Cross-Border Supply Chain
Management in Asia
Masato Abe
Economic Affairs Officer
Trade and Investment Division
United Nations ESCAP
About ESCAP
• United Nations Economic and Social
Commission for Asia and the Pacific
– 58 regional members & associated members
• Policy advocacy, analytical work &
technical assistance for regional
socioeconomic development
• Headquarters in Bangkok
– Nine branches
My background
• B2B
• Automotive, electronics and high-tech
industries in Asia, North American and
Europe
• Supply chain management
– Logistics
– Procurement and supplier development
– Planning
– Sales operations
Objectives
• Present corporate strategies and business
practices related to cross-border supply chain
management using a case study, which covers
four Asian countries at the different development
stage
• Present theoretical background of the
development of cross-border supply chains
• Discuss the direction of the development of
cross-border supply chains
A case study: M Group Inc
• Home Country J
• B2B
– Direct sales and manufacturing
• Standardized components and tools for
metal press dies, injection moulding and
assembly lines
– More than 1.2 million items
Line of business
M Group Inc (continued)
• More than 20,000 customers worldwide
– Automobile assemblers, electronic appliance
manufacturers and high tech companies as
well as their suppliers
• More than 4,000 employees worldwide
– About 200-250 employees during the 1980s
• Sophisticated supply chain management
– In-house ERP (IBM System 36) and EDI with
suppliers developed in the mid 1980s
Annual sales
• Annual turnover: yen 89.1 billion in 2009 (equivalent to
approximately US$ 1 billion)
• Net income: Yen 3.8 billion (4.3% of annual turnover)
• More than 25% of sale to foreign customers
Dot.co
m Crisis
Bubble
burst
Ball guide post
for large sized press dies
The product
• A standardized metal die component for
automotive and electronic sectors
• A long-time best selling product of M
Group Inc.
• No seasonable demand fluctuation
(average 7,500 units / month)
• Sold through an internet ordering system
linking to the ERP system
• Sales price: @US$ 100
• Weight: @5 kg
Three phases of development
• First Phase: 1980s
– Direct exports
• Second Phase: 1990s
– International procurement
– Host country supply chains
• Third phase: 2000s
– Regional / multilateral supply chains
Four countries
Income
Population
Country J
Country T
Country L
Country V
High
Lower middle
Low
Lower middle
130 million
70 million
10 million
90 million
Ease of doing business ranking 2011
15
20
170
80
Starting a Business
98
95
93
100
Dealing with Construction Permits
44
12
115
62
Employing Workers
59
19
163
n/a
Registering Property
15
72
152
43
Getting Credit
16
12
182
15
112
91
116
173
Paying Taxes
24
12
170
124
Trading Across Borders
19
25
110
63
Enforcing Contracts
1
46
183
31
Closing a Business
1
48
183
124
17
78
154
116
Protecting Investors
2010 Corruption Perception Index
Sources: Transparency International (2010); World Bank (2010)
Phase I: 1980s
Direct exports
• Foreign exchange volatility: Plaza Accord in
1985
• Customers’ international expansion with
increased FDI outflows
• Both markets and production bases
– North America
– Europe
– South-East Asia
strategies
FDI & export driven development
• Less than 1 % of sales to foreign customers
Home Country J
Phase 1: 1980s
Supplier J
Country L
Country T
100Km
Distribution
Centre J
Customers
1.5 months by ocean
Country V
Customers
1 week by air
Discussion
• What was the advantage of direct export
strategy?
• What risk should the M Group Inc consider?
Challenges
• Less international experience
• High transportation costs
– Price vs weight
– Inadequate volume for ocean shipping
• Quality vs price issue
• No delivery tracking system
– Unreliable delivery
– Heavily relied on forwarders
Phase II: 1990s
Host country supply chains
• Globalization
• Internationalization of M Group Inc
• Recession in Home Country J
– Cost cutting pressure
• Emerging economies (NIES; Asian Tigers;
China)
– Expanding customer base at Country T
– Lower labour cost
Home Country J
Phase 2: 1990s
Supplier J
Country L
Country T
100Km
Distribution
Centre J
Supplier T
100km
Country V
1 month by ocean
Distribution
Centre T
Customers
Customers
5 days by air
Discussion
• What factors should M Group Inc assess
to justify international procurement?
Challenges under Phase II
• High inventory (carrying) cost
– Ocean shipping
– Long lead time (tripled)
– Unreliable delivery
– Large order quantity
– Large inventory and warehouse space
Inventory management
Max
15500
Inventory
2-month
inventory
Lead time
1 month
Lead time
1 month
Order line
7500
0.5 month delay
500
Min Buffer
0
Unfilled order
Time
Challenges under Phase II
• High administrative cost
– Order processing cost (fax & email; no EDI)
– Communication (phone and fax)
– Site visits
– Import procedures (documentation)
– No transport tracking system
– Less flexibility
• Customs clearance (Country T)
– Slow but can make it predictable
Challenges (continued)
• Unstable quality
– Urgent shipment by air and/or hand-carry
• Supplier development
– Engineering consultation
– Training
– Incentives
– Relationship development (trust and
cooperation)
International Procurement:
Outcomes
• Considerable cost down in terms of CIF
value
• Cost up in terms of supply chain
management (total cost analysis) at the
beginning
• Stabilized relationship over time
• Gained experience
Phase III
Regional supply chains
• New emerging economies in Asia
– China, India and others
– Customers’ movements to Country V
• Country L’s trade and investment liberalization
– Improved road infrastructure
– Logistical linkage between Countries T and V
– Special economic / export processing zones
• Increased cost cutting pressure
– Weak demand in Home Country J
– Intensified competition at the global level
– Dot.com burst in 2001 and global economic crisis in
2008
Home Country J
Phase 3: 2000s
Country L
Country T
Distribution
Centre J
Supplier T
Supplier L
600km
100km
1 month by ocean
1200km
Country V
Distribution
Centre V
Distribution
Centre T
Customers
Customers
Customers
5 days by air
Discussion
• What impact do you see if customs
clearance at the borders of Country L (or
Country V) were totally unreliable?
• Is there any option for M Group Inc to take
to mitigate the impact?
Cross-border procedures
•
•
•
•
Documents preparation
Customs clearance and technical control
Ports and terminal handling
Inland transportation and handling
Documents for border trade
• Export
– Export license
 Packing list
– Pre-shipment inspection
clean report of findings
– Technical standard/health
certificate
 Bill of lading
 Certificate of origin
 Commercial invoice
– Customs export declaration
• Import
– Technical standard/health
certificate
 Certificate of origin
 Commercial invoice
– Customs import declaration
– Customs transit document
– Import license
 Packing list
 Bill of lading
– Cargo release order
Cross-border costs
Indicators
Documents to export (number)
Time to export (days)
Cost to export (US$ per container)
Documents to import (number)
Time to import (days)
Cost to import (US$ per container)
OECD
Country J
Country T
County L
Country V
4
4
4
9
6
11
10
13
48
22
1,059
1,010
625
1,860
555
5
5
3
10
8
11
11
13
50
21
1,060
795
2,040
645
1,106
Source: World Bank (2010)
Present Status
• Maintain business with Supplier L, but no
increment
• Establish dual production lines in both
Countries T and L
• Consider investment, jointly with Supplier
L, in a special economic zone of Country L
• Test delivery to Distribution Centre V
• Commit the development of regional
supply chains
Cross-Border Supply Chains:
Drivers
• Globalization
– Policy Liberalization
• Trade, investment, capital & finance, HR
– Multilateral and regional free trade
agreements
– Technological innovation
• Transportation and ICT
– Increasing competition
• Pressures for low cost and high quality
• Low labour cost
Drivers (continued)
• New management strategies and
techniques
– EDI, ERP, JIT, lean manufacturing, TCM,
SCM, etc
• Willingness to be internationalized
Cross-border supply chains:
Objectives
•
•
•
•
•
•
Foreign market penetration
QDC (quality, delivery and cost)
Speed, effectiveness and flexibility
Local supplier development
Local content requirement
Strategic focus and outsourcing non-core
functions
• Access to expertise / technology
• Long-term security
• Customer’s request
Models
•
•
•
•
•
Export model
Foreign market penetration model
Offshore manufacturing model
Mixed model
Flying geese model
Models (continued)
• Export model
– No operations in importing countries
• Foreign market penetration model
– Marketing and distribution in importing
countries
Models (continued)
• Offshore manufacturing model
– Production in host countries (low cost labour
and/or natural resources)
– Marketing and distribution in both home and
host countries
– e.g. footwear sector in Viet Nam
Models (continued)
• Mixed model
– Offshore manufacturing
– Marketing in home and host countries
– Export to third countries
– e.g. Japanese auto assemblers in Thailand
Flying geese model
• Catching-up process of industrialization of
latecomer economies (Akamatsu 1962)
– from import to production and export
– from simple to more sophisticated product
– from advanced to developing countries
Source: GRIPS
FDI flows
2500
2000
1500
1000
500
0
2003
2004
South-East Europe and the CIS
Latin America and the Caribbean
2005
2006
Africa
Asia and the Pacific
Source: ESCAP based on data from UNCTAD (2010)
2007
2008
Middle East
Developed Economies
2009
Risks
• Fluctuating foreign exchange rates
– How high is operating exposures within
supply chains, which cover various countries?
• Linking all partners with ERP
– Adequate ICT infrastructure?
– Relationship with partners?
– Cost involved?
– HR?
Risks
• Growing environmental concerns
– Proximity to markets, production facilities vs
supplies
– Green transportation
– Customer services vs SC efficiency vs
environmental smartness
Future direction
• Development of regional supply chains with less
developed economies
– Supply side capacity building
– Technology transfer
– Policy changes required (cross-border trade
facilitation)
• Region-wide approach to reduce transaction
costs
– e.g. ASEAN connectivity initiative
• Pro business environment
Masato Abe, Ph.D.
Economic Affairs Officer
Private Sector and Development Section
Trade and Investment Division
United Nations Economic and Social Commission
for Asia and the Pacific (ESCAP)
Bangkok, Thailand
Email: abem@un.org