How businesses in ASEAN are building resilience against supply chain disruption

The Covid-19 pandemic laid bare the vulnerabilities inherent in international supply chains. Some 94% of Fortune 1000 companies experienced supply chain disruptions, prompting global businesses to undertake a profound re-evaluation of operations.¹

In the ASEAN region, business disruptions from the pandemic translated into the first economic contraction in 22 years.² The travel restrictions of that era may be behind us, but the experience underscores the need for contingency planning and risk mitigation strategies for all businesses that rely on international partners.

This is particularly relevant in Southeast Asia, where climate change is raising physical risks from flooding and intensifying natural hazards. These events can damage infrastructure, disable transportation, and bring manufacturing operations to a halt.

But how can international companies find the right balance between just-in-case and just-in-time delivery?

The location of sourcing partners and production facilities is a good place to start. Working with more local suppliers reduces transport-related risks and improves visibility of potential problems, while diversifying production across different markets reduces the impact of any localised breakdown.

A 2021 study by the consultancy McKinsey found that 40% of global businesses had planned to adopt new nearshoring and supplier base expansions to achieve this type of supply chain diversification in their 2020 responses to the pandemic. But a year later only 15% reported that they managed to do so.³

Cultivating more strategic supplier relationships also helps companies improve oversight and mitigate risk. Businesses in Asia are especially keen to reduce complexity. In our own supply chain study, conducted in late 2022, 67% of organisations in Asia Pacific said they were planning to reduce the number of companies in their supply chain, preferring to increase the stickiness with fewer but more strategic suppliers.⁴

Changes to a long-established international supply chain network are not easy, and many companies will find they need to develop an agile culture that can respond to unforeseen challenges.

The ASEAN region is home to one of the largest digitally enabled populations in the world, with an internet penetration rate of over 75%.⁵ The digital economy in Southeast Asia crossed a key milestone in 2023, with total revenues from online commerce, including digital banking, set to exceed USD100 billion for the first time – an eightfold jump in just eight years, according to research by Google, Temasek and Bain & Company.⁶

This degree of digitalisation opens up more benefits for companies in ASEAN. The region’s expanding network of instant payments helps businesses avoid lengthy delays in cross-border transfers and reduce foreign exchange risks.⁹ New technologies, including machine learning and artificial intelligence, can help digitalised businesses enhance efficiency across their supply chains.¹⁰ With access to real-time data on shipments, finances and operations, managers can spot problems early and take action to avoid disruption.

Across Asia, HSBC research found that 76% of businesses anticipate increasing digitisation across their supply chains.⁷ The expectation reflects growing awareness of the importance of technology in both providing growth opportunities and enhancing resilience.

Banking partners support the digitalisation of trade and supply chains because they recognise the value of data as a risk mitigation tool.

As companies digitalise their supply chains, they create a wealth of valuable data that can be used to improve access to trade finance, inform decision-making, optimise cash management and identify opportunities for further efficiency gains. A digital trade finance solution can enable instant access to working capital, using production or transaction data to automate other transactions.

HSBC provides businesses across ASEAN with access to trade finance and digital banking solutions to help reduce frictions and streamline treasury operations across international supply chain networks.

HSBC TradePay, an industry-first digital trade finance offering, brings just-in-time financing to ASEAN supply chains with loan processing speeds of under a minute.⁸ The document-free solution allows companies to control the timing of their trade payables by drawing down on trade loans with only the need to upload a digital payment file. The system helps coordinate supply chain relationships by paying suppliers directly and automatically sending notifications to all parties to keep everyone informed and coordinated on production and cashflow. HSBC TradePay is available in Singapore and Indonesia as of March 2024, and soon to be expanded further.

A resilient supply chain is crucial for fostering and maintaining a growing business. The Covid-19 pandemic exposed many vulnerabilities in the world’s supply chains. But efforts by companies to shore up those risks and enhance resiliencies are also helping to uncover dynamic growth opportunities. How these tactics and technologies come together could have a significant impact on ASEAN’s importance in global trade network and the region’s economic growth trajectory.