Kevin Rudd, former Prime Minister of the Commonwealth of Australia and President of the Asia Society Policy Institute
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For companies looking to diversify into new markets – especially given the geopolitical risks surrounding China – India, Southeast Asia and Mexico are the best candidates, former Australian Prime Minister Kevin Rudd said on Sunday.
“Looking around the world, I see three groups, three zones of activity that are currently benefiting from the ‘great diversification’ or shall we say. [the] ‘early decoupling debate,'” he said at the Asia-Pacific Conference of German Business in Singapore.
“One is Southeast Asia, which is where we are now, the second is India … and from a North American perspective, certainly Mexico, which obviously benefits from the Nafta or Nafta Plus economic agreements.”
India in particular has seen a crucial shift in economic policies over the past year that could make it a new market and manufacturing hub for multinationals, said Rudd, who is also president of the Asia Society.
“As someone who has studied India for the last 20 years, I was convinced for the first time that they are about to seek a significant policy shift,” Rudd said at the conference.
“If they can do that, India can make it the next China in terms of a large consumer market and also a reliable, global factory,” he added.
“Allowed to [Modi] translate that into reality? Another open question.”
India in particular could potentially offer exporters not only opportunities to diversify supply chains, but also new end markets.
Increasing competition between the US and China and the disruptions caused by the pandemic have increased the importance of diversification for global companies. It has also ushered in new trade alliances and so-called “friend shoring”. — the creation of supply chain networks between allies and friendly countries.
“The Right Balance”
Rudd said Germany, as Europe’s largest economy, will play a key role in shaping the “China-specific debate” on the continent.
Germany has heavy investments in China and has been criticized for its reliance on the country for trade and business, although business officials have downplayed these concerns.
Chancellor Olaf Scholz’s first personal visit to Beijing last week caused a stir in Europe amid mounting political pressure on Germany to reduce its dependence on China.
“My German friends constantly underestimate their influence on the global debate and underestimate their influence on the China-specific debate,” Rudd said.
“I looked at Chancellor Scholz’s written statement a few weeks ago … before his visit to Beijing, I think he found the right balance in how he articulated German interests.”
Before his trip to Beijing, Scholz explained in a guest commentary for the Frankfurter Allgemeine Zeitung and Politico that he was not striving for decoupling from China, but instead Striving for diversification and economic resilience.
Rudd said it is important that countries do not “walk away” from the difficult task of balancing national security interests, relations with allies, human rights obligations and an economic relationship with China.
Gunther Kegelk, CEO of the German manufacturing group Pepperl and Fuchs, Speaking on a panel at the conference, said German companies had not been “naïve” in establishing supply chains and business relationships in China and elsewhere.
But Kegelk, who is also president of the German Electrical and Digital Industries Association, said companies may need to start carving up their businesses as part of a new geopolitical playbook.
“And that would be the exact opposite of what I’ve been doing for 30 years [ago] – [in globalizing] the company … and globalization was strategically right for the company in terms of distribution … it was also right economically,” he said.
“Now suddenly everything is wrong. We’ve been called naive or stupid to get involved in such relationships, but we’ve made a lot of money over the years. Not just us, but the entire European and German economy.”
He added that many companies are now struggling to adapt, especially given the sanctions and trade rules imposed on China by the US and others.