By Tim Foster, Managing Director, APAC, Chainalytics |
Asia’s inter-country, regional, multinational and mega trade deals are big daily news across the globe- -from the Regional Comprehensive Economic Partnership (RCEP) to the Trans- Pacific Partnership (TPP).
But let’s take a look at the Association of Southeast Asian Nations (ASEAN), which has been successfully honing in on trade growth and economic solidarity for years.
From 2007 to 2014, total ASEAN trade increased US$1tr. ASEAN now has the third largest Asian economy and is one of the world’s fastest-growing investment destinations, accounting for 11 per cent of total global foreign direct investment inflows in 2014 (vs. 5 per cent in 2007).
How AEC Blueprint 2025 will affect businesses & supply chains
ASEAN has just “upped” its game: It is now a formal trade bloc. The ASEAN Economic Community (AEC) has developed and released an AEC Blueprint 2025 to regulate and harmonise ASEAN commerce, including the movement of goods, services, labour and capital throughout the nations of Myanmar, Thailand, Cambodia, Singapore, Indonesia, Laos, Vietnam, Malaysia, Philippines, and Brunei Darussalam.
Ultimately, this massive decade-long plan will affect not only regional but global supply chains. According to the Wall Street Journal, the US has been helping ASEAN countries to integrate their customs and trading procedures. A first set of complex ASEAN trade compliance deadlines (effective December 2015) has been met by some, but not all, ASEAN member nations. The new AEC Blueprint 2025 will affect all nations and companies doing business within ASEAN over the next decade.
Navigating complex change
From supply chain and operations perspectives, it is important to understand how ASEAN nations are coalescing and undergoing changes that in some ways mirror those of the European Union during its formation and into the present to plan accordingly.
ASEAN is in the midst of working through complex layers of free-trade agreements and security agreements that mandate compliance around technology and materials shipped, among others. Regulations, customs and non-compliance penalties largely vary by country and will continue to do so until member countries fully adopt ASEAN-wide standards. At this point, there is a lot more diligence around compliance, so it is less about underpayment of tariffs and customs duties, and more about penalties that can be levied against shipments.
ASEAN’s business opportunities far outweigh its trade and compliance risks though. Given the massive amount of change underway, companies doing business in ASEAN will want to hedge their bets. Supply chain plans with immediate, mid- and long-term time horizons will give companies the flexibility they need to meet customer service lead times and manage costs and inventory levels:
Over the next five to 10 years, companies will succeed by developing a well thought-out, robust approach to designing supply chain networks. This action will ensure that they can begin to make fact-based decisions about their future supply chain networks, taking into account changing geo-political and regulatory environments, as well as new trends in consumer buying behaviour across emerging regional markets. These dynamics will result in more than a single network solution and require that supply chain teams manage a portfolio of supply chains. More frequent revisiting and refreshing of supply chain designs will require that companies have access to experienced, specialised design teams or partners with access to robust network optimisation tools.
It will be important to maintain flexibility, adapting to changing regulatory and compliance requirements’ impacts on supply chains. And while companies cannot predict every possible outcome, contingency and scenario planning will go a long way to ensuring all supply chains are ready to meet the changes and challenges. This will mean increasing reliance on partnering and collaboration to retain flexibility and supply chain portfolios’ effectiveness. Companies’ ability to systematically capture and analyse data, predict changes and respond ahead of time will determine their future success. Ultimately, the goal is to develop robust supply chain options and be ready to change course as opportunities unfold.
Companies will need to prepare for immediate changes in trade compliance at the operational level. This means getting internal governance right; setting policies in place around existing trade compliance and trade management; and getting the right processes, systems and organisation in place to support their businesses and customers. Selecting and working with the right partners in planning and execution will be increasingly important to minimise supply chain risk and maintain competitive advantage.
ASEAN’s careful economic planning is geared to economic transformation, making it easier to do business, and further opening access to lucrative Asian markets. The AEC has even gone so far as to factor growing trends, such as e-commerce into their 10-year plan, giving fulfilment, logistics and supply chain operations even more important roles in the coming years.
The eventual customs and trade harmonisation that comes into play in ASEAN will take years. But it will provide great opportunities for centralising supply chains, increasing cost efficiency and simplifying inventory management. It is a win-win scenario that requires maintaining flexibility in the present, and planning for tomorrow’s opportunities.
About the Author
Chainalytics Managing Director (APAC) Tim Foster has more than 20 years of supply chain experience across the APAC region both as a consultant and as an executive with leading multi-national manufacturers. He understands the entire local, regional and by-country pan-Asian picture—from the macro-economic factors impacting the region to each market’s unique logistics demands and business complexities.