ASEAN supply chains
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.