Asia is at the forefront of the post-Covid trade rebound, but its digitally advanced companies risk missing the opportunity to take the lead in creating resilient supply chains of the future, according to new research from Standard Chartered.
Although the region is staging a world-beating recovery from the disruption brought about by the events of recent months, Standard Chartered’s Critical Indicators of Sustainable Supply Chains report reveals that Asian companies have the same level of concern about supply chain volatility and sustainability as their global peers – and not all are convinced that they are doing enough to defend against upcoming shocks.
Risk awareness increases…
Thanks to their position at the centre of global supply chains, Asia’s companies are no strangers to the impact of external shocks. Overall, according to McKinsey figures1, companies in the automotive, pharmaceuticals, aerospace, and computers and electronics industries experience material disruptions lasting a month or more every 3.7 years on average, with shorter disruptions happening even more frequently.
The events of the past two years have expanded the scope of their risk management models, and companies in the region are now beginning to look beyond financial resilience to sustainability in environmental, social and governance terms. As a result, Asia-based respondents to Standard Chartered’s research give near-equal importance to all of the key indicators of sustainable supply chains, from environmental soundness to financial strength, flexibility and connectivity.
However, when it comes to putting risk management into practice, a divide is emerging between leaders and laggards: although on average 56% of companies said the indicators were “very important” to them, only 43% rank their performance highly.
Fortunately, companies in Asia are at a relative advantage compared to those in other regions, thanks to their digital leadership. Recognising the scale of both the challenge and the opportunity that building sustainable supply chains poses, Asia-based companies are far more likely than their global peers to turn to data and analytics to monitor risks and gain greater visibility.
Nonetheless, over half (52%) of respondents in the region say they are not yet making extensive use of technology to reduce the environmental impact of logistics and transport, and those using tech to automate finance or harnessing electronic solutions within their supply chains are in a minority.
Intra-regional knowledge sharing on technology adoption will be key to closing this gap. According to the survey results, 52% of companies in South Asia are making very extensive use of technology to create more sustainable and resilient supply chains, compared to 41% of Asean companies, and 40% within Greater China and North Asia.
… but more support is required
One of the specific challenges in Asia is the large proportion of smaller suppliers. In Southeast Asia, for example, there are more than 70 million micro, small and medium-sized enterprises. These represent 99% of businesses in the region, excluding the large informal sector. One recent study suggests as many as 90% of SMEs in some countries may be excluded from official counts2.
This complexity makes achieving financial and environmentally robust supply chains all the more difficult, as the cost and effort involved makes onboarding micro-businesses to traditional solutions such as supply chain finance (SCF) programmes prohibitive.
In response to this, a majority of survey participants in Asia noted the importance of building supply chain resilience by financing indirect suppliers using alternative approaches to SCF, but with only 41% saying they are successful at this, companies in the region – particularly those with complex, multinational supply chains – are increasingly turning to their banking partners for advisory services and insights into best practices.
Another key priority for Asia’s companies lies in ensuring that their suppliers adopt sustainable business practices. This will ensure that their supply chains can not only withstand future shocks, but also contribute to sustainability goals and comply with new regulations, such as decarbonisation goals in China. As suppliers’ carbon emissions are on average 11.4 times greater than direct emissions, companies in the region are seeking ways of working together across supply chains to align their sustainability efforts, and 59% of respondents to Standard Chartered’s research emphasised the importance of shared objectives and key performance indicators (KPIs) with suppliers.
Grasping the opportunity
While much has been made of the reshoring of US and European supply chains, the likelihood is that Asia’s convenience, reliability and cost-effectiveness will continue to drive an increase in its share of global exports in the months and years to come. As economies around the world bounce back, Asian companies are at a critical juncture. The possibility of positioning themselves at the heart of the supply chain resilience and sustainability agenda is within reach – as long as they can harness their digital pre-eminence to do so.