Drivers and enablers of economic growth in Asia

Deutsche Post DHL Group synthesized desktop research, interviews, and a survey of 56 companies to publish an in-depth report showing key trends and challenges in Asia Pacific. Tamanna Dahiya, Director Asia Pacific Innovation Center, explains what businesses need to do to grow in the region and exploit its full potential.

Asia Pacific is expected to be the fastest growing region globally with a GDP growth of approximately 6% in 2017. Compared to the EU, with an expected GDP growth of 1.7% and Latin America with 1.6% in 2017, the region will continue to play an enormous role for businesses. In the context of a fragile global macroeconomic environ-
ment the Asia Pacific (APAC) region ensures optimism for all participating players. But what drives this region’s growth and enables its devel opment?

The framework conditions are very promising: increasing internet penetration, a booming e-commerce market and favorable demographics are key growth drivers across APAC markets. Trade and economic integration further pave the way for the region’s growth. The region developed trade zones and economic communities such as the Association of Southeast Asian Nations (ASEAN), followed by the ASEAN Economic Community (AEC) aiming for a unified ASEAN market.

The Trans-Pacific Partnership (TPP) with the U.S. is the next influential step for the region. Studies show that Intra-APAC trade is projected to account for approximately 50% of the key global trade lanes by 2030 with China, India, and Vietnam leading merchandise export growth globally.

Overall, 12 of the top 15 trade lanes will involve Asian countries by 2030. In this region, China will remain the unchallenged manufacturing hub even as companies look to diversify locations due to increasing labor costs, the growing need for resilience, and strong potential in neighboring markets. Following this general perspective it is worthwhile to take a look at APAC consumers. This is a new generation of tech savvy individuals that inspire innovative services and products requesting convenience of shopping online or offline. The modern consumer’s shopping behavior is highly personal ized driven by personal preferences and convenience across channels.

The internet penetration is expected to further grow by 21% and mobile penetration is expected to increase by 30% until 2018. This is why e-commerce is and will be a significant channel for APAC. Total online retail revenues are expected to double from $733 billion in 2015 to $1.4 trillion by 2020 in Australia, China, India, Japan and South Korea.

Although China’s economy is slowing down, its e-commerce market will remain the largest in the world and is continuously growing. India’s e-commerce turnover is expected to increase more than fivefold by 2020.

Increasing Internet Penetration, Booming E-Commerce Market and Favorable Demographics

For successful business endeavors we identified five crucial implications of these developments. Investments in the Asian 6 (China, India, Vietnam, Thailand, Indonesia and Malaysia) for developing talent, improving connectivity, and supply chain facilities will become important when aiming for a leading position within these markets. Special focus needs to be given to the two largest emerging intra-Asia trade lanes of China-India and China-Indonesia.

Secondly, it becomes necessary to redraw manufacturing strategies, taking a “Plus One” approach into account. Aside from lucrative manufacturing options, high re-
gional consumer demands also incentivize businesses to establish manufacturing operations closer to these consumers. While redrawing the manufacturing strategy, awareness of the latest agreements in the region will be key to managing profitability.

The third implication is the development of an omni-channel strategy with a strong e-commerce focus. Currently most businesses follow a multi-channel approach where sales channels operate independently and often compete with each other. It has become inevitable to adopt a strategy that is able to support seamless customer engagement online and offline in the front-end operations such as merchandising and marketing as well as back-end logistics.

Thus omni-channel approaches become a key differentiator for many retailers in APAC. Cross-border e-commerce infrastructure will also be a critical enabler for the re-
gion. The growth of e-commerce is challenged by complex regulations and customs procedures which are visible in high cross-border freight costs and long delivery times, for example. This area is increasingly coming under the focus of governments.

China, for instance, has piloted the Kuajintong-Shanghai Cross-Border E-Commerce Platform to address some of the mentioned challenges. But regional replication of these platforms is encumbered by unpredictable and low business volumes. Here, collaboration with experienced logistics providers can be helpful. A growing trend in the region is business-to-business-to-consumer (B2B2C) e-commerce.

In this model, businesses and consumers connect through an online marketplace. Bulk shipping from point of origin to destination, where goods are stored in fulfillment centers or warehouses for subsequent distribution is characteristic for B2B2C. Following this trend, DHL is currently developing a China Free Trade Hub to provide an integrated platform for B2B as well as B2B2C e-commerce with the goal of facilitating cross-border trade.

Cross-Border E-Commerce Infrastructure – An Enabler?

Asides from trade, several initiatives also focus on improving infrastructure and connectivity in the region. Hence the fourth implication is to review the potential of multimodal transport options. It is estimated that through increased connectivity in the region a potential benefit of reducing transportation costs in the range of $89 billion to $358 billion is feasible. Improving connectivity leads to the expansion of multimodal transport options within APAC and from APAC to Europe, meaning that companies can access alternative methods for more cost- and time-effective transportation.

Being confronted with the evolving connectivity, and different supply chain maturity levels in the region, end-toend logistics solutions gain importance leading to the fifth implication. The increase of regional movement of goods implies that businesses need to be more involved in the regional value chain. A regional supply chain solution not only shortens the supply to demand points, it also enables an agile network able to deal with changes in regulatory requirements, economies and demand while controlling quality and compliance.

As a consequence businesses can deliver better service at lower costs by collaborating with logistics providers to simplify and optimize the end-to-end supply chain processes. Political will to issue new trade regulations and agreements will determine at which pace the APAC region will boost its intra-regional trade potential. Nevertheless businesses have to align their investment strategy with high potential markets and trade lanes.

Being prepared for the new levels of efficiency and adopting an omni-channel approach is a key business priority across the region. Collaboration between govern-
ments, logistics providers and businesses will be essential in order to mobilize the potential of APAC.

Deutsche Post DHL Group

The Deutsche Post and DHL corporate brands represent a one-of-a-kind portfolio of logistics (DHL) and communications (Deutsche Post) services. The Group provides its customers with easy to use standardized products as well as innovative and tailored solutions ranging from dialog marketing and e-commerce related logistics to industrial supply chains. Approximately 500,000 employees in more than 220 countries and territories form a global network focused on service, quality and sustainability. With programs in the areas of environmental protection, disaster management and education, the Group is committed to social responsibility.

Tamanna Dahiya

Tamanna Dahiya leads customer engagements and trends research projects for DHL Asia Pacific Innovation Center (APIC). APIC is part of a DHL global innovation platform with a mission to inspire, connect and engage industries on the future of logistics. With experience in consulting and supply chain industries for the last 10 years, Tamanna now focuses on working with DHL business units, customers and external partners to fuel innovative ideas and bring innovative solutions to life.