Innovative Business Ideas

Conquering Asia’s routes-to-markets

20 March 2015

Human Capital Alliance senior advisor, Somboon Prasitjutrakul tells why Asia’s regional infrastructure differences require difference routes-to-markets.

Asia’s regional infrastructure differences have made it necessary for companies to experiment with alternate routes to market.

Markets like Japan, South Korea, and Singapore, have well-planned cities and superior infrastructure that allow for economies of scale and operations in a completely modern trade environment.

By contrast, India and Indonesia with burgeoning populations, less-planned urbanization, and developing infrastructure require a diverse trade environment, where the majority of sales are conducted through small, family-owned “mom and pop” outlets served by multilayered distribution networks with high logistics costs.

Other markets, like China, Malaysia, and Thailand, are split roughly equally between distributed and modern retail channels.

Five key challenges

In a recent McKinsey Quarterly article, Winning strategies for emerging markets in Asia, authors Sumit Dutta, K. Ganesh, Pankaj Gupta, Mads Lauritzen and Gregory Otte said Asian companies must master five key challenges.

1. Succeeding with the “last mile” delivery

By 2020, more than four billion people will be urban dwellers and 80 percent will be in developing countries. This new urban consumer class will spend more on housing, recreation, health care, and consumer products.

“…. in turn (they) will drive up demand for increasingly sophisticated supply chain capabilities, including higher customer service levels, faster delivery, improved availability, and greater agility.”

The increasing service expectations will make last-mile (final delivery) distribution far more important than it is today.

• Higher cost Asian logistics

Asia’s last-mile logistics complexity, the authors said inevitably leads to higher costs, that have been exacerbated by rising service expectations, and by factor such as fuel, real estate, and labor. Consequently, Asian logistic managers must employ optimization tools like network planning, vehicle scheduling, and route planning to squeeze out the last bit of inefficiency in logistics.

2. Consumer Diversity

A critical element of every Asia’s route-to-market strategy is matching the supply chain to the product portfolio.

The Asian consumer’s diverse nature demands products and services with similar functional benefits but at widely different price points.

3. E-Commerce

Since 2000, highly successful E-Commerce models such as China’s Alibaba have tremendously impacted Asian supply chains.

Internet has been transformed from a source of information about products and services to a way to buy them.

• High number of SKUs

A key challenge for any Asian E-Commerce operation is managing the “back end” supply chain which is unusually complex because of higher number of SKUs and suppliers. “The reliability and flexibility of these suppliers has not grown at the same rate as the demand, so e-commerce retailers often need to adopt more robust supply management practices than do traditional retailers.”

4. Mitigating risk

Supply chain risks have greatly increased over the past few years because of shrinking economic cycles, increased geopolitical turmoil in developing countries, and unpredictable natural disasters.

“For example, floods in Thailand in 2012 caused havoc with the supply chain of Japanese high-tech and electronics companies with a manufacturing footprint in Southeast Asia.”

Consequently, many companies are now embracing “nearshoring” that includes increasing the proximity of tangible supply-chain elements such as manufacturing and intangible elements such as innovation, to end-consumer demand.

5. The talent shortage

McKinsey said a study by the Southern Alberta Institute of Technology in Canada shows that western countries produce 50 percent more supply chain graduates per capita than India.

However, it also warns that success requires developing Asia-specific models because it is a fascinating land of contrasts, from the more developed North Asia cluster and vibrant Southeast Asia to the culturally complex South Asian countries.

“Economic disparity, demographic and cultural differences, lower consumption rates, poor infrastructure, and complex laws traditionally have made it hard to transplant successful American and European supply chain models here.”

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