycling rates, which are currently at 22%. With 78% of unrecovered material value, the country's economy loses approximately US$ 790-890 million/year. To raise the level of recycling, several obstacles must be overcome, including high logistics costs, which prevent recyclers from sourcing feedstock locally; energy costs, which are up to 67% higher than regional peers like Thailand and Vietnam, reducing profitability for most recyclers that use low-efficiency equipment. Also on the agenda are the recycling mix, which contains a high proportion of low-value and difficult-to-recycle plastics, plus a lack of incentives to invest in more efficient recycling mechanisms and recyclers' inability to meet market demand for quality and scale; oil prices.

Meanwhile, Thailand, which has the largest petrochemical sector in ASEAN and the 16th largest in the world; and a plastics industry that accounted for 6.1% of its GDP in 2019, is focusing on plastic waste management as part of its efforts to strengthen trade. In 2018, it consumed 3.49 million tonnes of plastics/year -42% of which is used for packaging;  and recycled only 17.6% to 616,000 tonnes/year of key plastic resins such as PET, HDPE/LDPE) and PP, resulting in an 87% material value loss amounting to around US$4 billion/year. PET has the highest recycling rate (46%) of the resin types. Thailand’s National Plastic Waste Management Roadmap 2018-2030 aims to recycle all plastics to boost material value recovery. This can be accomplished by increasing the efficiency of post-consumer plastic waste collection and sorting, as well as mechanical and chemical recycling capacities; setting recycled content targets across all major end-use applications; mandating "design for recycling" standards; and implementing waste management policies.

-   Excerpt from the technical article released by Messe Düsseldorf in relation to K 2022. For the full version, visit www.k-online.de