As the ASEAN Economic Community (AEC) enters its final stages of definition, Asia’s businesses can no longer pursue a “growth at all costs” strategy when it comes to regional trade. The region’s economic growth looks set to continue slowing down, which means new rules apply for businesses seeking to expand their market share even as trade barriers fall and economic cooperation increases.
In order to take full advantage of new opportunities like the AEC, businesses need to consolidate, simplify, and streamline their supply chains, investing in greater efficiency and agility to support deeper and broader sales relationships. The businesses and industries which acknowledge these “new rules” of growth will be ASEAN’s market leaders of tomorrow.
The new rules of logistics
Asian businesses must transform their supply chains in response to greater volatility in two key areas: infrastructure and talent. As economic development begins to catch up with growth in most of Asia’s trade hubs, their infrastructure will begin to experience rapid change: upgrades to Thailand’s rail network and China’s One Belt, One Road initiative – both multibillion-dollar projects, are just the first of many more to come. At the same time, labour shortages and legal changes will see the costs of top talent rise at all levels of the supply chain: truck driver wages in Singapore, for example, have risen up to 200 per cent as a result of recent shifts in wage policy. In such a fast-changing environment, businesses can no longer afford to compete on quality or price alone against competitors from around Asia or the world.
Many of these new rules are already becoming apparent in industries facing macro-induced slowdowns. Oil and gas, for example, has seen significant shifts at the strategic level from “growth at all costs” to a more measured, margin-focused approach to balancing growth with efficiency dividends. More advanced oil and gas providers are now complementing their traditional de-risking approach with greater optimisation across their entire supply chains, including greater responsiveness to demand fluctuations and higher consolidation of shipment processes.
Change and its costs
Transforming supply chains to meet these new rules of pan-Asian growth requires significant investment and expertise. While internally-driven change management is possible, it can encounter significant difficulties due to the sheer complexity of re-engineering multiple interlinked processes – many of which may have become entrenched as status quo as a result of their previous growth results. In addition, the combination of skill sets needed to lead these supply chains transformations – including technical knowledge of areas ranging from warehousing to shipment tracking, strategic planning, and business leadership – is increasingly rarefied amongst Asia’s top talent.
How then can Asia’s businesses streamline their supply chains costeffectively? One answer is to adopt an “asa- service” approach to logistics, effectively outsourcing integration and management of the supply chain to a specialist thirdparty. Most businesses in Asia are already accustomed to similar models of delivery in areas like software and technology infrastructure. When applied to supply chains, the “as-a-service” model can allow them to both quickly optimise their operations; and avoid common mistakes made during the transformation process.
This approach is not limited to any one industry. And many enterprises outside of, and potentially competing with, AEC countries are already adopting “as-aservice” logistics as a strategy. The supply chain operations of one multi-national Japanese technology firm, from design and planning all the way to warehousing and distribution management, are managed wholly by DHL, allowing the business to focus on increasing sales and market share in an increasingly competitive industry. In almost all cases, investment in an “as-a-service” supply chain platform will typically pay for its outlay within one to two years.
The next stage of Asia’s growth will be marked by increasing sophistication, innovation, and emphasis on customer service. While future growth will be slower than during its first stage, the increasing flexibility and fluidity of trade between countries and regions will generate a new range of opportunities for businesses – as well as potential pitfalls for those whose back-end infrastructure is unable to scale and optimise to keep up. The flexibility of the AEC’s agreements must also extend into the commercial agreements that govern supply chain operations: for example, minimum volumes that extend across the entire ASEAN region, rather than being dictated on a per-country basis. As the AEC comes into effect, businesses who invest in leaner and more agile supply chains will become the region’s new market leaders. “Growth at what cost?” should be new question for every business in Asia, no matter its industry or size.
About the Author
Jerome Gillet is Chief Customer Officer (CCO), DHL Supply Chain, Asia Pacific. Based in Singapore, he leads the business development teams for DHL Supply Chain across 15 countries, focusing on key sectors (Automotive, Consumer, Engineering & Manufacturing, Life Sciences & Healthcare, Retail & Technology sectors). His innovative commercial approach has led Asia Pacific to become the fastest growing region of DHL Supply Chain globally.