How manufacturers can achieve supply chain diversification in Asia

When data centre operator GDS’ chief executive William Huang chose Singapore for his company’s overseas headquarters in 2021, he was aiming to ride on the city-state’s connectivity to realise the potential of Southeast Asia’s data centre industry.

GDS is the largest third-party data centre operator in China. It is using Singapore as a corporate base and has purchased greenfield land in Nusajaya Tech Park in Malaysia’s Johor province and Nongsa Digital Park on Indonesia’s Batam island to build its hyperscale data centre parks.

GDS’ approach – creating an interconnected ecosystem and data centre platform to serve clients across the region – is an example of the “SG+” twinning model that helps companies leverage the complementary advantages of countries in Southeast Asia to secure long-term growth.

“Southeast Asia has just started to digitise its economy, but it is progressing rapidly. China’s tech giants such as Alibaba, Tencent, Ant Group, and ByteDance have already entered the market,” said Mr Huang, who is also GDS' chairman.
 

Mr Huang added that the SG+ strategy effectively integrates “the business advantages of Singapore with the complementary strengths of  countries in the region such Indonesia, and Malaysia”. It also provides a strong legal framework, a friendly business environment, an excellent talent pool, energy resources and land, and more.  This results in synergy and a win-win situation that cannot be matched if we were based in a single country.

“I’ve been in the data centre industry for 20 years, and have never seen such good resources integrated so perfectly and conveniently before.”
 

Global business opportunities

In recent years, “black swan” events such as the COVID-19 pandemic and geopolitical instability have posed major challenges to global supply chains. Improving the resilience and stability of supply chains has become a key focus for businesses.

Multinational corporations (MNCs) have chosen Singapore as their preferred base in Southeast Asia because they want to have global business opportunities, said EDB’s managing director Jacqueline Poh in an interview with Lianhe Zaobao.

She cited the country’s transparency, stability, global connectedness and diversified economy, particularly its strength in the manufacturing industry.

“Singapore has always maintained a diversified economy. The manufacturing industry is one of its core pillars, accounting for 22 per cent of the country’s GDP,” Ms Poh said.

“Today, this sector encompasses a wide range of fields, including electronics, semiconductors, precision engineering, electric vehicles, biomedical technology, energy and chemicals, as well as aerospace. Singapore is also actively expanding into fields such as agriculture and renewable energy technologies.”
 

Singapore’s well-developed maritime and air freight industries – with Tuas port connected to over 600 ports all over the world, and Changi Airport with access to over 100 air routes – has made it one of the world’ most connected economies.

It has also signed 27 free-trade agreements with major economies such as the United States, the United Kingdom, and China, boasting access to 80 per cent of the world’s GDP.

Singapore is also a member of the Regional Comprehensive Economic Partnership (RCEP) agreement, which came into effect in January 2022. China, the 10 Southeast Asian nations (Asean), as well as Japan and South Korea are part of this agreement.

From a macro perspective, Southeast Asia is a prime location for manufacturers. This is due to the region’s low labour costs, highly-skilled workforce, and a consumer market that is 650-million strong. Businesses can also tap on the Southeast Asia Manufacturing Alliance (SMA), a joint partnership between EDB, Enterprise Singapore, and strategic partners in the private sector. The alliance will help companies planning to use the “Singapore+” (SG+) strategy to expand to Southeast Asia.

“Singapore is uniquely placed as a gateway to the Southeast Asian market,” said Ms Poh.

“Establishing themselves both in Singapore and a country that’s nearby is a win-win strategy most companies can adopt to strengthen regional operations and increase the resilience of their supply chains,” she added.
 

Hub for talent and R&D

Lingyi iTech, an original design manufacturer (ODM) from China, is another company that has adopted the “SG+” model.

In 2018, Lingyi iTech evolved from an original equipment manufacturer (OEM) that only did subcontracted manufacturing for other companies, to becoming a joint design manufacturer (JDM), and finally into an ODM. It has developed a new model of “independent R&D, design, and production”, a transformation that has a lot to do with Singapore.

“The company’s upgrade means that the capability of its core team has expanded and improved. Acquiring world-class talent in technical and management roles has therefore become our top priority,” said Lingyi iTech’s Chief Technology Officer and Vice-President Choy Chee-Mun.

“Singapore, a hub for outstanding international talent, is the natural choice for Lingyi iTech’s overseas headquarters and R&D centre.”

He added that Lingyi iTech would invest in and manage its businesses in India, Vietnam, Europe, and the United States through its Singapore headquarters, and also use its base in the Republic to develop talent for its overseas locations. In terms of R&D, Lingyi iTech will focus on working with the Agency for Science, Technology and Research (A*STAR) to develop new materials, while also basing its patent management centre in Singapore.

Mr Choy, who was born and raised in Singapore, used to be a senior scientist at the Singapore Institute of Manufacturing Technology (SIMTech) .

“In the face of globalisation, the single-market business model has become unsustainable. A complete and healthy business operation requires a capable internationalised team, R&D, and competent management,” he said.
 

This article was adapted from a content series produced by Singapore Chinese-language media organisation Lianhe Zaobao, that spotlights how businesses can tap on opportunities across Southeast Asia and serve global markets, from Singapore.