Challenges in Expanding Industrial Markets in Asia Pacific

Vietstock – Challenges in expanding industrial markets in Asia Pacific

Although there are many positive drivers for the logistics and industrial sector in Asia Pacific, there are still some key challenges that the market needs to overcome.

labor source

As a producer of nearly 15% of global exports, it’s no surprise that China has a large workforce dedicated to its industrial sector, according to a C&W report. In short, 53% of warehouse jobs in Asia Pacific (approximately 163 million employees) are located in China. The gap is very obvious, with India accounting for 20% (60 million) and Indonesia accounting for 8% (25 million). Despite strong economic growth in much of Southeast Asia and India, with annual growth rates of up to 4% by the end of the decade, the situation is not expected to change much.

Beyond the skills of the workforce, there are other nuances, including different levels of talent. While this is difficult to measure, mainland China’s long experience and strength in manufacturing and logistics will be difficult to replicate overnight. This also highlights the need to drive productivity growth and rapidly invest in workforce and automation, as mentioned above.

port capacity

Similar to labor supply, any logistics and industrial expansion in the region should also consider port capacity.

Overall, the Asia-Pacific region accounts for approximately 65% ​​of global container port production. Against this backdrop, it is no surprise that the Asia-Pacific region has a strong presence among the world’s busiest ports, accounting for 30 of the top 50 ports. However, from a more granular perspective, port capacity is mainly concentrated in mainland China ports, occupying 4 of the top 5 positions and 7 of the top 10 positions. Singapore is the only city in the top five, with Busan and Los Angeles also making the top ten.

The issue becomes clearer when examining TEU throughput levels (20 equivalent units). Limiting the analysis to the top 50 ports, mainland China accounted for 45% of throughput, reaching 247 million TEU. India and the Southeast Asian markets including Singapore together account for 19% of throughput, equivalent to 106 million TEU. The key point here is that significant additional port capacity will need to be created in these markets if future growth is to be accommodated.

Redesign the supply chain

The design life of a supply chain is usually at least 5-10 years and requires constant evaluation and updating. However, a complete redesign or even an update should not be undertaken lightly, as 80% of supply chain costs will depend on the design phase. That’s why making the right decisions about the design and operation of future supply chain networks needs to involve rigorous data analysis, using pre-planned processes, algorithms and tools, and understanding the latest market conditions.

Additionally, other factors to consider include:

Service execution time Varies across industries and different supply chain designs. Agile supply chains enable rapid response, while lean supply chains provide predictability at low cost. It is important to analyze and understand current and future customer purchasing behavior and its impact on the competitive environment.

Distance from suppliers It is a basic factor that needs to be considered to achieve production continuity without exceeding target input costs. The risks associated with transforming supply chains and moving away from existing supplier ecosystems can sometimes outweigh the benefits of requiring rigorous analysis and testing during the design phase.

Labor availability, costs and productivity There are significant differences across industries and regions. Businesses need to consider available labor sources and the key skills required. While the ongoing shift to automation, especially robotic solutions, can significantly reduce the labor force of workers, it also creates a need for skilled technicians and engineers to ensure efficiency and continuity are achieved. Such labor resources are not always available in every market.

Transport efficiency and reliability Both domestic and cross-border are critical to supply chains. The maturity and efficiency of logistics providers affects the overall performance of the supply chain in terms of service and cost. As mentioned above, port congestion is a key factor in determining the supply of raw materials and the continuity of cargo transportation.

Carbon reduction measures Because of the long-term nature of the decisions being made, they should be incorporated into all stages of supply chain design. Doing so will help ensure that the company can meet the future sustainability goals demanded by consumers, investors and stakeholders.

taxes Markets vary widely and can significantly affect total supply costs. Minimizing taxes and fees often results in complex structures, product flows and transactions that impact supply chain efficiency and delivery times.

As for Vietnam, it is a major beneficiary of the “China+” production strategy due to its geographical distance and wider regional/global connectivity. In addition to its strategic location, Vietnam also has the advantage of significantly lower labor costs than China.

A balanced mix of high-value manufacturing, such as electronics, and lower-value manufacturing, such as clothing, footwear and food, can also bring benefits. High-value manufacturing is expected to grow, and the government hopes to increase its share of the economy from 25% to 30% by attracting more investment.

Vietnam has room to meet this growth, including food, consumer goods, and electronics, as North Vietnam (Hanoi, Haiphong) and South Vietnam (Ho Chi Minh City, Binh Duong, Dong Nai) place a high priority on electronics production.

Halle