![PITNEY BOWES PACKAGE PARCEL BLOOMBERG.jpg PITNEY BOWES PACKAGE PARCEL BLOOMBERG.jpg](https://www.supplychainbrain.com/ext/resources/2024/08/10/PITNEY-BOWES-PACKAGE-PARCEL-BLOOMBERG.jpg?height=100&t=1723435795&width=150)
Visit Our Sponsors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supply chain managers must understand, and react in a savvy manner to a fundamental shift that is quickly progressing in Asia: The rising middle class continues to push the cost of labor and overhead up, squeezing margins on production, while simultaneously creating viable new markets for finished goods.
Twenty-three countries comprise the APAC region over vast geography that encompasses dynamic diversities in culture and economy; APAC cannot be viewed as a singular market. Perhaps above all else, success in Asia depends heavily upon responding to changes in demand patterns that vary significantly in different markets within the region. Viewing Asia as a single entity is a fast-track ticket to lost opportunities or even total failure.
Once viewed as a region to produce in and export out of, the biggest opportunities in APAC now exist in developing robust distribution networks within its markets. This evolution is still relatively new, and demand patterns in Asia remain volatile. That makes it critical to evaluate changes frequently and constantly be on alert to redirect or alter distribution networks. The most successful long-term transportation network in APAC will be the ones that are nimble enough to quickly respond to shifts in demand patterns.
Though this region is wrought with unique challenges, knowing its consumers and developing a network that services them properly remains the key goal. Just as in North America and Europe, shortened supply chains can be optimal. APAC also exhibits similar service elasticity of demand patterns as other parts of the world, meaning areas that experience increased service levels show increased demand in response, and vice versa.
This can be good news for companies that already produce in Asia, as those facilities can easily begin serving local markets instead of exporting to foreign ones. Companies interested in entering APAC for the first time have a steeper hill to climb deciding where to set up distribution centers, or whether to use third-party distribution networks. However, they also have the advantage of entering new markets with clean slates and the opportunity to develop and design their networks without the hindrance of existing infrastructure, which can be advantageous.
Understanding the Diversity of Asian Markets
Explosive growth in Asian consumer markets is a game-changing shift for supply chain managers, and multinational companies are making large investments positioning themselves strategically throughout the region. Booming domestic demand in China and India has been on the supply chain radar of many companies for the past few years, but emerging markets like Indonesia are adding even more complexity to the APAC puzzle.
It cannot be overstated how much success in Asian markets depends on how well their individual cultural and economic individualities are understood. “It worked in China, so let’s repeat it in Indonesia” is the worst possible strategy that could be implemented. Creating value is reliant upon understanding unique market behaviors and how they translate into demand – and those market behaviors develop and evolve from a wide range of histories, languages, social norms and mores, religions, economics and political structures.
One trait that is shared by the entire region is that the markets are dynamic and changing more rapidly than in other regions of the world. If this trend continues, as most economists expect it to, APAC could become the largest growth center in the world with sophisticated demand and consumption patterns that account for a large slice of global consumer spending. However, the diversity contained within the region dictates that these patterns will emerge at different rates and in different ways, each requiring unique supply chain strategies and networks for companies who wish to succeed there.
Continuing Growth of Asian Markets
Rapid growth in Asia is leading to changes in economic development, population growth, urbanization, social transformation and technological development. Each of these factors affects demand patterns, and even a relatively small change to any of them can have a butterfly effect and cause significant ripples that need to be responded to in short order.
As populations throughout APAC grow and urbanization continues, thriving cities that develop and grow can be expected to impact demand and service levels on transportation lanes. An excellent indicator of the type of development Asia is experiencing can be seen in rising demand for consumer technology products, which is spiking in areas experiencing rapid increases in population density. This adds further complexity to understanding the fragmented markets of Asia as these urban areas represent “mini-markets” that exhibit different behaviors than the larger markets they are contained within.
APAC’s expanding economies have brought about increased interdependence among its countries in regard to natural resources, finance and trade. Expanding trade routes are creating more robust transportation networks to support them, which supply chains of all types can take advantage of. Accurate forecasting of which lanes are likely to continue development is a core component of designing an effective and sustainable distribution network.
Despite the improvements interdependence brings to transportation infrastructure, distribution in Asia remains extremely complex. Much of the region is still struggling with poorly maintained highways, and though rail networks exist and are developing, they are not yet reliable. Cost prohibitive in much of the developed world, air and sea transport are often viable options in APAC and are often the only modes possible in island nations like Indonesia and the Philippines. Asian geography also makes sea lanes the most direct and affordable option for certain routes.
Last-mile delivery is still an enormous challenge in most of APAC and options vary widely, including private van fleets and human-powered vehicles. The challenge in procuring this transportation among a highly fragmented community of carriers not accustomed to participating in procurement events or any type of sophisticated bidding process is significant, and large variations in service level availability have to be considered. Safety records for last-mile delivery are also low, so selecting partners that have the discipline to follow established protocol is important.
The Dynamic Nature of Asia Pacific
It is extremely important to develop sound supply chain strategy that considers each component of all the different markets within APAC by utilizing available demand data and establishing distribution models that fit each area best. Options to serve each market are as diverse as the markets themselves and range from direct distribution from a centralized location to working with distributors in each market, with several variations in between those ends.
In areas where multiple languages are spoken or where political instability is common, using a network of already established local distributors may be the best and only option. These established distributors understand exactly how the market they operate in behaves and have established best tactics for distribution. The lack of required overhead also makes them attractive options in areas where demand patterns are in flux and distribution may need to be scaled up or down rapidly.
Another layer of complexity surrounds trade agreements, customs and duties, which can be difficult to navigate in APAC. Determining the best location for distribution centers requires extensive research and knowledge of global trade relationships, and in some instances, local tariffs. Networks that make sense from transportation and geographic standpoints may present problems if border crossing considerations are not addressed.
This is particularly difficult for companies used to conducting business in North America, where trade regulations are transparent and well understood. Like demand and transportation infrastructure, border regulations are in flux and can change quickly. The Trans-Pacific Partnership is currently being negotiated between the United States and eleven countries throughout the APAC region (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam). If completed, this partnership would open opportunities for U.S. businesses by providing increased access to some of the fastest-growing markets in the world. It would also eliminate tariffs on goods and services and tear down many non-tariff barriers.
When will this agreement become a reality? Nobody knows for sure, but it serves as an important example of the nature of the environment in Asia: It can change quickly, and when it does, the implications are both wide and deep. The best strategy is to forecast what changes are possible over a 3- to 5-year horizon and model the implications associated with them. Then, design a network that is flexible enough to respond reasonably to the most likely scenarios.
Vast Changes in Asia
One constant in APAC is that it is a region in constant motion. The markets represent the entire spectrum from fully developed to third world, but they are all moving rapidly in several directions. These different shifts, even those presenting challenges for supply chain managers, are coming together to further strengthen the economic growth rates of the region. That makes the complexity of tapping into the consumption market of APAC a worthy endeavor that is sure to provide ample ROI so long as the investment is made wisely.
Gaining the necessary insights into APAC to be successful there is actually a two-fold process that relies on understanding the dynamics of both individual market behaviors and trends affecting the entire region. Though each market has its own idiosyncrasies that must be deconstructed and forecast, decisions from bodies like the Asia-Pacific Economic Cooperation Forum and South Asian Association for Regional Cooperation can impact several markets at once and trigger immediate paradigm shifts.
The best investments supply chain managers can make in APAC are those that consider individual market dynamics as well as regional considerations – but never at the expense of committing too heavily to a future that is uncertain. Existing data paints a useful picture of the region and the best solutions are drawn from analytical modeling that provides detailed information on the most likely demand scenarios. Thoughtful attention to this intelligence guides distribution and transportation network decisions that are positioned to perform well into the future and nimble enough to account for what can not be predicted, adjusting to it accordingly without requiring a complete redesign.
Source: Chainalytics
RELATED CONTENT
RELATED VIDEOS
Timely, incisive articles delivered directly to your inbox.