Going to Market in APAC, One Burgeoning Market at a Time

Many North American multinationals are paying renewed attention to doing business in the Asia-Pacific (APAC) region. But low-cost manufacturing/sourcing is only one impetus for these firms: As domestic demand increases rapidly, they are going where the most-affluent consumers and expansion opportunities lie. According to McKinsey, China is transforming retail through e-commerce players like Alibaba and JD.com. By 2020, online sales could be as high as $650 billion, equaling the size of today’s US, Japanese, UK, German and French markets combined. And ASIA Trend Bulletin notes that consumers are moving away from an obsession with (often foreign) luxury logos, instead demanding local quality, authenticity, craftsmanship and heritage, as 2015 becomes the year that will see on-demand services take off across Asia. The region is increasingly the seat of glocalization: the adaptation of a product or service specifically to each locality or culture in which it is sold.

APAC’s larger supply chain challenges

The APAC region’s lack of homogeneity makes supply chain planning in this region increasingly complex, demanding a far more fact-based approach to making informed and strategic decisions. For example, China’s increased trade with neighboring countries vs. the United States and European Union affects both world and regional trade lanes. Meanwhile, tax and trade practices and agreements—between Taiwan and China, Australia and China, etc.—add layers of logistics and compliance complexity. For its part, India’s new government is looking at tax harmonization to supplant its nearly two dozen local tax regimes that impede cross-border product flow and affect supply chain and distribution planning. And Indonesia’s government has empowered local governments to manage their own economic development, which enables direct product flows into Indonesia, but increases supply chain complexity.

Substantial intra-Asian freight volumes move by ocean and also by air, when service levels are important and shippers need to centralize inventory to reduce working capital requirements. APAC’s ground transport capabilities are highly fragmented: Compliance and safety are problematic and delivery and cost suffer from a lack of visibility. The region’s disparate infrastructure includes sparse or still-under-development rail and intermodal capabilities that can create service and cost issues, especially in the face of growing urbanization and ecommerce demands. Fragmented last-mile delivery options range from Uber to private van fleets and human-powered vehicles. Infrastructure investment is currently highest in upcoming, low-cost sourcing countries like Vietnam or via private initiatives from companies like Alibaba, UPS, FedEx and DHL.

Developing a broader strategy to deal with APAC’s complexity

Increasing mobility and fierce competition in APAC’s fragmented mini-markets’ mean conventional marketing and supply chain strategies are less effective. Real-time price/value trade-offs drive consumers’ purchasing decisions. And although APAC offers attractive growth potential vis-à-vis many world markets, cost inflationary pressures—on raw materials, labor and fuel—continue to squeeze margins.

Multinationals’ success in the region rests largely on finding the right balance between global and local supply chains to meet consumer demand at both the regional and market levels. This hybrid approach incorporates global networks of local supply chains that enable greater customization; allows multinationals to capitalize/leverage regional infrastructure and assets for network-wide efficiency; requires coordination at both regional and market levels; and pays close attention to five supply chain imperatives:

1. Integrate with business strategy. Supply chain leaders will succeed in APAC by developing and enabling business strategies; focusing on value-adding through revenue generation, cost reduction and return on capital; developing supply chains that become a source of innovation and competitive differentiation; and supporting an iterative approach to strategy via data capture and analytics. Having participated in developing global strategic imperatives, supply chain leaders and their teams need to constantly develop and review regional strategies, networks, infrastructure and partnerships as well as supporting local market execution.

2. Build supply chain dexterity. As customer engagement increases, product launches accelerate and “go-to-market” channels proliferate in APAC, it is incumbent on supply chain leaders to consider the portfolio of supply chains required; build ecosystems of processes, people, capital assets, technology and data; review supply chain strategies and infrastructure more frequently and keep their options open; use planning tools to quickly solve and inform both medium- and long-term planning; and constantly optimize supply chain trade-offs.

3. Leverage horizontal collaboration to rapidly extend supply chain capability, scale and cost-effectiveness. Successful peer-to-peer and many-to-many collaboration efforts in Europe and the United States have shown us that while collaboration is frequently not supported by existing fulfillment and logistics execution systems and processes, its benefits include shipping optimization, lower inventories, capital avoidance and minimized carbon emissions.

4. Rely on accurate data. Data enables multinationals doing business in APAC to parlay their knowledge into fact-based decisions, by clearly defining the metrics and outputs important to the business and communicating those metrics via data visualization. This enables them, for example, to proactively explore the differences in demand data and use it to segment to each fragmented APAC market, understand customer buying behavior in each market and choose appropriate distribution models (e.g., direct distribution to customers from a centralized location, via distributors in each market, etc.) while factoring in scalability. For companies already doing business in the APAC region, changing demand profiles and the increasingly fragmented consumer bases make a “supply chain network refresh” especially viable, since markets are changing rapidly.

5. Build new supply chain competencies. APAC’s unique requirements demand new supply chain competencies. We advise multinational supply chain leaders to engage and influence at senior levels within their organizations, invest in training and measure ROI, and use strategic partnerships with suppliers to address talent and resource gaps. Yesterday’s supply chain competencies—planning, delivery, sourcing and performance management—are quickly being joined by requirements for product development and launch experience, customer experience management, partner relationship management and business analytics and intelligence.

Multinational businesses will continue to grow and evolve their businesses in APAC’s highly volatile and competitive markets, interacting more directly and frequently with customers. This will remain a source of opportunity as well as a driver of supply chain complexity and innovation over the coming years, as supply chain leaders manage through collaboration, fact-based transformation and expanding their influence within their organizations.

Tim Foster, Chainalytic’s managing director of the APAC region, has more than 20 years of supply chain experience as a consultant and as an executive with leading multinational manufacturers.

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