Rising costs in China are prompting high-tech companies in Asia to explore alternative sourcinglocations within the region, as well as in North America, according to a new UPS-sponsored survey.
As part of this shift, half of all high-tech trade lanes in five years’ time are expected toinvolve intra-Asia movements.The survey, conducted by IDC Manufacturing Insights, revealed that 19 per cent of high-techcompany respondents plan to source supplies and raw materials from North America in the next threeto five years. Shifts in sourcing strategies will occur within the Asia Pacific region aswell. Although China and Japan will continue to supply to most high-tech companies, the surveyfindings show a significant shift of supply sourcing to both emerging and mature Asia Pacificcountries in the next 3-5 years.
Forty-two per cent of respondents reported they currently source supplies and raw materialsfrom mature APAC countries, including Thailand, Malaysia, Hong Kong and Singapore. When lookingahead to the next 3-5 years, this figure jumps to 55 per cent. Similarly, 16 per cent of companiesnow source from emerging countries such as the Philippines and Vietnam, while 24 per cent plan tosource supplies from these countries in the future.
The findings come from an annual survey sponsored by UPS, ‘Change in the (Supply) Chain,’which is designed to uncover top business and supply chain trends driving change in thehigh-tech/electronics industry. The 2011 survey questioned senior-level decision makers athigh-tech companies in the Asia Pacific region.
Carla Huang, UPS director of marketing for its high-tech/electronics segment, said: “Shiftsin sourcing strategies will impact high-tech supply chains throughout the Asia Pacific region, aswell as those in North America, creating long-term implications for the industry on a global level.In an industry where having a flexible and efficient supply chain is essential for meeting rapidlychanging customer demands, high-tech companies will need to plan ahead to ensure they havelogistics strategies in place that will give them a competitive advantage in a fast-evolving globalmarket.”
One surprising survey finding arose in terms of future drivers of change in the high-techsupply chain, with sustainability emerging as the top initiative expected to drive change in thesupply chain in the next 3-5 years. Sustainability was cited by 24 per cent of the respondents andranked above well known issues such as cost and responsiveness.
Sustainability-related findings indicate that companies in Asia are making an investment incorporate social responsibility. Survey results reveal that projecting a better corporate image isthe top driver for companies to engage in sustainable practices. Interestingly, whilesustainability is a growing priority in Asia, US companies ranked it as their lowest priority in2010 with only 19 per cent of survey respondents identifying it as a top issue driving change.
While sustainability is the top supply chain driver of change, cost reduction is the number 1business priority for companies in Asia, especially as costs increase within the region. Themajority (63 per cent) of survey respondents identified cost reduction as the top business priorityfor the next 18 months.
Similar to the findings from last year’s survey of US-based high-tech companies, high-techcompanies in Asia are investing in customer service despite cost concerns. Achieving higher servicelevels is both the most frequent change made over the last two years (63 per cent) and the changethat most companies plan to make in the next two years (67 per cent). In addition, 71 per cent ofcompanies ranked “better balance of cost and efficiencies with customer service” as a top supplychain priority over the next 3-5 years.
The survey also explored trends around risk management on the heels of the dual naturaldisasters that devastated Japan’s east coast in early 2011. Findings show that risk management is aclear issue for high-tech supply chains in Asia.“As a consequence of continuing globalisation andthe lengthening of supply chains, any global economic, political, or environmental event could havefar-reaching effects on the performance of companies,” said Dr. William Lee, senior researchmanager at IDC Manufacturing Insights Asia/Pacific. “We expect to see manufacturers placing greateremphasis on supply chain risk awareness and mitigation.”
Risk management/security was identified as the number 1 “weak link” in high-tech supplychains in Asia, cited by 42 per cent of survey respondents. While most companies (96 per cent)reported having some sort of risk-management plan in place, only 11 per cent said they had theresources or readiness to react in times of significant disruption.
In terms of the impact of the Japanese disasters on high-tech supply chains in Asia, mostcompanies, interestingly, reported experiencing minimal disruptions or none at all due to theearthquake and tsunami in Japan. In terms of the duration of the impact, 17 per cent of companiesare no longer feeling the effects of the disasters and 55 per cent expect any resulting issues tobe resolved by next year at the latest. These findings are contrary to initial predictions byindustry experts that many companies would experience major disruptions through the end of 2011 andwell into 2012.
Also somewhat surprisingly, survey results show that while the disasters in Japan increasedawareness of the need for better supply chain risk management, supply chain resilience is still asecondary concern for most supply chain professionals. In fact, just 27 per cent of companiesplan to improve their supply chain resilience through better risk management going forward.
