Asia Waits for No One

Jim Barber | UPS 

Throughout its modern history, Asia has labored under a perception problem.

Most of the world saw it as the place that produced the goods and services that ran businesses and entertained consumers throughout the world.

But as today’s Asia transforms into a center of consumer and commercial demand, it is quickly changing global opinion.

Today, more than 50 percent of Japan’s total trade is with Asian countries, compared to 20 percent with the U.S. South Korea is experiencing a similar shift, with its total China trade now twice its U.S. trade. A similar trend is unfolding in Australia, Singapore, Thailand and Hong Kong.

It’s obvious that Asia is waiting for no one, a reality that adds urgency to the need for governments and businesses throughout the world to rethink their go-to-market strategies.

The role reversal now playing out in Asia is a result of new supply-chain synergies and rising consumer power. Three trends explain the expansion of intra-Asia trade.

The first is the economic integration being achieved through the Association of Southeast Asian Nations.

ASEAN’s Free Trade Areas with China, India, Korea, Japan, Australia and New Zealand; as well as regional FTAs, such as the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership; have encouraged integrated sourcing among manufacturers and the regionalization of supply chains and production networks.

The second trend gaining momentum is the boom in cross-border e-commerce, which has been bolstered by rising disposable income among Asia’s rapidly expanding middle class.

The third trend we’re observing is the internationalizing of Asian businesses that are now recognizing growth opportunities in their own backyards.

Nowhere are these trends more evident than in the high-tech sector, where our company has a ground-level view of the changing marketplace.

In the smartphone segment, for example, we see Asian companies carefully positioning themselves to take advantage of global e-commerce. By 2018 37 percent of the world’s total e-commerce spend is expected to come from Asian businesses.

Already, most of the world’s largest smartphone companies – including ZTE, Vivo, LG, Lenovo, Huawei, Samsung, and Xiaomi – are Asian. They’re poised for projected explosions in markets such as India, where today only one in 10 people owns a smartphone.

By the end of the decade, however, India’s smartphone penetration is expected to reach 40 percent and annual shipments are forecast at nearly $250 million.

We’re also seeing OEMs increasingly sourcing parts and components from suppliers throughout Asia.

Their motivation is to increase inventory efficiency and support customers’ product launches and after-sales service.

In many cases, they’re sending their products directly from the factory floor to the end-consumer, by-passing traditional distribution networks and delivering from Asia to Asia.

The shifts in supply chain patterns have important implications for both government and business.

Shift in Government Policies 

As Asia accounts for a larger portion of global supply chains, and more businesses source and serve the continent from Asia, governments are realizing the role they need to play.

Policy reforms are being pursued not only to increase market access for goods and services, but also to enhance transport connectivity and simplify border clearance.

Efforts to improve transport connectivity include those made by ASEAN to facilitate interstate transport and boost open skies. Businesses will benefit through additional and more competitive options that could lower what are now Asia’s disproportionately high logistics costs.

Time-guaranteed customs clearance is also an area that deserves attention. Customer-focused businesses that rely on just-in-time manufacturing, responsiveness and short product cycles need better customs assurances to make their business models work as they were designed for the lucrative high-tech sector.

But policy reforms must go beyond these efforts. They must continue to exhibit an ambitious and creative character to open the door for Asian investment and competitiveness.

Supporting e-commerce growth by facilitating the flows of goods, payments and data; and identifying solutions that manage carbon footprints are among the areas that need attention.

Implications for American Businesses

Asia’s growth should remind American businesses that the U.S. must be an active participant in the continent’s changing landscape. It also is an urgent call for American companies to keep up with the region’s innovation and rapidly evolving demands.

As new sourcing, production and consumption patterns emerge, many U.S.-based businesses already are developing Asia-specific products and solutions to take advantage of new opportunities.

UPS is no stranger to this region or to the distinctive needs of companies wanting to increase business here.

In 2010 our company complemented our longstanding Asian connections to the U.S. and Europe by establishing an intra-Asia air network.

The additional resources offer customers integrated freight and express solutions, as well as reduced time-in-transit for moving raw materials, components and finished goods between Asian markets.

More recently, UPS launched the Advanced Solutions Engagement Team and UPS Trade Management Services. Both services help our customers navigate the complexity of today’s supply chains and more easily manage the region’s trade rules and compliance responsibilities.

The transformation making Asia an increasingly strategic player in global trade flows is nothing short of remarkable.

For multinationals long accustomed to seeing the region through only a narrow lens, the changes also point to a need to sharpen their perspectives … or risk being left behind.

A version of this article first appeared on Singapore Summit. This article appeared on Longitudes, the UPS blog devoted to the trends shaping the global economy.