Read my latest Blog: A new world order? Asia pushes both global and regional trade
Who are your customers? That’s one of my favorite questions to ask when talking to our customers and prospects. This particular question helps us to understand how we can add value and improve their business processes with our knowledge and solutions.
The answers we receive can sometimes be very surprising. They also prove how global economies are changing. Export economies have long dominated in Asia and as a result, the traditional customer base consisted of mainly US and European companies. But rising costs of producing in Asia and changes in consumer behavior have forced manufacturers to move their production closer to their sales markets (near-shoring).
In response to this shift, Asian economies have been rebalancing themselves and trade directions have changed. With this, domestic consumption and intra-regional trade volumes have increased year on year. I’m very impressed with the changes and how these companies compensate for the decline in export volumes in order to create a new path for growth.
Reasons for global market shifts: cheaper, faster, safer
Manufacturing where it is cheapest. Following this strategy, entire industries have migrated from Europe, the US, and Japan to China, Southeast Asia, and Bangladesh for decades.
Recently, however, a reversed trend is taking place and the number of production facilities in Eastern Europe, Turkey, and Mexico has been increasing. It has now become cheaper to manufacture products there. Traditional cost factors such as labor, raw materials, semi-finished goods, and transportation impact the total cost of goods and support the trend to move production closer to markets where finished goods are sold.
Increasing political protectionism, cancellations of free trade agreements, and currency exchange rate developments are also contributing to this shift. Additional factors include changes in consumer behavior and consumer expectations: increasing demands for product availability and mass individualization, for example, force companies to move their plants closer to their customers to offer short lead times and keep a competitive edge.
Last but not least, risk mitigation forms an important aspect, too: supply chain risks are minimized if there is a shorter distance between production sites and end-users. Shorter supply chains involve less partners to collaborate with and generate less complexity, resulting in fewer disruptions. This is an important driver for customer-centric companies striving to improve customer service levels and maintain a good reputation.
Domestic consumption and intra-regional trade drive a new world order
Asia’s largest economy China has seen a decline in exports in the last 2 years due to weaker global demand. But at the same time, domestic consumption has significantly increased – reflecting the continued rise of Asia’s middle class – and so has the regional export volume. Today, 25% of China’s exports get shipped to other countries in Asia. And exports to the US and to Europe are down to 18% and 16% respectively.
Other Asia Pacific nations are seeing similar developments. Intra-regional growth in Asia and the Pacific was 57.1% in 2015 – reflecting an increase of 1.3% compared to the average growth between 2010 and 2014. In the Greater Mekong Sub region (GMS), growth Read the full blog here