Five Trends Driving Supply Chain Digitalization in ASEAN

The world economy is grappling multiple trade challenges in the post-COVID era. Asia’s commercial reopening was long delayed. Once it began, reviving vital flows of people and products was staggered between late-2021 in Southeast Asia and early 2023 in China. Supply chain dynamics in the region are proving more intricate than monthly or quarterly figures portray. Consumer sentiment and spending patterns are also proving volatile.

Although trade activity is rebounding, residual disruptions mean the region needs to redefine resilience, digitalization, and sustainability. With this in mind, ASEAN ministers are currently negotiating the ASEAN Digital Economy Framework Agreement (DEFA) with key elements including digital trade, cross-border eCommerce, digital payments, and regional data flows.

DEFA seeks to offer a comprehensive roadmap to empower businesses and stakeholders across ASEAN through accelerating trade growth, enhancing interoperability, creating a safe online environment, and increasing the participation of businesses. It is noted to be the first major region-wide digital economy agreement in the world with key elements including digital trade, cross-border eCommerce, digital payments, and regional data flows.

A large population and low take-up of electric and hybrid vehicles marks Southeast Asia as a region of high potential growth for low-carbon cars, motorbikes, and commercial electric vehicles (EVs). Chinese, Korean, Japanese, and US EV manufacturers are starting to develop expansive supply chains in prime Southeast Asian markets.

Establishing localized operations enables EV makers to access raw materials, particularly in in Indonesia, which has the world’s largest nickel reserves, for car battery production. It supports the expansion of supply chains for semi-conductors, precision machinery, and electronics used in EV manufacturing as governments seek to drive EV sales. Producing in Southeast Asia also provides direct access to millions of potential customers and creates scalable logistics for exporting regionally and globally.

Developing EV supply chains underscore efforts to make transport less polluting in a region vulnerable to the impacts of climate change. Governments and businesses want to simplify and shorten supply chains to cut carbon emissions. Often this involves utilizing clean technologies from China, Japan, South Korea, the US, and Europe. Developing competitive home-grown alternatives is vital to meeting emissions targets.

Reducing carbon emissions at scale requires sustained investment, capacity building, and efficiency improvements. New linkages between digitalization and ecological preservation will be explored. “ASEAN can ensure the long-term success of its digital supply chain initiatives by tying these efforts to a growing regional push toward more environmentally sustainable business practices,” notes a report by Kearney.

Mobile shopping adds new complexities to retail value chains. Mirroring trends in China, super apps and social commerce are extending the geographical reach of brands, retailers, and resellers. Social commerce is changing expectations about mobile shopping interactions and speed of delivery across nations. TikTok, whose CEO has promised to “invest billions of dollars in Indonesia and the rest of Southeast Asia,” is taking on eCommerce apps like Shopee, Lazada, and GoTo to attract brands, micro-sellers, and shoppers.

Shifting mobile shopping patterns require hyper-localized supply chains that are hyper-flexible and responsive. Integrating AI-empowered logistics tools is vital in large nations like Indonesia, Thailand, Philippines, and Vietnam, where mobile adoption is growing fast.

Consumers across ASEAN combine a penchant for both global and Asian brands, especially from Japan and South Korea, with a curiosity about home-grown start-ups and products. Governments in Indonesia and Vietnam are urging people to buy more locally made items to support small and micro businesses. This keeps spending within borders and reduces transport emissions. SMEs account for around 90% of registered businesses across ASEAN.

New AI-powered data analysis tools, mobile payments and livestream plug-ins will help SMEs integrate into e-commerce marketplaces and digital value chains. While offering growth opportunities, there is huge ground to make up. “Only 10 percent of SMEs in ASEAN use advanced digital tools for their core business processes,” notes Kearney. Tech-powered ways of working that are less manual-intensive will be important for attracting young supply chain talents.