Market insights

The impact of APAC trade trends on supply chains in Asia

04 October 2016 by Shane Conroy

APAC’s growing importance in global trade cannot be understated, and the emerging ‘Asian 6’ – China, India, Vietnam, Thailand, Indonesia and Malaysia – will play an increasingly leading role in the region.

According to DHL's Demystifying Asia Pacific Trade Trends, intra-APAC trade will account for approximately 50 percent of key global trade lanes by 2030, with China, India and Vietnam projected to lead the growth in global merchandise exports.

Source: Demystifying Asia Pacific Trade Trends, DHL

Emerging manufacturing hubs, increasing domestic consumption and rapidly growing e-commerce in the Asian 6 countries are boosting cross-border trade. To capitalise on these trends, companies must pay close attention to the new realities of operating in the APAC region.

Changing APAC trade trends in the Asian 6 

Source: Demystifying Asia Pacific Trade Trends, DHL

While China remains the world’s undisputed manufacturing hub, production will increasingly shift to emerging APAC economies that offer lower labour costs and greater resilience to a fluctuating economy. Trade agreements such as the Trans-Pacific Partnership (TPP) will also ease trade barriers and reduce tariffs, making emerging Asian 6 economies attractive manufacturing bases.

"Companies are diversifying manufacturing operations to neighbouring emerging markets such as India or Vietnam, and the rising market potential of these emerging economies is leading to shifting production patterns," explains Tamanna Dahiya, director, DHL Asia Pacific Innovation Center.

Increasing disposable incomes and accelerating urbanisation rates in the Asian 6 countries are also fuelling domestic consumption to create more attractive local markets.

Malaysia leads the Asian 6 for average monthly disposable salary (US$980), followed by China (US$731), Thailand (US$503), India (US$452), Vietnam (US$335) and Indonesia (US$304). And further growth is forecasted as APAC’s urbanisation rate is predicted to increase by 30 percent and account for 54 percent of the global urban population by 2030, according to DHL’s report.

With internet penetration set to grow rapidly in the Asian 6 countries over the next few years, e-commerce is also becoming a powerful new trend in the region and driving a change in consumer expectations as local customers embrace a new ‘buy anytime, anywhere’ attitude.

Malaysia is leading the e-commerce push in the Asian 6 with an internet penetration of 68 percentThe overall internet penetration across Asian 6 is still lagging in developed economies. However, given the significant population and digital friendly attitude of consumers, they are already raking in strong ecommerce sales, making the region the largest B2C ecommerce region in the world.

Capitalising on this trade growth in a diverse and complex region requires a supply chain rethink. Multinational Corporations (MNCs) looking to expand in the region should keep an eye on the trends, challenges and opportunities that the region presents and understand how these impact their supply chains.

What do these trends mean for supply chain providers in the region?

Asian 6 countries are looking to diversify from manufacturing intermediate goods and move up the value chain to produce higher-end, more specialised products, notes DHL. A case in point is Vietnam, which is attracting more high-tech investment with more consumer electronics companies establishing manufacturing plants in the country. And India, Indonesia and Thailand are all emerging as automotive manufacturing hubs.

This, along with the need to meet increasing domestic demand driven by rising disposable incomes and rapidly growing e-commerce in the Asian 6 countries, will exert increased pressure on regional supply chains, requiring better transport infrastructure and streamlined cross-country regulations to meet the cross-border trade challenge.

Consequently, companies are evolving their supply chain strategies to keep pace with APAC trade trends. They will need to look to logistics providers to partner with them in delivering a seamless experience to the customer.

Complete solution portfolio

Companies will look for logistics providers that offer end-to-end solutions with strong APAC penetration. Partnering with such players will allow them to simplify processes, optimise cost and tap into increasing domestic consumption in Asian 6 markets.

"Companies are demanding more end-to-end solutions from logistics providers to enable entry into new markets, simplify processes, optimise cost and increase visibility," says Dahiya. "Global third-party logistics providers such as DHL can facilitate market entry by leveraging their existing global network and standardised procedures, which can be adapted to the local market."

Availability of multi-modal transport options

Likewise, as improving transport infrastructure – such as the Trilateral Highway project connecting India to Thailand via Myanmar, and China’s Belt and Road connecting China with Russia, Central Asia and Southeast Asia – breaks down connectivity barriers between Asian 6 countries, businesses are aware that they must adopt new regional supply chain strategies to deliver better service levels at lower costs.

"Given the manufacturing and consumption growth for this region, beyond the trade agreements it is also important to keep in mind the infrastructure plans for the region," notes Lee Eng Keat, Director, Natural Resources & Logistics, Singapore Economic Development Board (EDB). "China’s Belt and Road, through the development of the maritime silk route, could enhance key ports and potentially increase volumes of goods shipped."

"The road-rail network would provide additional options to regional supply chains including multimodal solutions. Singapore is focused on building up capabilities to analyse how these changes affect businesses in areas such as total landed cost, inventory cost, and supply chain risk. We aspire to be a unique site for companies to architect and orchestrate their supply chains."

Such infrastructure improvements will lead to a more harmonised transport market that will deliver more freight options to companies and logistics providers in a multimodal environment, says Dahiya.

"Companies can access additional modes such as road and rail for more cost-effective movement of goods vis-à-vis air freight, and more time-efficient transportation vis-à-vis ocean freight. By leveraging multimodal solutions, companies can expect reduced cost and transit times, as well as better transportation quality."

Ability to enable omni channel delivery

Finally, with internet penetration rising rapidly in Asian 6 countries, companies must cater for a new generation of tech-savvy customers who demand seamless online shopping experiences across all their digital devices. This means that to meet shifting customer expectations, companies must develop omni-channel networks that support front-end operations along with back-end logistics to facilitate effective cross-border e-commerce.

"Omni-channel approach is the way forward for businesses to successfully serve the needs of the modern consumer, which fuels innovations in products and services and omni-channel supply chains," says Dahiya. "Here, the role of logistics providers, especially in last-mile delivery, cannot be underestimated."

Breaking down traditional barriers

The future is bright for trade in the Asian 6 countries as they continue to emerge as manufacturing hubs and experience increased domestic demand driven by growing disposable incomes and e-commerce penetration in the region.

However, while this rapid growth is powering exciting new opportunities in Asian 6 countries, certain barriers to free flow of trade continue to exist. Complex government regulations and customs procedures between Asian 6 countries threaten to inhibit supply chains with the application of additional taxes and delivery bottlenecks. Additionally, the lack of efficient transport infrastructure in some emerging Asian 6 nations means companies will incur higher supply chain costs with longer lead times and low freight flexibility.

"Ambitious implementation of trade agreements pushes economies to remove trade barriers and improve customs and regulation procedures," says Dahiya. "It is important to harmonise regulations and procedures across borders to facilitate efficient cross-border processes and to better integrate the region. Regulations are otherwise unlikely to keep pace with infrastructure investments in order to yield the perceived benefits."

Asian 6 countries would be well served to look towards Singapore for the solution. Singapore sits at the top of World Bank Group’s Ease of Doing Business ranking, primarily due to a strong government commitment to expanding regional trade agreements that level the playing field, and create more efficient supply chains with standardised and more cost-effective freight networks.

"Singapore has achieved this position primarily based on a coherent government policy to establish itself as a regional and global trading hub," explains Dahiya. "This includes one of the most open trade and investment regimes in the world, world-class infrastructure, investments in knowledge-based resources and close alignment between government programmes and industry requirements."

For MNCs looking to expand their Asia 6 operations, using Singapore as an APAC hub to leverage its world-class infrastructure in the region will provide a strong foundation from which to build their presence and seize opportunities in the developing Asia 6 nations.  

Edited by Kritika Srinivasan and Goh Wei Ting