Without prompt action, the economic inequalities between the bloc’s member states could threaten its unity and cohesion.
Southeast Asia has undergone a remarkable economic transformation over the past few decades, becoming a key node in global manufacturing supply chains. Countries such as Indonesia, Thailand, Malaysia, Singapore, and the Philippines began their industrialization in the 1970s–1990s, building robust manufacturing sectors across textiles, electronics, and automotive industries. More recently, Vietnam has emerged as a rising star in export-oriented manufacturing.
All of these nations have to various degrees entered high value-added manufacturing industries including digital and green technology, which have become the core of Southeast Asia’s industrial system. However, alongside this growth story lies a pressing concern: if not given due attention, the risk of widening developmental disparities within the bloc, this industrial leap forward may possibly threaten the cohesion of the Association of Southeast Asian Nations (ASEAN) by exacerbating the economic divide between its most and least developed member states.
The manufacturing upgrading of Indonesia, Vietnam, Thailand, and Malaysia in particular has been supported by strong policy support and strategic docking with the global value chain. Vietnam has benefited from a large amount of FDI, which reached $25.35 billion in 2024, while the processing and manufacturing sector grew by 9.83 percent year-on-year, with a significant increase in the electronics industry. In 2023, Vietnam became the world’s second largest exporter of smartphones, mainly due to the migration from China of companies such as Samsung and Apple.
Thailand has significantly promoted the electric vehicle (EV) industry under the “Thailand 4.0” strategy, and now accounts for around 45 percent of ASEAN’s total EV production. Malaysia, with its “Digital Economy Blueprint” and longstanding technological base, holds about 13 percent of the global market share in semiconductor packaging and testing. Meanwhile, Indonesia has leveraged its endowment of the world’s largest nickel reserves to turn itself into a world leader in nickel processing, and, it hopes, a future hub of EV battery manufacturing.
This manufacturing upgrading has prompted a restructuring of the intra-ASEAN supply chain. More advanced economies such as Singapore, Thailand, Vietnam, and Malaysia continue to move up the value chain, shifting toward green industries, automotive parts, and various types of high-tech manufacturing. At the same time, resource extraction, labor-intensive assembly, and low-tech processing occupy a more prominent position in slower-growing economies. Currently, intra-ASEAN trade accounts for a large part – 21.5 percent – of the bloc’s total trade, and the proportion is increasing as ASEAN’s economic integration proceeds.
However, this restructuring also brings risks that deserve attention. The most pressing issue is the widening economic and industrial gap between member states. In 2024, Singapore had the highest GDP per capita in ASEAN at $92,930, followed by Malaysia at $13,140, Thailand at $7,770 and Indonesia at $5,030. In contrast, Cambodia, Laos, and Myanmar, which rely heavily on low-skilled textile manufacturing, raw material exports, and other basic industries, had much lower per capita GDPs of $2,870, $2,100, and $1,180, respectively. For example, Cambodia’s manufacturing exports rely on rudimentary industries including basic garment manufacturing, while Myanmar’s exports are dominated by raw materials such as natural gas, timber, and textiles, which are vulnerable to market demand shocks.
Such gaps could have significant implications for the future of ASEAN. While the economic disparities within ASEAN are not necessarily “widening” at present, they remain a persistent structural challenge and risk becoming deeply entrenched. A growing body of research on regionalism shows that economic imbalances between member states can weaken collective identity and solidarity.
If industrial upgrading is in the main a good thing for Southeast Asia, it remains to be seen whether all ASEAN member states will benefit equally from the increased wealth and prosperity created by the rise of these new industries. Assuming the economic gap within ASEAN continues to widen, this instability will not be limited to national borders, but may also weaken the already fragile sense of “ASEAN identity” as regional development needs and national priorities diverge.
Key frameworks such as the ASEAN Economic Community are designed to promote the construction of an integrated market and production networks. However, the success of these initiatives depends on relatively balanced levels of development among member states. If industrial disparities complicate efforts to harmonize standards and promote seamless flows of labor and capital within ASEAN, more developed economies may seek deeper integration with external partners, such as through bilateral trade agreements.
Given these possible issues, there is an urgent need to explore strategies to promote more inclusive development within ASEAN. One possible approach is to adopt a regionalized development model under which developed ASEAN economies will “lead” the region’s entry into high-tech manufacturing, and in so doing drive industrial upgrading in their less developed neighbors through supply chain integration. For example, Cambodia could undertake some of the labor-intensive assembly process outsourcing of relatively advanced manufacturing industry chains in Vietnam and Thailand, as these nations enter advance into higher levels of manufacturing.
Introducing fairer regional value chain management and a division of production based on the principle of the “ASEAN way” is important for closing these gaps. Countries like Cambodia, Myanmar, and Laos are endowed with valuable natural resources, and Myanmar and Laos are key producers of energy for ASEAN, supporting the region’s energy needs, especially for industrial production. Additionally, Myanmar’s mining sector contributes a significant amount of copper and tin production, which are critical raw materials for Southeast Asia’s booming electronics and renewable energy industries. There is an opportunity to move beyond simply providing raw materials. to integrate into the ASEAN regional supply chain through RCEP and the ASEAN Free Trade Area Agreement and begin playing a more significant role in value-added manufacturing processes.
Despite this optimism, it remains unclear where the region would get the foreign investment necessary to promote relatively high value-added industrial growth in less developed member countries. Will investors with sharp business insight and strong risk awareness be willing to invest in countries with relatively weak industrial bases, such as Myanmar or Laos? Or are they more likely to prefer countries like Thailand and Malaysia, which already possess stronger industrial foundations? Meanwhile, ASEAN leaders concerned about their domestic legitimacy will continue to compete to attract foreign investment. Without a regional mechanism for resource coordination, equitable sharing, and fair distribution, development gaps may continue to widen. Striking a balance between national and regional interests presents a significant challenge – a structural issue that ASEAN will sooner or later need to confront.
In addition, ASEAN’s efforts to strengthen its internal mechanisms to support equitable development need to be recognized. Existing initiatives such as the Master Plan on ASEAN Connectivity 2025 and Initiative for ASEAN Integration & Narrowing Development Gap (IAI & NDG) have laid the foundation for progress. ASEAN should further strengthen its internal mechanisms to support equitable development and promote balanced development within the region.
While the upgrading of manufacturing in ASEAN member states marks an important leap forward in the region’s economic development and global prominence, it brings potential internal risks that cannot be ignored. ASEAN’s collective identity and future unity could benefit from focusing on internal industrial production and fair management of internal value chains.
Source: The Diplomat
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<p>Time: 2024 By: Ministry of Industry and Trade</p>
