Fine-tuning “industrial connectivity” is not new to Japan, which has a strong production and supply chain in the Southeast Asian region.
Japan has strategised the way it does business in the region by considering the latter as a single integrated production site with multiple exporting markets at the same time.
Integrated production site refers to the approach that Japanese companies diversify its production lines in various ASEAN member states following comparative advantages and incentives that each country has to offer.
For instance, the upper stream of works that require higher-skills can be located in countries with more skilled labour forces, while the lower stream can be outsourced to other neighbouring countries with non-skilled or lower-skilled labour, with much lower wages.
This has been made possible thanks to the enhanced connectivity in the region and this is where the concept of “industrial connectivity” is derived from.
Other than benefitting from a combination of comparative advantages, industrial connectivity is also important for diversifying risks.
For instance, there were compelling reasons for Japanese companies to spread their production lines to various countries when anti-Japanese sentiment was heated up in China, coupled with the disastrous flood in Thailand in the early 2010s.
The trend of factories shifting out is what we now know as the Plus One effect such as “China+1” and “Thailand+1”.
During that period, Myanmar was the “darling” of the next frontier market for Japanese investment. Cambodia was not a major destination but there were companies like Minebea and AEON who chose Cambodia.
Sim Vireak is the strategic adviser to the Asian Vision Institute
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