ASEAN’s next competitive advantage isn’t cheap labour. It’s trust

For decades, The Association of Southeast Asian Nations' (ASEAN's) economic proposition rested on a powerful combination of competitive labour costs, expanding manufacturing capacity, strategic geography and increasingly connected regional markets.

Those advantages remain important. But the conditions shaping investment decisions are changing.

Geopolitical tensions, fragmented trade relationships, shifting supply chains and rapid technological disruption have made resilience a business priority. Companies are no longer looking only for the lowest-cost place to manufacture or operate. They are increasingly asking whether a market is predictable enough to support investment over the next decade.

The Business Times’ ASEAN Intelligence 2026 survey captures this tension. Business leaders continue to see significant opportunity within ASEAN, but many also find the region difficult to navigate. The message is clear: commercial potential alone does not create business confidence.

ASEAN’s next competitive advantage will therefore depend not only on how efficiently its economies can produce, but on whether businesses trust them enough to stay, expand and keep investing.

Entrepreneurs learn quickly that the lowest-cost market is not always the lowest-risk market.

Savings on labour or operations can be erased by unpredictable regulation, inconsistent enforcement, infrastructure failures or sudden changes in policy. Conversely, businesses may accept higher operating costs when they have confidence that rules will remain clear, contracts will be respected and institutions will function when tested.

In economic terms, trust is not an abstract sentiment. It is the confidence that policies will be reasonably consistent, regulations will be applied transparently, disputes can be resolved fairly, and investments will remain viable beyond the next political or economic cycle.

This becomes even more relevant as businesses diversify their supply chains. Companies are building regional networks rather than relying on a single production centre. As they decide where to locate factories, offices, technology platforms and talent, institutional reliability will increasingly influence where the most valuable and sophisticated operations are placed.

ASEAN’s traditional cost advantage is not obsolete. But it is no longer sufficient on its own.

Strong institutions often attract little attention when conditions are favourable. Their value becomes evident when uncertainty arrives.

A recent OECD Asia Capitals Market report on public governance in Southeast Asia highlights the importance of stronger public institutions, sound fiscal management and effective digital government in sustaining the region’s development. These may sound like public-sector concerns, but they have direct commercial consequences.

A company considering a long-term investment must know whether approvals will be processed consistently, whether regulations will be interpreted predictably, and whether it can plan without facing abrupt changes in the operating environment.

Good governance should therefore not be regarded as a brake on enterprise. At its best, it gives entrepreneurs the confidence to take risks. It allows businesses to commit capital, develop local talent, build supplier relationships and introduce new technologies with a reasonable expectation that the foundations beneath those decisions will remain stable.

ASEAN’s economies are at different stages of institutional and industrial development. Several already compete on advanced infrastructure, skilled talent, digital readiness and regulatory credibility rather than labour costs alone. The regional challenge is to make that confidence broader and more consistent.

Greater regulatory interoperability across ASEAN can help. Businesses operating across the region should encounter greater consistency in areas such as digital standards, data governance and investment rules, rather than having to navigate an entirely different operating environment each time they cross a border.

The growth of artificial intelligence gives this debate new urgency.

AI is becoming embedded in financial services, manufacturing, logistics, healthcare, education and consumer businesses. Companies deciding where to base AI-enabled operations must consider more than technical infrastructure. They must also assess data protection, intellectual property safeguards, cybersecurity, regulatory clarity and the responsible use of technology.

Businesses will be reluctant to place sensitive data and high-value digital systems in markets where the rules remain unclear or are applied inconsistently.

Malaysia’s evolving approach offers one example of how governments can begin addressing this challenge. Its National AI Office was established to coordinate the country’s AI agenda, while the National AI Action Plan 2026–2030 sets out a longer-term roadmap for a value-driven and human-centred AI ecosystem.

No framework will answer every question in a technology landscape that continues to develop rapidly. However, providing a clear direction gives businesses greater confidence to invest, experiment and innovate responsibly.

Effective governance does not mean regulating innovation out of existence. It means creating enough clarity for innovation to move from a promising experiment to a lasting source of economic and social value.

For many years, economic success has been measured by the investment a country attracts, whether it’s the announcement of new factories, capital committed or jobs created.

Those measures remain important. But ASEAN must also pay greater attention to what happens after the initial investment.

Does the company reinvest? Does it expand into higher-value activities? Does it establish research, technology or regional decision-making functions? Does it develop local suppliers and talent, or keep its most strategic operations elsewhere?

The answers depend substantially on trust.

In my own experience building businesses across different markets, expansion is rarely decided by opportunity alone. It is shaped by whether leaders believe they can plan for the long term, address problems fairly and continue operating when circumstances become difficult.

This is why retaining businesses has become just as important as attracting them. Incentives may influence where a company begins its journey. Institutional confidence helps determine where it builds its future.

ASEAN should not abandon the strengths that made it one of the world’s most dynamic economic regions. Competitive costs, youthful populations, manufacturing expertise and regional connectivity will continue to matter.

Trust does not replace these advantages. It makes them more durable.

Cost competitiveness may attract the first investment, but trust encourages businesses to stay, move into higher-value activities, and continue investing through periods of uncertainty.

The choice facing ASEAN is therefore not between affordability and good governance. The region needs both. But as more economies compete for capital, technology and talent, predictability will increasingly separate short-term production locations from genuine long-term business hubs.

Cost will remain an important line in every investment calculation. Trust, however, will increasingly determine whether a business commits for one production cycle or builds for a generation.

That may prove to be ASEAN’s most valuable competitive advantage of all.