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Economic/social shifts that may affect Asia’s IRs

While the gaming industry is focused on tourism numbers and movement restrictions, there are a number of shifting economic and social patterns emerging that could have longer-term implications for Asia’s integrated resort industry.

Some are related to the cost of doing business in China and China/U.S. trade relations, while others include a growing sense of Chinese nationalism. These were movements in play before Covid-19, but the pandemic has accelerated some shifts and created its own, such as a sea change in the way people live and work.

Worsening U.S./China relations under President Donald Trump have significantly increased costs for businesses over the past few years. According to research done by Gartner, tariffs have pushed up supply chain costs by 10 percent for four out of ten firms in a 2020 survey of 260 executives involved in global manufacturing.

Some executives interviewed by the consultancy firm said the additional costs for their companies were more than $100 million, leading to a drive to shift manufacturing to other countries, either in Asia or closer to home.

The Covid-19 pandemic has further heighted the focus on supply chain management, with companies seeking greater diversity to improve their resilience to external shocks.

The Gartner survey found 33 percent of respondents had either moved, or were planning to move sourcing and manufacturing out of China in the next two to three years.

The clear front runner for relocation was Vietnam, with India coming in third, Malaysia fourth and Thailand in sixth position. 

Fortuna Investments Director Tim Shepherd said Vietnam passed a foreign investment law last year that will make it easier to invest in the country.

“If you get reinvestment in Vietnam, with more Koreans, or overseas Vietnamese with foreign passports, they will likely want to gamble,” Shepherd, whose company focuses on small and medium-sized gaming projects, including in Vietnam, said. “There is a very high propensity to gamble.”

This is particularly significant in markets such as Vietnam, where locals are banned from casinos and may provide a source of revenue that is not wholly reliant on tourism. 

Although Cambodia did not feature in Gartner’s top five, the country has seen significant investment from China in recent years.

According to the 2020 World Investment Report by UNCTAD, Cambodia recorded its highest ever foreign direct investment in 2019 of $3.7 billion, up 16 percent from the prior year. The total stock of FDI stood at $34 billion in 2019, with China by far and away the largest contributor.

This influx of foreign business has helped to support revenues at NagaCorp, which reported electronic gaming machine volume returned to normal and mass table business was at 93 percent of pre-closure levels in the months immediately after the reopening of NagaWorld.

However, there is a flip side to the supply chain relocation and one which is less likely to be favourable to the region’s IRs. Shepherd points out China’s growing inward focus and push for economic and technological self-reliance. 

There is also the issue of heightened rhetoric from Beijing, warning countries not to target its nationals for gambling. The impact of these factors won’t be known until border restrictions are fully lifted, but may have an effect on how keen Mainland Chinese will be to travel to regional jurisdictions to gamble.

Looking longer term, Michael Michalandos, head of the Asia-Pacific employment and compensation team at law firm Baker McKenzie, said there are transformational shifts that may be highly beneficial to regional tourism. 

“In my 30 years in the business, I have not seen such a dramatic change in the nature of the working environment,” he said.

Many companies, forced to accept remote working as a result of the pandemic, are now seeing the arrangements as permanent. Instead of experiencing a loss of productivity, many have found their staff were actually working harder from a home base.

“Those employers who don’t embrace this will find it difficult to attract staff,” he said.

This is ultimately likely to lead to much more mobility amongst employees, who are no longer restricted to waiting for a two or three-week holiday a year to be able to venture away from their homes or office.

These job shifts are most prominent in the technology, and telecommunications sectors, as well as white-collar workers who are also likely to be those with greater spending power.

“You will see employers wanting to hire staff in cheaper jurisdictions, but also staff who gravitate to locations that suit their lifestyles,” he said, adding that Australia is likely to be a major beneficiary.

While the return of tourism flows is the main focus to restore health to Asia’s IRs, in the longer term, some of these economic and social shifts may help to create a more sustainable client base and add resilience to external shocks.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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