Hyper Local, Still Global: Asia a Source of Growth and Innovation, By James Loudon, Managing Partner, EMEA, IoT ONE
The term "transition" often describes the times we're in. Transition to what kind of new era exactly is an endless and sometimes polarizing debate. Is it a choice between unfettered globalization and "slowbalization"? The reality is more complex and nuanced than that.
Yes, the world is becoming more regional. There's a rise in trade barriers and a realignment of global value chains happening at the moment. This poses a challenge for policymakers at multilateral institutions and corporate leaders at multinational companies, who need to balance the increased resilience of global value chains while maintaining efficiency.
Rather than getting stuck in the binary debate, let's acknowledge that the real undercurrent has been digital. Although the trade-to-GDP ratio has plateaued since the 2008 global financial crisis, digital data flows have increased exponentially, with digitally delivered services increasing four-fold since 2005 according to the WTO in 2022. Digitally delivered services comprise over two-thirds of the world's GDP and employ more workers than agriculture and manufacturing combined.
On the last day of November 2022, OpenAI introduced ChatGPT to the public, firing the starting pistol for a new global tech race that's an entire rebuild of the internet while use cases for generative AI and LLMs are expanding rapidly across industries. In February, Nvidia's market capitalization surpassed $1.8 trillion, making it the fourth most valuable company globally. Jensen Huang and his team are currently leading the way in developing specialized chips that power this new AI era.
As we shift our focus towards Asia, we can see a region leading the way in transformation, with several rapidly expanding markets and innovation hubs. The region is home to some of the world's most prominent science and technology clusters, highlighting its critical role in driving global innovation and technological advancement. For instance, China incentivizes research and development through a volume-based tax allowance. At the same time, South Korea's Digital New Deal Action Plan boosts its economy with digital innovation through close collaboration between the public and private sectors. Similarly, Singapore's Research, Innovation, and Enterprise (RIE) supports advanced technologies, healthcare, and sustainable urban solutions, reinforcing the "Little Red Dot" as a global innovation hub. Furthermore, the Asian Development Bank (ADB) recognizes the potential of Asia's youthful population, with over 2.2 billion young people under 30, leveraging institutional support and sovereign finance to fuel sustainable innovation.
Asia's rise and transformation in the past two decades has been China-centric. China will remain a central part of supply chains with its advanced manufacturing infrastructure for many products for the foreseeable future. However, ASEAN nations progressively position themselves as viable alternatives for a "China+n" approach, capitalizing on their cost-effectiveness, burgeoning infrastructure, and youthful demographics. Vietnam is on an upward trajectory in low- to mid-value manufacturing in this dynamic region. Meanwhile, Malaysia and Thailand are carving out their niches in the automotive and mobile sectors. Concurrently, with its wealth of STEM talent, India makes headway in the sophisticated realms of IT and software services.
India strongly desires to become a part of the global supply chain and produce goods for export in addition to China. India also wants to increase the number of services it provides. However, matching the quality of China's infrastructure, bureaucracy, and production system integration will require significant effort. The interplay between ASEAN and India is interesting because ASEAN's technical expertise could help India create a synergy that strengthens the global supply chain, especially in the semiconductor industry. Despite aging populations, advanced Asian economies such as Singapore, Japan, and South Korea are experiencing a surge in innovation, particularly in robotics and automation. This underscores the importance of advanced skill sets and technical knowledge.
These strategic policies, investments, and collaborative efforts show Asia's position and commitment to innovation. The region's dynamic ecosystem continues to drive progress and will shape the global landscape of technology and sustainability. The Regional Comprehensive Economic Partnership (RCEP) agreement fosters collaboration among these nations. While China will remain a key player in many product supply chains, other countries will also have a role to play.
It's not just economic superpowers setting the pace like green shoots out of Beijing with EVs, solar panels, or Silicon Valley turning the tables in the generative AI space. Innovation and digital leapfrogging are happening across many emerging markets. Companies aspiring to sustainable growth across borders must remain deeply connected to local ecosystems, demanding more than just operational strategies but a meaningful cultural shift. In our work and regular interactions with business leaders, we've found that becoming hyper-local while staying global is the only way to compete successfully in a region where requirements, processes, and tech stacks are different to those in home markets for EU or US-based companies. Rethinking established business practices, exploring unfamiliar markets, or investing in technologies that have yet to prove their full potential are prerequisites for staking a claim in a world where today's playbook is yesterday's news.
Moreover, in this era of relentless transformation, leadership demands a startup's 'no politics in the garage' attitude. Leaders must embrace a continuous 'lean' mindset, prioritizing agility and responsiveness. This approach involves iterating products in close collaboration with existing customers, challenging entrenched perceptions and beliefs in the boardroom, and embracing the inevitable discomfort accompanying change. Such a philosophy is beneficial and essential for navigating the complexities of today's "transition."
