Pamela Mar outlines the challenges faced by Asia's production centers in a world where connectivity has become more critical.
APEC officials were in Vietnam for the 2nd Senior Officials Meeting in preparation for the APEC Leaders’ summit to be held in Vietnam later this year. Connectivity was high on the agenda, as it is viewed as an essential driver for deepening regional economic integration, which is one of APEC’s four key priorities. APEC has launched a 2025 Connectivity Blueprint and is following this up with mid-term goals for 2020.
Pamela Mar spoke on connectivity as a driver for growth and economic integration at the quasi-governmental Pacific Economic Cooperation Council, which held its General meeting alongside the APEC meetings.
What makes connectivity important to Asia?
Manufacturing is the heart of Asia’s growth story, starting with the textiles and apparel industry that has historically been the entry point for poor countries and SMEs to participate in global trade. Over the past three decades, the expansion of consumer products supply chains in Asia has created jobs and wealth, and allowed the region to bring over 900 million people out of poverty.
Global supply chains depend on open borders and good connectivity, not just in terms of goods flow because a single product may comprise of inputs from different countries, but also in terms of infrastructure for data, people and standards to work seamlessly across borders.
But even as connectivity was once the key enabler of supply chains, it is no longer enough. As Marshall Goldsmith has said, “What got you here won’t get you there.”
What developments do Asia need other than connectivity?
In the past, developing Asia’s strength lay in its ability to build its manufacturing sector by using millions of unskilled workers, first in the Tiger economies, then in China, and then to Southeast and South Asia. This labor pool worked to ensure that a product went from design to delivery into stores in 36 to 40 weeks, and it is why this region effectively owns this segment of global manufacturing. This is also why consumers in the west have enjoyed three decades of price deflation for basic consumer goods.
But today, consumer product supply chains in the region must contend with three simultaneous mega-trends:
• Consumption in the West is stagnating and the growth in global consumption will be in Asia and the rest of the emerging world. We will see the rise of two billion new middle class consumers by 2030, primarily in Asia. And Asian consumers, and especially Chinese consumers, are some of the most connected, demanding, and fickle in the world.
• The exponential growth in computing power and especially of mobile, gives consumers new power while driving omni-channel retailing and e-commerce. Today China’s online retail sales are 40 per cent more than in the US despite the fact that its GDP per capita is only about a fifth of the US. E-commerce requires speed, customization and responsiveness to ever changing demand, a completely new equation for mass production.
• Sustainability is pushing up the social and environmental bar for entry into global markets. At the 2017 Copenhagen Fashion Summit, the Global Fashion Agenda was launched alongside a Call to Action for the fashion industry to revamp itself to be more responsible and sustainable.
These trends are pushing supply chains into a new world where they cannot only be about mass producing tens of thousands of products, to be sold before they are marked down. Today, fast fashion has taken the 36- to 40-week production and delivery cycle and slashed that down to 4 to 5 weeks; Amazon and other “pure plays” will reduce that cycle to just days.
In this world, being low-cost as a factory is no longer enough; it may even be a handicap. Tomorrow’s factory has engineers reading data, and modular flexible lines producing hundreds to be sold overnight, instead of 25,000 to be sold over six months.
Supply chains must sense demand, anticipate needs based on multiple data points both inside and outside the network, and then fulfill those incrementally with an automated, data-driven, responsive supply network.
In other words, we have to transform the thousands of consumer products factories in Asia, where workers are unskilled, systems are basic, and everything is manual – to compete in a world where they need to be agile, sustainable and data-driven.
The views expressed in the reports featured are the author’s own and do not necessarily reflect Asia Global Institute’s editorial policy.