Indian Council of World Affairs

1.  Background

Most of the Asian countries have registered robust economic growth and continued to remain promising investment destinations in the past two decades. Besides the large emerging markets like India, China, Indonesia, countries like Vietnam, the Philippines, Malaysia, Thailand, Cambodia, etc have witnessed impressive performance. Export orientation, strong intra-regional trade & investment flows and comprehensive reforms in domestic economy provided impetus to unleash the growth opotential of the Asian economies. As per McKinsey (2023) analysis, Asian countries are part of 49 of the world’s 80 largest trade routes of the world. In value terms, 13 of the 20 largest trade corridors of the world are located in Asia. While Covid-19 pandemic and persistent geopolitical uncertainty slowed down the pace of growth and transformation in the Asian region for some years, the countries in the region showed remarkable resilience in the post-pandemic period, and emerging faster as potential regional production hubs.

2.  Potential for Supply Chain Diversification in Asia

Production fragmentation and deepening of value chains have been viewed as virtuous path for faster economic growth and socio-economic transformation in the Asian countries. As per the World Investment Report 2025, investment is growing in Global Value Chain (GVC)-intensive sectors such as electronics, automotive, machinery and textiles indicating rapidly evolving trends in regional and global supply chains. From that angle, Multinational Enterprises (MNEs) globally and operating in Asia have been striving to diversity their production bases and mitigate the impact of rising wages and other rigidities.

Trade openness coupled with economic reforms in the form of favourable tax and fiscal incentives, regulatory reforms, financial market reforms supported this phenomenon further. Besides China, other countries like India, Vietnam, the Philippines, etc have emerged as key players widening the scope for sourcing of raw materials & inputs and served as new markets for regional exports. Exports of Asian countries to the world have grown over the years. Most interestingly, exports and imports among the Asian countries facilitated by the ASEAN economic integration process have recorded impressive growth. This growth in intra-regional trade in Asia is a positive signal for reducing dependence on select routes for supplies, and boosting local technology upgradation and production diversification.

While the recent wave of supply chain reallocation has roots in geopolitical uncertainty, the efforts for diversification and resilience of supply chains, and promotion of green supply chains were under way at its natural pace for quite some time in the pre-pandemic period. 

Vietnam and Indonesia are currently leading the manufacturing and trade flow shifts, as indicated by tangible metrics such as FDI and export volumes. India is regarded as the world’s third most preferred location for manufacturing in the sectors like chemicals, medical devices, generic drugs, electronics and telecom due to its skilled workforce, supportive government policies, lower costs, and favourable location. While lower wage advantage have eroded over time, market-friendly policy and regulatory reforms have are fostering manufacturing supply chains in Asia.

3.  New Drivers of Supply Chains

3.1 Rapid Adoption of Digitalization and Industry 4.0 Technologies

Advanced digital technologies like in the form of 3D printing, AI, Internet of Things (IoT), automation, cloud computing, machine learning, blockchain, etc marks the Industry 4.0 transformation in Asia. Product and process innovations are yielding significant reduction in costs, optimize operating efficiency across production lines, and enhance post-production marketing and distribution services. As per the Digital Economy Report 2025 by UNCTAD, Internet of Things (IoT) connections are expected to grow by 2028 mainly in the Asia-Pacific region. The use of digital technologies has demonstrated tangible benefits, including an estimated 30 per cent increase in efficiency and significant cost reductions within logistics operations. As highlighted in the World Investment Report 2025, digital industries remained the most dynamic sectors in 2024 with number of projects rising in digital services, platforms and e-commerce by 17 per cent. In particular, value of capital-intensive investment is higher in digital infrastructure and data centres which would drive digitalization-led supply chain diversification and maturity further.

Moreover, the revolution in digital payments, domestic as well as cross-border, is emerging as critical enabler of business promotion particularly for the MSME sectors. Innovative digital tools like fintech, agritech, edutech, spacetech, healthtech, etc are rapidly growing segments of digital economy. India’s UPI story is a testimony to this trend. Currently, UPI is operational in seven countries e.g. UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, and Mauritius—where international merchant payments are accepted at select merchant outlets. RBI is engaged with various Indian Missions abroad for globalizing the UPI payment rails. National Payment Corporation of India (NPCI) international has reached out for UPI Globalization in 80-plus countries and has already executed MOU with more than 20 payment partners covering 30-plus countries. Similar efforts are on in other Asian countries.

3.2 ESG Compliance for Green Supply Chains

Firms operating in the Asian region are increasingly conscious of the recent wave in supply chain management towards responsible, resilient and green supply chains. This paradigm shift is marked by rebalancing of ‘efficiency’ with ‘resilience’ and ‘sustainability’. It is often manifested in upfront investment in eco-friendly technologies, reduction of carbon emissions, increasing reliance on clean energy (solar, wind, etc), proper wastewater treatment, minimizing plastic waste, and last but not least, Environmental, Social and Governance (ESG) compliance. CICA members representing a significant clout in Asian economy may foster greater adherence to green and resilient supply chains in different sectors.

4.  Way Forward

CICA countries may assess the potential advantages of newer trends in regional supply chains for their economies and undertake confidence building measures for supply chain cooperation in the domain of digital adoption, cybersecurity, ESG compliance, renewable energy production and promotion of eco-friendly technologies and practices.

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