“Voices on the future of Asia” series - Reimagining manufacturing and trade in Asia

I came to Shanghai in January 2006. Back then, world economic growth slowed noticeably from the strong expansion in 2004, the US economy remained the main engine of global economic growth, but the dynamic growth of China, India and a few other developing economies in Asia became increasingly important. The world’s center of gravity was gradually shifting from the western developed economies to the rise of Asia and the massive potential in the region.

Fast-forwarding to today, according to our research, Asia now trades more within its region than with the rest of the world; Asia already accounts for half of the world’s 2.2 billion internet users; Asia economies will be larger than the rest of the world combined by 2020 and account for almost 40% of the global consumption by 2030. The future of Asia has arrived even faster than we expected.

Together with McKinsey Global Institute, we’ve just launched #FutureofAsia, a multi-channel and multi-year forward looking research series with content mapped to themes like trade flows and networks in Asia, the nuances of corporate ecosystems, technology and digital and the behaviors and considerations of the Asian consumer.

I’d like to invite you to watch the most recent interview with me through the lens of reimagining manufacturing and trade in Asia – as part of “Voice on the future of Asia” series.

Question: What are the top three most disruptive, powerful forces shaping trade and manufacturing ten years from now?

Karel: There are three main trends in Asian trade that I would like to highlight.

The first one is Asian economies are domesticating. They are consuming more of what they produce and they are building domestic supply chains, reducing their exposure to trade. And today, India is following in the footsteps of China on this.

Secondly, trade is gradually shifting between Asian countries. Increasing labor costs drive China to higher value-added exports. And emerging countries like Vietnam and Cambodia are frontrunners in picking up China's share in the export of labor-intensive goods.

And thirdly, emerging Asia needs to improve its competitiveness versus the developed world. Asian economies have considerable productivity and quality gaps compared to the developed world. But at the same time, the bar is rising. Customers in the West are asking for shorter lead times and more tailored products.

Question: How should CEOs be responding to these forces as they think about their business strategies for the next decade?

Karel: To respond to these trends, executives in Asia should first of all align their manufacturing footprints and supply chains with the evolving trade flows in both Asia and also the rest of the world.

Secondly, they should invest in capability building so that their employees are able to quickly increase global competitiveness, to improve productivity, quality, and lead times.

And thirdly, they should be leaders in running digital and analytics transformations, to put their business improvement on steroids, using new tools, new ways of working, and through that, close the gap with the developed world faster.