(Yicai) March 18 -- To better navigate geopolitical risks and tap into Southeast Asia’s fast-growing markets, Chinese companies should embrace a ‘China+few’ strategy, spreading their operations across several countries, while simultaneously harnessing artificial intelligence, according to the regional chief for Roland Berger.

Mounting US tariffs on imported Chinese goods and the reliance on single third-party conduits such as Vietnam will not deter Chinese investors from the region, John Low, senior partner and managing partner for SE Asia at the European consultancy, said in an interview with Yicai yesterday. 

He noted the huge market potential presented by the Association of Southeast Asian Nations. With a population of 750 million, ASEAN has almost three times as many people as the United States, Low said, pointing to rising incomes and urbanization as key drivers that will create strong demand for Chinese products and expertise in the years ahead.

China’s outbound direct investment in ASEAN countries jumped 13 percent last year, compared with an average of 10 percent growth globally, with Singapore, Indonesia, and Thailand key destinations.

“There is more opportunity and maybe a further motivation for China to invest even more in Southeast Asia,” Low said. But relying on a single alternative market is risky, he pointed out.

Chinese companies need to move beyond the traditional ‘China+1’ strategy to a ‘China+few’ approach, thereby diversifying their supply chain, investments, and production locations, he said.

Many Chinese businesses already have a single production base outside of China. Amid an increasingly complex international trade landscape, a China+few strategy would see them spread the risk of potentially unfavorable tariffs and geopolitical changes across several markets.

“If suddenly the US government imposes additional tariffs on Vietnam, you still have maybe a Malaysian or Indonesian factory to diversify your production,” Low said.

“People are trying to see how they can have minimal impact from the global trade wars and the global geopolitical risks,” he said. “Managing the risk is now more important than being a low-cost producer.”

Trade Pacts and National Plans

Beyond advocating a ‘China+few’ strategy, Low also offered a number of other pointers for Chinese businesses. They should leverage regional trade pacts such as the Regional Comprehensive Economic Partnership and the ASEAN-China Free Trade Agreement, he said, as these "help counter tariffs and offer competitive advantages.”

Businesses should also consider how they can play a role in supporting the national agendas of countries in SE Asia, he said, so that they can benefit from tax breaks, investment incentives, or visa policies as a foreign investor.

“Chinese companies should align investments with ASEAN nations’ 10-year plans,” Low pointed out.

He also mentioned the issue of cultural integration, a major hurdle for Chinese companies in SE Asia. Low cited the experience of some Chinese firms in Indonesia, where Chinese and local employees "ate lunch separately and lacked integration."

To bridge cultural divides, Low recommended rigorous cross-cultural training to educate both Chinese expatriates and local teams on cultural sensitivities. He also suggested joint ventures with local firms to avoid the perception of "China taking over," and meaningful community engagement through corporate social responsibility initiatives focused on worker training and sustainability projects.

He also underscored the importance of strict adherence to local laws, proactive collaboration with authorities, ethical business practices, and transparency.

AI in Action

According to Low, Chinese firms are increasingly shifting their investment focus in SE Asia away from infrastructure and manufacturing toward high-tech industries such as electric vehicle batteries and sustainable green technologies.

This shift presents a great opportunity for Chinese companies to capitalize on their high-tech expertise, especially in AI, to further invest in and collaborate with local companies, as the region continues to lag behind China technologically, Low said.

Businesses from China are already making big strides in deploying AI tech in SE Asia. For example, Alibaba Group Holding’s City Brain software system is optimizing traffic flows and logistics, while TradeClub, a cross-border platform owned by Shanghai Suling Information Technology, is connecting 500,000 small and medium-sized enterprises with Chinese suppliers, Low said.

Low also cited a collaboration between Roland Berger and Shenzhen-based Huawei in designing Thailand’s national smart city framework.

Low said China should consider setting up platforms that offer digital services, such as software as a service, to help SE Asian countries push forward with their digitalization efforts.

“Southeast Asian countries are still behind,” Low said. “Invest. Be part of the ecosystem. Be part of the value chain. Be part of the industrial hubs. That's where you have big investments in technology.”

Chinese companies can provide tech services to mid-sized enterprises, which may become the giants of the future. This is essentially an evolution of the China+1 strategy, but now using AI and tech, Low noted.

Editor: Tom Litting