ASEAN supply chains
Efficient supply-chain management was one of the key themes in relation to free trade and economic integration often cited in the series of ASEAN government and business summit meetings in Bali last week.
The ASEAN Economic Community concept, which was stipulated in the Bali Concord II agreements, says the free flows of goods, services and investment within the ASEAN countries will make the region a more dynamic and stronger segment of the global supply chain.
Frank Messer, chief executive of auto giant Daimler-Chrysler for Asia, who attended the ASEAN business summit, asserted in a media interview that Thailand had emerged as a favorite hub for many foreign auto-makers because of its efficient supply chain and liberalized market rules.
The rationale is that foreign investors will be encouraged to establish regional production networks in ASEAN countries if the region has become a reliable part of the global supply chain as superior logistics capability will enable companies to tap local comparative advantages and economies of scale.
Efficient supply chains are one of the intermediate objectives ASEAN leaders wanted to achieve, through the new set of measures they adopted in Bali, in a renewed bid to accelerate the implementation of the ASEAN Free Trade Area (AFTA) and to achieve economic integration.
However, an efficient supply chain requires a minimum set of conditions, notably efficient transport, expedient customs services, production standards, to ensure free flows of goods, services (including labor) and investments.
The ASEAN heads of government, at the recommendation of their economics ministers, launched a new set of initiatives to expedite the flows of goods, services, investments and labor within the region.
Customs procedures and nomenclatures and product standards will be harmonized, licensing procedures will be streamlined, visa requirements for travel will be expedited.
The modern production system indeed requires an efficient supply-chain management to allow for lower warehousing costs, lean manufacturing, just-in-time delivery. Without such advances in logistics and supply capability, regional market integration through subdivision and dispersion of production processes will not be cost effective.
Producers around the world at present have to adjust to the changes in the whole demand cycle, which was in turn caused by the changes in the whole delivery cycle.
International studies have shown that supply chains in Southeast Asia are still much more inefficient, as evidenced by the high portion taken by distribution and logistics in the free- on-board prices of goods. A recent study by the World Bank concludes that in East Asia freight costs account for 8 percent of the total value of inputs, compared to 4 percent in industrialized countries.
Reduction in transport and telecommunications costs and improvements in supply-chain management will help make ASEAN countries a viable place for regional production bases.
However, ASEAN has yet to do a heavy load of homework to develop an efficient supply-chain system in the region.
While ASEAN leaders in Bali have adopted a set of new measures to facilitate smoother flows of goods, services and investment, and decided to accelerate the pace of integration in 11 key economic sectors in light of its bid to create an European-style economic community by 2020, there are several vital measures still missing.
Other factors that are crucially important to develop an efficient supply-chain system within the region are transport and telecommunications. Unfortunately, not many of the new policy instruments launched in Bali touched these two key sectors. The 11 key economic sectors that have been given top priority in the process of economic integration miserably did not include transport and telecommunications.
If ASEAN is really serious about developing an efficient supply-chain system in the region, the grouping should take concerted efforts to facilitate smooth transit of goods between two ASEAN countries through a third, open up air-cargo services, including express delivery firms. Inter-modal and multi-modal transport services have yet to be facilitated.
Also vital is the development of an ASEAN-wide telecommunications system, given the crucial role of this industry to trade and economic integration.
Without new measures to improve transport and telecommunications services within ASEAN, there will never be an efficient supply-chain system within the region.