Pacific trade winds
the landmark Trans-Pacific Partnership agreement could reshape the region's project landscape
The Pacific Rim region is getting a makeover—and project practitioners in countries on both sides of the ocean could soon feel the repercussions. After more than five years of negotiations, trade ministers from 12 Pacific Rim nations, including the United States, Japan and Australia, reached a consensus in October on the Trans-Pacific Partnership (TPP) agreement. The landmark—and controversial—deal aims to liberalize and boost trade in the region by eliminating nearly all tariffs on goods traded among TPP members and creating environmental and intellectual property standards.
The removal of tariffs “will help manufacturing exporters like Vietnam and Malaysia in boosting their exports to other TPP countries, notably the United States, which is the world's largest consumer market,” says Rajiv Biswas, Asia Pacific chief economist at IHS Global Insight, Singapore.
In Japan, experts predict an uptick in project investment in the automotive industry. In Malaysia, the project surge is expected to center around the semiconductor and consumer electronics industries. And Vietnam's surging apparel and footwear industries will go into overdrive because of the new TPP rules, analysts say.
But the potential impact if the agreement is fully approved by all nations—which may not occur until 2017 in the U.S.—won't be uniform. Vietnam's GDP will be 13.6 percent bigger in 2025 than it otherwise would be, economists estimate, with Malaysia expected to fare second-best with a 5 percent GDP increase. (The U.S. is projected to see a 0.13 percent GDP increase due to the TPP over the same period.) On the eastern side of the Pacific, Mexican leaders have said the TPP will help their manufacturing sector compete against Chinese companies.
Garment workers on a production line at Garment 10 Company just outside Hanoi, Vietnam
PHOTO BY HOANG DINH NAM/AFP/GETTY IMAGES
These upticks in production capacity and output will first require a bevy of projects to build the necessary manufacturing plants and support infrastructure. And Vietnam, in particular, is well prepared for the challenge. Thanks to its central location in Southeast Asia along with low labor costs (compared with China), the country in recent years has become the region's fastest-growing economy. There's no shortage of project sponsors, either: In 2014, foreign investment in the country topped US$12 billion, a nearly 25 percent increase from five years before. And Samsung has announced plans to double its current US$4.5 billion portfolio of manufacturing projects in the country.
The Trans-Pacific Partnership is integrating the economies of Pacific Rim countries more than ever. World Economic Forum's The Global Competitiveness Report 2015-2016 shows they're also notably competitive. Here's how 11 of the 12 TPP nations place in global rankings of productivity and prosperity.*
*Brunei is part of the TPP but not the 2015-2016 WEF report.
As the TPP incentivizes global organizations to refocus project investments toward Vietnam and Malaysia, other manufacturing hubs that aren't part of the agreement, including Thailand and Cambodia, could see project investments and production dwindle. A People's Bank of China economist speculated that China could lose 0.5 percentage points of annual economic growth as a result of the deal, according to the Financial Times.
Within Vietnam, big winners could be the garment and footwear industries. They are the country's fastest-growing sectors, with global companies such as Nike and Uniqlo moving production there in recent years. More industry projects are expected to follow due to the TPP, pushing the country's exports up to US$165 billion by 2025, a 46 percent surge, according to the Wall Street Journal.
“Vietnam has already made huge gains in garment and footwear production, and these deals will help boost its comparative advantage as factories look to relocate from China,” Citigroup economist Johanna Chua told the Financial Times.
In July, one of the world's biggest makers of clothing labels and tags, Avery Dennison Corp., which supplies global apparel companies, finished a project to build a 300,000-square-foot (27,871-square-meter) facility in Long An, Vietnam. The plant is already delivering business results, and executives are considering additional projects to expand the facility to accommodate more workers and more client work in the wake of the TPP. Nearby, dozens of new construction projects are underway to build homes for factory workers.
“More and more companies are making bets on Vietnam,” says Frank Smigelski, vice president, global manufacturing and supply chain, Avery Dennison Corp., Boston, Massachusetts, USA. “The TPP would encourage more manufacturers to push volume here. The more they come, the more our company would benefit.” —Kate Rockwood
PM NETWORK MARCH 2016 WWW.PMI.ORG
MARCH 2016 PM NETWORK
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