The Philippines, India, South Korea, and China have been tagged as a group of export “winners” by Oxford Economics.
The UK-based advisory firm’s research briefing, titled “Asia Globalization Winners and Losers Trade Places,” explained that these countries have seen robust gains in productivity and moved up the value chain, gaining global market share in the process.
The briefing noted that export performance has varied significantly across Asia since the global financial crisis, ranging from the strong showing of the Philippines, with a CAGR of 7.8%, to the continued demise of Hong Kong’s manufacturing sector (-8.5%).
“Our gold star performers are economies that mostly started from modest levels of development and wages and generated robust gains in productivity and/or moved up the value chain due to structural changes and reforms,” notes the report. “China illustrates this well: its manufacturing exports outgrew world demand by around 1.2% p.a. between 2010-16, underpinned by a pivot towards higher value-added production despite sharply rising wages and a strengthening exchange rate (vis-à-vis regional peers).”
But if there are winners, there are also losers. The “losers,” including Japan, Taiwan, Thailand, and Singapore, are mainly developed economies that have lost manufacturing dynamism because costs have risen faster than innovation or product development, noted the briefing.
The briefing highlighted that in Singapore, a large electronics cluster has struggled to compete with the emergence of lower-cost production centers in Asia, particularly in low-skill assembly.
The island nation's electronics exports in USD terms have fallen by one-third since 2010. A tighter labor market is partly to blame. Following the introduction in 2010 of stricter controls on foreign workers, nominal wages in the manufacturing sector rose by nearly 20% in USD terms between 2010-15.
“And while wages have risen, productivity has stagnated. As a result, unit labour costs have risen faster than in any of the developed Asian economies in our sample,” said the briefing.
Economies such as Malaysia and the Philippines have picked up the slack, buoyed by lower costs of production and increasing foreign investment (the Philippines is the only ASEAN-62 economy to see FDI inflows as a share of GDP rise since 2010).
Oxford Economies expects the recent trend of rising exports to continue, with growth in world trade of goods accelerating to 3.5% in 2017, helped by stronger import demand in the US and BRIC economies, before stabilizing just below 4% by 2020. However, this level remains well below the longer-term average of nearly 5% annual growth, as structural factors such as the maturing of international supply chains and the absence of additional trade liberalization have an effect.
“India and the Philippines should continue to experience strong growth as their relatively immature, or in the case of India, fragmented manufacturing sectors continue to “catch up” with more established rivals. Singapore will struggle to overcome weak growth in manufacturing exports without productivity- enhancing reforms that compensate for rising wage costs,” says the report.