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Supply Chain Challenges  in Emerging Markets

[LOGISTICS TIMES December 2013]

Global economy is probably in the midst of its most defining churning with the arrival of new economic magnets referred as emerging markets. But what does it mean for the supply chain domain and how will it play out in the new economic hotspots which have common problems as well as peculiar problems of their own? Thought leaders from the industry and global academia underline some of the key supply chain challenges for the next one decade which companies and businesses will have to surmount. A report…

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It is no secret to anybody. In the new millennia, the balance of economic might is shifting dramatically with some old citadels losing their significance cance to the new magnets. In the popular parlance,these magnets are referred as emerging economies or markets. But here too the pace of change has been quite rapid especially in terms of addition of new prospective power houses. The BRIC theory ( comprising Brazil,Russia, India and China) propounded by Goldman Sachs in the early part of the last decade signaling the new growth drivers of the global economy in 21st century had to undergo a quick modification in 2010 when the acronym was changed to BRICS including South Africa as well. But the churnings of last few years have clearly indicated that the canvas of emerging markets is not just about BRICS nations. There are a host of other countries which have begun to constantly knock at the doors of the prominence. In a report released in 2012, International Monetary Fund (IMF) had presented a long list of countries which can be dubbed as emerging economies. These included: Bulgaria, Chile, Hungary, Indonesia, Malaysia, Mexico, Peru, hilippines, Poland, Romania, Thailand, Ukraine, Turkey, Venezuela, etc. The writing is on the wall. These countries are increasingly becoming the favorite operational turfs of global conglomerates and at the same time, companies rooted in some of these countries too are eyeing for a global footprint apart from consolidating their positionin their own backyard where intense competition has become the rule of the game. So the moot question here is: how does the new equation impact the supply chain scenario in these countries? Something that lies at the core of that fundamental issue of the structured growth of the promising economies.DSC_5063A two day conference (International Conference on Supply Chain and Logistics Management) organized by Birla Institute of Management Technology and University of Hull, UK early this month in Delhi which saw the congregation of leading thought leaders from the industry as well as global academia attempted to search for solutions pertaining to the basic supply chain issues in the emerging markets. While there appeared out to be an unanimity on the standpoint that ‘same size does not fi t all’ (that is the tested supply chain formula in developed countries may not necessarily prove their effi cacy in the emerging markets with the same degree of success), a strong advocation which did emerge out was to opt for dynamic supply chains in a market place where coping with uncertain factors every now and then is certain. “ Supply chains have become very important in the last two decades. They are intrinsically linked to the twin goals of cost reduction and better services and their importance is paramount in emerging economies where scales are growing,” Dr. H Chaturvedi, Director, BIMTECH set the tone of the deliberations in these words. And then the lead speakers concentrated on  markets in the form of challenges which need to be surmounted xpeditiously.“Transport raises a number of issues in emerging economies. Infrastructure, synchronization of different resources, environment, skill sets, etc. are the critical challenges when we consider the prevailing supply chain regime in the emerging markets,” Dr. C S Lalwani, Emeritus Professor, Hull University underlined. Harry Lagad, VP, Corporate Projects (South & South East Asia), Toll Global Logistics in his extensive presentation primarily focused on two points – the high degree of uncertainty in the global market place and the rapid pace of change which is pushing emerging economies closer to the center stage. “Certainty is a luxury we can never have. You have the rise and fall of the dollar, fluctuations in the oil markets, etc. A supply chain company will fi nd it diffi cult to factor in these changes at the required pace,” he commented. He further drew the next ten years scenario which would encompass some interesting churnings including the GDP of developing nations outpacing the developed countries; urban population mounting by leaps and bounds; a signifi cant increase of the middle class group and also emergence of less poor class; arrival of new global brands like Tata, Infosys, Haier,etc. “ If we look at the evolving equations, then industry has to come back strongly and for that sound supply chains would be required. E-commerce has come up in a big way but we have not reached to the end-users in a comprehensive manner. For supply chain companies, the mantra would be: think globally, act locally and panic internally,” Lagad advocated in his concluding statement.

DSC_6280Kimble Winter, CEO, Logistics Executive Group emphasized on the changing tides in the global economy and how it makes it compelling for the businesses in general to look for sound supply chain mechanisms. “ There is no gainsaying that the power is shifting
from advanced markets to emerging markets. Just to cite an example, G-20 is increasingly becoming more prominent. Africa is emerging as the fastest growing continent in the world (4.9%).” V R Sharma, Deputy MD, Jindal Steel spoke in the similar vein pointing out how the sudden proliferation in operational scale would make it imperative to bring in more efficient cient supply chain systems in the emerging markets. “India is currently producing 80 million tonnes of steel. But by 2025, we target to touch 300 million tonnes. That would in turn mean a staggering 1500 million tonnes of mineral resources cargo transport. It would be a huge opportunity for logistics and supply
chain companies.” Pawanexh Kohli, Chief Advisor, National Center for Cold Chain Development (NCCD), fi rmly underlined the point that the criticality of supply chain would only enhance in the coming years. Probably, the make or mar prospect of any business would largely hinge on it. “Emerging markets are often misunderstood for
developing markets. Emerging markets are ready markets. Products and technology are the same everywhere. The critical factor, therefore, is the supply chain. And here
a dynamic approach would be needed.

A simple free trade agreement may force to change the supply chain models.” Sajal Mittra, Director, Blupith Consultancy strongly opined that it would take quite a lot to pave the way for the implementation of progressive supply chain systems in a market like India. “ In a country like ours, the main supply chain systems are largely handled by the unorganized sector. We might be having a big industry in terms of size and revenue, but the top ten 3PL firms have a meager share of just 2 percent of the pie. It would be a long journey.”

DSC_6322Shammi Dua, Head Logistics, AkzoNobel India raised a pertinent issue which is believed to have become a common thread among all emerging economies – the quest to go beyond metro markets. “ A lot of our supply chains have been designed to cater to the metro markets. But this has to change. Metro will provide you the base but the markets down below will have to be penetrated,” he said while adding that reverse logistics could be the next big thing in the emerging markets. Howard James Scott, Director, Big Bear Enterprises  touched upon the supply chain inadequacies in agri-commodities in the emerging markets. He made no bones in expressing his disappointment. “ India is ahead of China in wasting food. For past so many years, we are hearing that our food wastage is 40 percent and this fi gure never changes. Its very disappointing…we are not concentrating enough on food supply chains,”he pointed out.

Achal Paliwal, Head, Logistics and Exports, Honda Cars in his presentation also strongly emphasized that the effective supply chains of the future in a fast growing emerging market would be ones which respond to unpredictable factors. “ A lot of people believe that lean would mean agile. Its actually the other way round.Lean is doing more with less and is good for standardized products. Agile, on the other hand, is meant for less
predictable environment and this approach would be more in demand. Supply chain professionals will have to face the good, the bad and the ugly in the future.”

Vinod Asthana, MD, Central Railside Warehousing Company (CRWC) focused on the criticality of giving the essential commodities supply chain issues its due. “Logistics and supply chain management of core sector is essential for emerging economies to sustain economic growth. This point should not be lost on anybody.”
– Ritwik Sinha

 

 

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