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Published by tusharsubhrabose, 2021-08-21 14:56:09

EEPC

EEPC

Chapter 5

The policies of ASEAN member-nations of promoting internationalisation for MSMEs through assisting their participation
in global value chains to unlock new productivity and inclusive growth brings good opportunity for Indian MSMEs to
participate in India-ASEAN RVCs. Thailand has developed specific industrial clusters in auto and auto parts, electronics,
digital industries, etc as high potential production bases providing more global business opportunities for MSMEs.
Malaysia has advocated a series of initiatives to promote internationalisation of MSMEs, namely SME Go Global, Market
Development Grant, and export training programmes. In Vietnam, MSME internationalisation has been set as a policy
target, where the government offers export training and connects domestic MSMEs with global supply chains through
trade promotion activities.

5.2.6 Linking ASEAN through Greater Mekong Sub-region

The Greater Mekong Sub-region (GMS) in the ASEAN, comprising Cambodia, Laos, Myanmar, Vietnam, and Thailand
can well be a gateway for Indian MSMEs to integrate more with their ASEAN counterparts as its geographical proximity
to India provides the necessary connectivity to enter into the ASEAN market. Moreover, India’s low penetration in the
market of GMS and offering of a series of engineering products by the ASEAN provides enough reason for India to
access the market of this region as a strategic entry point for deepening of its engineering network with ASEAN.

A study by the Asian Development Bank (ADB) reveals that the MSME sector has to play a key role in India’s integration
strategy with the GMS. Helping SMEs break into this market can provide India access to value chains and marketing
networks throughout the sub-region and beyond. Furthermore, some recent initiatives like East Coast Economic Corridor,
promoting the integration of India’s industrial clusters with value chains extending to Southeast Asia and East Asia;
the Eastern Economic Corridor in Thailand; the Greater Mekong Sub-region’s Southern Economic Corridor traversing
Cambodia and Thailand; Mekong-Ganga pact; the Bay of Bengal Initiative for Multisectoral, Technical, and Economic
Cooperation; and agreements with ASEAN has opened new windows of opportunity for strengthening India’s ties with
the GMS and hence ASEAN in turn.

150

The MSME sector is the backbone of the Indian as well as the Mekong economies. Indian SMEs are more likely than
larger firms to enter the smaller Mekong markets, which they can use as a gateway for expanding into larger, more
complex markets of ASEAN. Mekong countries offer many opportunities for them, particularly in sectors that are more
integrated with global markets, such as auto components, parts and components of industrial and electrical machineries,
garments, and pharmaceuticals. However, adequate government support is required from both sides to carry out the
process of integration of MSMEs successfully and to help both India and ASEAN securing higher participation in RVCs.

In the next section we briefly look into a case study on the MSME policy of Vietnam, a country within the Mekong region
which has increasingly gained in importance in the global value chains.

5.3 CASE STUDY

Evolution of MSMEs in Vietnam and collaboration with Indian MSMEs

As per an OECD study conducted in 2016, the rapid growth of Vietnam in the last decade was clearly attributed to rapid
industrialisation in the country. MSMEs are a large participant of the industrialisation process in Vietnam, accounting
for 96% of the country’s total stock of companies, 47% of employment, and 36% of national value-added. The MSME
sector in Vietnam took off since the economic reforms in 1986, which promoted free market incentives along with
proper government planning. The OECD study adds that the Vietnamese MSMEs are innovative in terms of products
as well as process. The innovation capability of the country took off since the establishment of the National Technology
Innovation Fund, 2014 and the Vietnam Inclusive Innovation Project, 2013, aimed at improving the technological and
innovative capabilities of MSMEs.

Vietnam is a largely export-driven economy with significant participation in global value chains. The share of FDI
in Vietnam’s exports is almost 70%. A favourable investment climate and a large pool of low-cost labour are the
main factors behind making Vietnam a sought-after GVC location. Another factor that largely contributed to Vietnam’s
attraction is its proximity to large Asian manufacturing powerhouses such as China, Japan, and Korea. Improved
connectivity of Vietnam within ASEAN and with these countries has also played a major role.

However, while increasing participation in the GVC is a positive trend, Vietnam’s exports are mainly driven by foreign-
owned small companies. Hence the foreign value-added content in Vietnam’s exports is larger than that of the domestic
value-added content. As per a recent ADB study involving the OECD TiVA (Trade in Value Database), the share of foreign
value-added exports in Vietnam’s manufacturing trade remained at around 45% from 2007 to 2015. The sectors with
significant presence of foreign value-added exports include fabricated metal products and machinery and equipment.
However there has been not much improvement in domestic value-added exports. The country is highly integrated
in GVCs but the participation is mostly in low-value-added products. There are several factors behind this, the most
prominent being the lack of skill. While large numbers of semi- and unskilled labourers are important for increasing GVC
participation, skilled labourers are required for upgrading one’s participation in the value chain.

Like Vietnam, India is also regarded as a strong contender to participate in GVCs but is plagued by similar issues which
limit its participation. The two countries can gain by sharing their success stories, expertise, and technical skills and

Chapter 5

upgrade their individual GVIC participation. Keeping these factors in mind India and Vietnam signed an MoU in 2013
that aimed at determining key thrust areas of cooperation and opportunities and put in place an institutional framework
for the MSMEs of the two countries. More such cooperation initiatives should be undertaken by the governments of the
two countries to deliver maximum benefits to their MSMEs in terms of participation in GVCs.

5.4 CONCLUSION

When the global economy is reshaping and all developed as well as emerging economies have been playing all-out to
restore the international demand-supply chains, the time is apt for India to strengthen its relations with strategically
important partners like ASEAN. With engineering sharing around one-fourth of total merchandise exports of both India
and the ASEAN and MSME sector accounts for nearly 40% of India’s exports, deepening of economic ties will surely
bring sizeable opportunity for Indian engineering firms, especially its MSMEs, to build a solid regional production
network with their counterparts in ASEAN.

References
1. https://openknowledge.worldbank.org/bitstream/handle/10986/32437/9781464814570_Ch02.pdf?sequence=66&isAllowed=y
2. https://www.adb.org/sites/default/files/publication/606536/adbi-wp1138.pdf
3. https://www.adb.org/sites/default/files/publication/646146/asia-sme-monitor-2020-volume-1.pdf; Other ADB Reports.
4. https://www.greatermekong.org/how-globalizing-smes-can-link-india-mekong-economies
5. https://www.ibef.org
6. https://www.oecd.org/cfe/smes/VN%20SMEE%20Policy%20highlights%20EN.pdf
7. https://www.smechamberofindia.com
8. Ministry of MSME, Government of India

152  

   
 

EMAIL ‐ [email protected] 

MOB     ‐ 9810123493, 9910015098 

CHAPTER 6

India-ASEAN Partnership in Technology and
Opportunities for Engineering Sector

6.1 INTRODUCTION

India and the ASEAN countries have a remarkable history of mutual collaboration and cooperation for more than
three decades with a shared vision of economic growth and regional peace and prosperity. India and ASEAN have
achieved major milestones through various successful initiatives that have facilitated the smooth movement of goods
and services. Both India and ASEAN present tremendous trade and investment opportunities for investors from across
the globe, across multiple sectors due to their robust growth trajectories. India and ASEAN countries are expanding
their collaboration in new areas such as Industry 4.0 and Smart Manufacturing which is likely to have far-reaching
implications for their economic and social development. Against this backdrop, this chapter analyses the India and
ASEAN partnership in emerging technologies and potential scope for collaboration particularly in the engineering sector.

6.2 HISTORICAL CONTEXT OF INDIA-ASEAN TECHNOLOGY PARTNERSHIP

India and the ASEAN countries began Science and Technology (S&T) collaboration in 1996 with the formation of
the ASEAN-India S&T working Group (AIWGST). In its initial phase, ASEAN-India S&T collaboration was financed and
supported by the ASEAN-India Fund (AIF). Recognising the importance of S&T collaboration in shaping India ASEAN
economic ties, the Government of India created a dedicated fund – the ASEAN-India S&T Development Fund (AISTDF)
– in 2008. This fund is aimed to support research and development projects and other development projects between
India and the ASEAN countries. The total budget under the AISTDF was $5 million which was jointly contributed by the
Ministry of External Affairs (MEA) and the Department of Science & Technology (DST). The objectives of India and ASEAN
S&T collaboration are based on three important pillars:

• Encourage and promote cooperation in science, technology, and innovation, including through joint
research activity; and development on cross-sectoral areas such as health, communicable and emerging
infectious diseases, environmental management, climate change adaptation and mitigation measures,
agricultural technologies, alternative energy, biodiversity, food processing, advanced materials for the
development of value-added products, and space technology and applications;

• Encourage and promote cooperation in biotechnology including through capacity building and joint
research and development for mutual benefit;

• Undertake activities and develop programmes/projects under the ASEAN-India Science and Technology
Development Fund.

154

6.3 GROWTH TRAJECTORIES OF INDUSTRIAL REVOLUTION

The Industrial Revolution kicked off with steam and the first machines that automated some of the work that our
progenitors did. This was followed by the second era of the industrial revolution in which the introduction of electricity,
assembly lines, and the birth of mass production were a key force for industrial development; and then the third-
generation industry began with the introduction of computers and the beginning of automation when robots and
machines began to replace workers on those assembly lines.
Today, the world has entered the era of Industry 4.0 in which computers and automation are introducing massive
disruption in the industrial ecosystem. This is further shaped by the rise of robotics connected with computer systems
equipped with machine learning algorithms that manage robotics with minimum human intervention. It is important
to state that Industry 4.0 is characterised by highly sophisticated and intelligent, interconnected systems that form a
fully technology-driven value chain. It is built on cyber-physical production systems, which integrate communications,
information technology, data, and physical eleme nts to transform traditional plants into smart manufacturing. The key
objective is that machines interact with other machines and products and information is processed and delivered in
real-time, which will have far-reaching implications to the whole industrial ecosystem.

Chapter 6

Industry 4.0 is all about creating smart, innovative, and flexible digital supply chains, manufacturing plants, and
distribution models in which advanced computerised machines collect and transmit data through machine-to-machine
communication and to human operators. This is largely aimed at helping institutions to make quicker, smarter decisions,
all while reducing costs. The industrial revolution 4.0 will have tremendous impact on the global economic system
and it will help firms to accumulate and evaluate all valuable data through machines, big data analytics, and artificial
intelligence, which will introduce efficient production techniques to generate superior quality goods at affordable prices.
Other than this, it will also increase productivity, shift economic science, lead to higher industrial growth, and transform
the profile of personnel – eventually changing the competing companies and regions. The global adoption of Industry
4.0 might lead to other initiatives and cooperative efforts.. Broadly, there are nine technological factors that progressively
lay the foundation of Industry 4.0 and future industrialisation. These are: autonomous robots, big data, augmented
reality (AR), additive manufacturing, cloud computing, cyber security, IoT, system integration, and simulation.

6.3.1 Key drivers of Industry 4.0

6.3.2 Industry 4.0 and smart technologies initiatives

Key Drivers of Industry 4.0

Big Data Simulation System
Integration
Cloud Augmented
Computing Reality Additive
Manufacturing
Internet of Cyber
Things Security Autonomus
Robots

156

India and the ASEAN countries recognise the need and importance of Industry 4.0 in their next phase of industrial
transformation that will be driven by advanced technologies. They have undertaken several measures, both at policy
and institutional levels, to encourage industry to adopt new technologies in manufacturing operations. The GOI have
announced several initiatives such as Digital India, Skill India, Smart Advanced Manufacturing and Rapid Transformation
Hub (SAMARTH), Technology Centres, Technology Upgradation Scheme, Pradhan Mantri Jan-Dhan Yojana, Aadhaar, and
Make in India. These initiatives make for Industry 4.0 implementation with an aim to advance technological solutions
to Indian manufacturing units by 2025 through steps like awareness programme, training, demo centres etc. It is also
aimed at promoting greater adoption of digital technologies in day-to-day life and industrial structure to boost the
productivity and competitiveness of the economy to double the country’s digital economy.

The GoI has created an institutional infrastructure to address challenges encountered by the Indian industry that
undermine its global competitiveness such as the perception of low quality, skill and knowledge gap, low volume of
production, stiff competition on cost from other nations, low levels of innovation, and limited ability to meet rapidly
changing customer needs and expectations. It has established the Centre for Industry 4.0 (C4i4) Lab Pune, Central
Manufacturing Technology Institute, Centre of Excellence in Advanced Manufacturing Technology, IIT Kharagpur. The
overarching goal of these institutions is support domestic industries to adopt Industry 4.0-driven technologies to become
competitive in the global market. Many Indian companies are working in this direction and have made substantial
progress. In the automobile sector, companies such as Maruti Suzuki, Ford Motors, Mahindra, and Hyundai have
implemented the automation process in their plants by using robots on the assembly lines. Bosch India has started the
implementation of smart manufacturing at its 15 manufacturing centres in India which uses real-time data to shorten
throughput times for the calibration of pumps for tractors.

Similarly, the ASEAN group of countries have taken initiatives both in national and regional contexts to leverage

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158

the potential benefits of Industry 4.0. At a regional level, ASEAN countries adopted the ASEAN Work Programme
on Electronic Commerce 2017-2025 in 2017 and inked the ASEAN Agreement on Electronic Commerce in 2018.
This work programme is further expanded into the ASEAN Digital Integration Framework Action Plan (DIFAP) 2019-
2025, which has identified five priority areas to address the critical barriers and accelerate existing ASEAN platforms
and plans to realise digital integration. These are: digital connectivity and affordable access; financial ecosystem;
commerce and trade; workforce transformation; and business ecosystem. At the national level, ASEAN countries have
introduced policies about Industry 4.0. Malaysia launched the Industry4ward policy that focuses on incentivising the
industry to adopt the Industry 4.0 technologies related to automation and modernisation. Indonesia has come up with a
comprehensive policy Making Indonesia 4.0 which underscores the importance of enhancing efficiency and productivity
of the local enterprises through advanced technologies to improve their business competitiveness both in the regional
and global markets. The adoption of advanced technologies led by Industry 4.0 is far more manufacturing-based
economies such as Indonesia, Thailand, and Vietnam to remain competitive in regional and global value chains.
The importance of Industry 4.0 can be easily assessed from the fact of how firms are adopting digital technologies in
their value chains. A McKinsey survey of more than 200 business leaders throughout the 10 countries that form the
ASEAN clearly confirmed the tremendous potential of Industry 4.0. A majority of them have confirmed that Industry 4.0
will introduce new business models to their industries, which will help firms to improve their productivity, performance,
and competitiveness, which is critical for them to move up on value chains. Firms based in ASEAN countries are of the
view that if they have to sustain in the era of smart manufacturing, they have to step up with massive investment. The
global technology firms are setting up their technology centres in ASEAN countries to become key suppliers of smart
technologies. Hexagon AB has set up a Hexagon Smart Manufacturing Innovation Centre in Singapore to provides
solutions for design and engineering, production and metrology to make manufacturing smarter.

6.3.3 How companies are adopting Industry 4.0 in ASEAN countries

Source: Industry 4.0: Reinvigorating ASEAN Manufacturing for the Future Mckinsey, Mckinsey

Chapter 6

6.3.4 Strengthening collaboration in Industry 4.0 and smart technologies
India and ASEAN countries recognise that the fourth industrial revolution demands greater cooperation and synergies
to facilitate structural transformation and economic diversification. There is need to promote collaboration in Industry 4.0
and smart technologies to improve industrial productivity and competitiveness. During the India-ASEAN Commemorative
Summit 2018 Prime Minister Narendra Modi stressed the importance of information technology cooperation to shape
India and ASEAN relations and focused on fostering a new area of technology partnership through a regional high-
capacity fibre-optic network that would integrate rural areas of two regions. Recognising the complementarities in
bilateral trade and investment, India and ASEAN can cooperate in capacity building, research and development, critical
information infrastructure, 5G, internet of things (IoT), and artificial intelligence (AI), among others.

6.4 POTENTIAL AREAS OF COLLABORATION IN THE ENGINEERING SECTOR

India and ASEAN countries can encourage their innovative start-ups in the engineering sector to form a consortium
to develop the platform in emerging technologies that are critical for boosting productivity of engineering firms. This
would help India and ASEAN to enhance trade and investment flows and reduce impediments for MSMEs to join global
value chains.

160

• India and ASEAN countries have strong regional value chain linkages in automobile sectors where India is a supplier
of automotive components and also importer of intermediate inputs for its downstream automobile manufacturing.
Considering the fact that the automobile sector is going through massive disruption due to new technologies
both in India and ASEAN, there exist significant scope for collaboration for India and ASEAN automotive companies
to work together in critical areas manufacturing of such engine design, battery manufacturing among others.

• India and ASEAN can foster strong partnership in agri- technologies to transform the agriculture value chain by
connecting farmers to markets and shared equipment, automating farm management processes, critical data
analysis to provide action oriented insights for farmers. Affordable access to real time information and data from
different sources can enable companies to offer customised inputs to farmers, to enhance productivity.

• The collaboration between India and ASEAN countries needs to be strengthened by expanding the scope of
the ASEAN-India Innovation Platform. It should allow sector-specific institutions to partner product with institutions
in ASEAN to facilitate development, transfer, and innovate low-cost technologies. Institutions such as EEPC India,
SIAM, and ACMA can be important partners in the ASEAN-India Innovation Platform, given their sectoral
competence.

• The rapid expansion of digital technologies and their application in manufacturing operations make it abundantly
clear that the new technologies will be the key driver of future manufacturing both in India and ASEAN. It is
therefore, important for India and ASEAN countries to build greater synergies between Digital India, Make in
India, ASEAN Digital Integration Framework Action Plan, and national policies pertaining to Industry 4.0 and
smart-related policies to ensure that gains from digital transformation are evenly distributed across the
manufacturing value chain.

Chapter 6

Notes
1. Extracted from Terms of Reference (ToR) of ASEAN-India Science and Technology Development Fund (AISTDF) https://www.
aistic.gov.in/ASEAN/aistdfMandate
2. Ibid
3. Ibid
4. Hexagon puts stakes on ASEAN’s smart manufacturing pie, accessed on 12 June, 2021 https://futureiot.tech/hexagon-puts-
stakes-on-aseans-smart-manufacturing-pie/
5. Ministry of External Affairs, ‘Opening remarks by the PM at the Plenary Session of the INDIA- ASEAN Commemorative Summit,’
25 January 2018
References
1. ASEAN Digital Integration Framework Action Plan (DIFAP) 2019-2025, Endorsed by the AEC Council at the 18th AEC Council
Meeting (October 2019) https://asean.org/storage/2018/02/AECC18-ASEAN-DIFAP_Endorsed.pdf
2. ASEAN-India Science and Technology Development Fund (AISTDF) https://www.aistic.gov.in/ASEAN/aistdfMandate
3. Bhat.TP (2020). ‘India and Industry 4.0 A Paper Prepared as part of the Research Programme Industrial, Trade and Investment
Policies: Pathways to ndustrialisation,’ Institute for Studies in Industrial Development
4. KPMG, (2009) ‘India-ASEAN: Co-creating the future,’ https://home.kpmg/in/en/home/insights/2019/02/asean-india-
relationship.html
5. Mckinsey, ‘Industry 4.0: Reinvigorating ASEAN Manufacturing for the Future,’ https://www.mckinsey.com/~/media/mckinsey/
business%20functions/operations/our%20insights/industry%204%200%20reinvigorating%20asean%20manufacturing%20
for%20the%20future/industry-4-0-reinvigorating-asean-manufacturing-for-the-future.ashx
6. NITI Aayog, ‘ 2018, ‘Strategy for New India @ 75,’ https://niti.gov.in/writereaddata/files/Strategy_for_New_India.pdf
7. Roadmap And Action Plan To Promote Smart Manufacturing Development In Asean, ASEAN Consultative Committee for
Standards and Quality, https://asean.org/storage/Roadmap-and-Action-Plan-to-Promote-Smart-Manufacturing-Development-
in-ASEAN.pdf

162

CHAPTER 7

Conclusion and the Way Forward

The Asian economies have experienced significant growth in recent years. Even as the world economy is being ravaged
by the Covid19 pandemic, many Asian economies have exhibited resilience and are expected to recover from the global
recession at a faster pace. These robust performances of Asian economies have encouraged intra-Asian trade and
cooperation to a large extent. Several studies conducted by the IMF and UNCTAD in 2008 indicated the intra-Asian
trade as the major factor behind the boom in Asian exports and growth in South-South trade.

Therefore in this context, India’s relations with the ASEAN countries hold significant importance. The discussions in
the earlier chapters indicate that the relations have strengthened in the last decade to a large extent. Still, there is
significant untapped potential in several areas of bilateral cooperation, which, if addressed properly, could transform
the region into a strong trade bloc.

Some of the key areas of cooperation as concluded from the earlier chapters are:

Key areas of cooperation Action taken/proposed

Strengthening trade and investment ties • Addressing bilateral trade issues and non-tariff barriers

through join monitoring and dialogue

• Mutual recognition of standards and certifications is important
to do away with technical barriers to trade

• Reducing cost of compliance through bringing down
administrative delays and simplifying the application process for
export under normal as well as preferential routes

• Creating awareness among MSMEs regarding the benefits of
preferential routes to export to increase FTA utilisation

• Continuous exchange of information among countries to
exchange export opportunities and prospects

• Enhanced cooperation between the business associations and
investment promotion agencies for proper exchange of

164

information on potential investment opportunities

Enhancing connectivity • Need for appropriate policies and regulations relating to

movement of goods, services, people, etc. necessary to utilise

the improved connectivity between India and the ASEAN

countries

• Harmonisation and simplification of customs procedure would
also be necessary for seamless connectivity between India and
the ASEAN countries

• Improvement in logistics in general and establishment of
transparent transit rules would also be critical to connectivity
between the countries

• Connectivity has to be established in all sectors including
physical and digital medium

Cooperation between MSMEs and • MSMEs form the backbone of the most crucial region in

building regional value chains the ASEAN economy – the Mekong region. However, they are

constrained by a number of factors such as lack of training,

manpower, access to information technology, etc. India can

share its experience in developing MSMEs, entrepreneurship

and human capabilities with their counterparts in the ASEAN

region

• Through investment led trade, India can also develop MSME
clusters in the Mekong sub-region which then can be
coordinated with the clusters in India. This can be a stepping
stone towards creating regional value chains between India and
its ASEAN partners

• Alignment of India’s commercial interests with its ASEAN
partners, especially those in the CLMV region, would also be
critical for establishing strong regional value chains

Cooperation in the field of technology • India and ASEAN countries can increase their technology

cooperation in several areas including capacity building, R&D,



166

Industry 4.0, 5G, etc. Some potential sectors of technology
collaboration are automotive manufacturing and agri-
technologies
• The partner countries should also build synergies in their
domestic technology policies

• Both regions should also build ecosystems to develop their
digital trade

These factors need to be addressed by the two countries to utilise full potential of the India-ASEAN partnership in the
coming days.

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