Supply Chain Strategies for the Asian Centuryby Mark Millar on 2015-11-02 00:02:59
As the traditional strongholds of consumerism - the developed markets in Europe and the United States - suffer from a range of economic woes including low-or-no growth in consumption, multinational corporations (MNCs) remain challenged for revenue and profitability.
As a result, companies are increasingly looking to Asia for market expansion, revenue growth, and increased profits. However, as business shifts to Asia, significant supply chain complexities can arise as companies venture into new territories.
Consumer Market Potential
By 2030 Asia will represent 66% of the global middle-class population, compared to 28% in 2009.
At the same time, urbanisation is accelerating. China is forecast to create more than 200 new cities with a population greater than 1 million people by 2025. During the next decade, some 500 million households across Asia will have access to electricity for the first time, which will drive massive increases in demand for a whole range of consumer household products. Demand for fast-moving consumer goods (FMCG) is forecast to rise exponentially.
As MNCs rush to capitalise on this enormous consumer market potential, they soon discover that the most attractive opportunities are frequently fraught with complications.
Complexity of Asia
Inevitably, unlocking Asia’s opportunity presents its own challenges – especially when it comes to logistics networks and supply chain ecosystems.
Asia is highly diverse and formidably complex. The region’s dynamic economies span the full spectrum of developed, developing and emerging markets – all at different stages of maturity and sophistication.
The nuances can be difficult to read and expensive to ignore.
Supply Chain Strategies for Asia
In addition to the opportunities in mainland China, rapidly expanding consumer markets are being established and opened up around the Asia region, notably in India, Vietnam, and Indonesia.
To serve these markets, companies need to develop strategies for multi-modal distribution into the hinterland regions, typically involving business partners with local market knowledge. Different consumer markets may also necessitate product localisation, adding an extra layer of complexity to supply chain operations.
Additionally, Asia’s diverse geographies – for example the massive land masses of China and India, or the substantial archipelagoes of Indonesia and the Philippines – together with the heavy traffic congestion in major cities, all add to the complexity of logistics operations, requiring creative strategies that empower effective and efficient supply chain ecosystems.
The Impact of China’s Economic Shifts
The region’s largest market, China, is experiencing shifts in its economy. Multi-national companies first came to China to take advantage of abundant supply of low-cost labour and capitalise on incentives to establish operations in Special Economic Zones.
Nowadays they remain in China to sell products to Chinese consumers in the massive domestic market. Factories and shops are interconnected and converging – “the Workers have become the Shoppers!” One development has fuelled the other, increasing economic prosperity right across the nation.
Migrant workers, who moved to the coastal areas to work in the factories, are increasingly returning to their provinces as more work becomes available inland. As they do, the lower cost of living in rural areas results in greater spending power, driving domestic consumption in third, fourth and fifth-tier cities.
From the China supply chain perspective, the emphasis is therefore no longer purely on transporting products from factories to the eastern seaboard ocean ports for export to the developed markets in the west. Nowadays there is just as much emphasis on distributing goods within and throughout the domestic China market - in order to reach the increasingly prosperous consumers located throughout this vast country.
Alternative Production Locations
As businesses pursue their China-plus-one sourcing strategies – usually seeking additional, rather than purely alternative, low cost manufacturing sources - there are several options to explore within Asia. But each alternative production location has its own supply chain nuances. Companies considering manufacturing in alternative locations should consider the maturity and capability of their chosen market and assess critical supply chain aspects, including three critical dimensions:
1.The Regulatory environment - including bureaucracy and administrative overheads, and the implications for doing business.
2.Infrastructure – in many Asian markets the transportation infrastructure is underdeveloped which can lead to delays and damage, resulting in costly inefficiencies in the supply chain.
3.Talent shortages—more than 70 per cent of businesses are now affected by ongoing skills shortages across supply chain and logistics sectors.
There are huge opportunities in Asia as the middle classes grow exponentially, driving increasing demand for consumer products, especially throughout the region’s third and fourth-tier cities.
To address Asia’s geographic, economic, and political complexities, supply chain strategies need to embrace and address the developing regulatory environments, evolving infrastructure networks and up-and-coming talent pool.
Accessing informed insights that improve understanding of Asia’s intricacies will enable better informed decision making, empowering companies to adopt and deploy supply chain strategies that help capitalise on the vast opportunities of “The Asian Century”.
Mark Millar- MBA, FCILT, FCIM, FHKLA, GAICD, SCOR-P
Mark Millar leverages over 30 years global business experience to provide value for clients with informed and independent perspectives on their supply chain strategies in Asia.
Acknowledged as an engaging and energetic presenter, clients have engaged Mark as Speaker, Moderator or Conference Chairman to ensure a knowledgeable, professional and memorable impact at more than 375 corporate events, client functions and industry conferences across 23 countries.
Author of “Global Supply Chain Ecosystems” published by Kogan Page of London, Mark is a Visiting Lecturer at Hong Kong Polytechnic University, and is recognised in the “China Supply Chain Top 20”, as one of “Asia’s Top 50 influencers in Supply Chain and Logistics” and in the USA 2014 listing of “Top Pros-to-Know in Supply Chain”.