Though the scale of the region’s supply and demand has the potential to make Asia more resilient to external factors, the US-China trade war and the COVID-19 pandemic have highlighted the urgency of addressing these types of risks. In response, Chinese companies are increasingly relocating manufacturing to smaller Asian economies to help make their domestic tech hardware industries more resilient.
This transition began as Chinese manufacturing labor was becoming more expensive, growing at an average of 14% annually for the last decade.6 In recent years, the shift was significantly accelerated by the US-China trade war, which made 37% of China-based companies consider moving supply chains to other Asian countries.7 Finally, for many companies, the COVID-19 era has reaffirmed the need to diversify the location of their supply chains. We believe this growing trend will help make local Asia tech industries more stable than their US competitors.
Given the recent downturn in the market, we think it may be a good entry point for investments in local Asia tech companies that we believe will play a much larger role in the technology of the future.
The COVID-19 pandemic has led to a significant increase in our global reliance on technology. For example, data usage has exploded as people are forced to stay home. In Chinese education alone, 276 million students moved online in February 2020. Combined with the significant growth in working from home, streaming entertainment and other digital solutions, this has increased the need for data centres and cloud services. To help these students, consumers and businesses navigate this transition, many online education and cloud providers in Asia are offering their services free of charge during the crisis.8
These local Asia tech firms are experiencing growth that we believe will continue long after the crisis through expanding digitisation and the advancement of AI, machine learning and connected devices.
Though the world is a distinctly uncertain place in the COVID-19 era, Asia remains a massive and growing opportunity set with the majority of potential global demand for technology. Asia tech companies are proactively adapting to the new environment, with consistent support from their governments. We believe these local firms will increasingly meet this demand with compelling solutions for their local markets.
1“China to lead APAC tech spend, 5G race ahead of global markets”, ZDNet, March 2019. Figures represent business and government spending on tech goods and services. | 2Ibid | 3Sources: Statista, IPlytics. As of December 2018. | 4Source: Wall Street Journal, “China Sets Up New $29 Billion Semiconductor Fund”, October 2019. | 5McKinsey Global Institute, “China and the world: Inside the dynamics of a changing relationship”, July 2019. | 6National Bureau of Statistics, as of 31 December 2018. | 7AmCham Shanghai and AmCham China, press release, as of May 2019. | 8Tech Republic, March 2020.