Take East vs. West, where the two global powers continue to take a deliberate decision to diverge and other nations are being pressured to follow suit (PDF 2.8 MB). While 5G is the most obvious arena this is taking place, this is playing out in real time in the ‘regional’ cyber sphere, driven by democratic concerns around Protection over Performance. For instance, the recent (alleged) state-sponsored cyber espionage directed both at digital infrastructure and the surveillance of citizens has led to the ban of some ‘civilian’ technologies (such as mobile phone apps) in India.1
These political clashes are also occurring amidst a serious global economic downturn. Eurasia Group considers that sovereign debt risks remain modest across most major South and Southeast Asian markets (despite COVID-19-fuelled fiscal deficits), but there is the potential for an elevated risk of financial distress in Laos, Sri Lanka and Pakistan, among others. While financial obligations vary, debt relief and financial assistance will be an important tool in the ability of both global and regional powers to extend their influence throughout ASPAC during the pandemic.
Although there are brakes to the extent that decoupling will take place, the interconnection – and indebtedness – of markets in the region to world powers has the potential to lead to a splintering of business (particularly technological) architecture and standards as each country or territory more closely aligns to those of its economic partner. Importantly, this will likely take place not just on a global level, but also potentially within ASPAC, with countries seeking the ‘third way’: the promotion of local players, technologies and talent.
Enter Global vs. Local, where the blurring of national resilience and national security (PDF 2.8 MB) is resulting in increasing state involvement in private sector activities via policies to support and protect home-grown champions, and target foreign companies (for example, governmental scrutiny over foreign investment and merger screening in India and Japan). As ‘Western’ countries seek resilience in their ‘strategic’ sectors, some companies are looking to geographically diversify supply chains in South-East Asia – to ‘ideologically allied’ partners of key customer markets.
Yet even this is not that simple, as countries perceived to be beneficiaries of global trade tensions begin to draw the spotlight. For example, Vietnam experienced the highest levels of economic growth in South-East Asia in 2019, driven by the processing and manufacturing sector2, but now faces a potential backlash over its trade and exchange rate practices. Eurasia Group predict that Thailand, Malaysia, Indonesia and the Philippines may also face potential tariffs as a part of a push against trade practices in the region. All of this means a more complex, more costly map for business to navigate, and will make it much harder to realise growth that they seek from the ASPAC region.
But with risk comes opportunity. Take Man vs. Machine, the impacts of which could be felt acutely across the region as low-cost labour becomes less important to the comparative performance of companies and markets. As technology displaces low-wage jobs, the cost-benefit equation is expected to change for companies with large off-shore manufacturing operations in the region, particularly as Global vs. Local policies encourage – and Man vs. Machine automation enables - domestic production for domestic consumption.
Yet the value of human capital can also translate to physical capital. The performance of emerging technologies is, in part, dependent on the volume and quality of data, and large domestic populations can provide markets with a data advantage under Protection vs. Performance. The establishment of a single regional data market could be a unique opportunity for ASPAC to turn Man vs. Machine to its advantage, attracting investment in emerging technologies.
Similarly, Today vs. Tomorrow could be to our advantage. There are significant Sustainable Development Goals or SDG-related gains that can be made in the region to attract ESG-oriented investment, to the benefit of local communities – such as when a multinational consumer goods company utilized local recruitment and microfinancing to successfully expand into India (rather than utilizing the usual wholesaler-to-retailer distribution model)3.
These five geopolitical face-offs can only be ignored at one’s own peril and should be considered so the less predictable can be turned into an advantage.