ASEAN Firms' Resilience Efforts Hampered by Regulatory Hurdles, ERIA Says

By Justine Irish D. Tabile, Senior Reporter EFFORTS by Southeast Asian firms to diversify their supply chains and markets may not be sufficient to build resilience against trade shocks, geopolitical uncertainty and sustainability pressures, the Economic Research Institute for ASEAN and East Asia (ERIA) said. In a policy brief released last week, ERIA said Association of Southeast Asian Nations (ASEAN) firms are increasingly diversifying their procurement, production and markets but continue to face significant policy, regulatory and investment constraints. Isamu Wakamatsu, director-general of the ERIA Collaboration Office and senior research fellow at the Institute of Developing Economies–Japan External Trade Organization (IDE-JETRO), said diversification alone will not suffice. “For ASEAN to function as a truly global supply chain hub, stronger trade facilitation, greater regulatory cooperation, and enhanced institutional harmonization both within and outside the region are essential,” he told a policy symposium last week. He said the cost and quality advantages offered by Chinese components, along with differing standards and certification requirements across markets, make diversification difficult. “Many firms noted that components from China offer an attractive advantage in terms of both cost and quality, making it difficult to reduce their dependence on China,” he said. Entering new markets also requires firms to comply with different standards and certification requirements, he added. Meanwhile, ERIA said decarbonization and digitalization are also becoming priorities for ASEAN firms. Citing a JETRO survey, ERIA said 63% of ASEAN firms are undertaking decarbonization measures, while digital adoption remain modest. Foreign Buyers Association of the Philippines President Robert M. Young said the adoption of decarbonization measures and digital technologies in the Philippines remains uneven. “Larger companies in the Philippines are adapting pretty well to digitization, circular-economy initiatives, supply chain integration and others,” he said via Viber. Small- and medium-sized firms, particularly those in the garments and apparel industry, are “challenged by the cost and expense” of adopting these systems due to limited resources and government funding support, he added. Mr. Wakamatsu said the gap is even wider for more advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI). “Our research found that the adoption of ERP (Enterprise Resource Planning) has progressed relatively well in countries such as the Philippines and Thailand,” he said. “However, there appears to be a much wider gap among firms when it comes to more advanced technologies such as IoT or AI. A shortage of skilled human resources and high costs of investment were also identified as common challenges across ASEAN economies,” he added. To address these gaps, Mr. Wakamatsu said greater efforts are needed in workforce development, incentives for digital adoption and infrastructure development, including digital platforms. “In this context, the ASEAN Digital Economy Framework Agreement will become increasingly important in the years ahead. In particular, it has the potential to lower barriers for MSMEs seeking to participate in the digital economy and digital business activities,” he added. ERIA also called for greater support for micro, small and medium enterprises (MSMEs) to help smaller firms keep pace with the region’s decarbonization efforts. Mr. Wakamatsu warned that uneven progress toward decarbonization could widen disparities in firms’ participation in supply chains. “This is why support for MSMEs is particularly important as another actionable recommendation. We propose a capacity-building program for MSMEs in areas such as sustainability reporting and compliance with supply chain standards,” he added.