Future proofing Asean’s 2030 digital supply chain

The Association of Southeast Asian Nations (ASEAN) include a substantial number of the world’s most dynamic and trade-minded economies – from financial and production capitals like Singapore to emerging global supply chain hubs like Vietnam. 

Over the past decade, Asean’s role in global trade has increased substantially and steadily, with total trade among Asean members increasing by 25 per cent between 2010 and 2019 and value of trade with non-bloc partners rising 33 per cent in the same period. 

As the world saw Covid-19 put immense pressure on the global supply chains, it also exposed the vulnerabilities of the Asean supply chain. 

Asean economies were further held back by systemic inefficiencies such as complex tax regime, e-commerce regulations and customs protocols. For example, customs documentary requirements are vastly different across Asean, resulting in customs delays that create traffic bottlenecks and increase shipping costs. 

These differences are largely due to a disparity in digitalisation between the member states. Although all 10 members have access to a common trade platform known as the Asean Single Window (ASW), only about half are currently using it.

Asean member states have also joined forces with their pacific neighbors – Australia, China, New Zealand, and South Korea –to sign the Regional Comprehensive Economic Partnership (RCEP). 

However, it is uncertain if RCEP will fare much better – the lack of penalties and binding requirements means that nations can beg off the agreement’s standards if they deem them contrary to the country’s public policy objectives. Future proofing Asean’s 2030 digital supply chain needs to start NOW.

The 2030 Asean digital supply chain – where do we start?

With Covid slowly releasing its clutch on the region and trade agreements offering imperfect assurance of future success, where does that leave Asean’s hopes for a better, more efficient, and more synchronized trade and supply chain network?

Kearney is advocating for Asean to embrace and leverage digitalisation to fundamentally transform end to end supply chains in Asean. Such a digital supply chain should at minimum have four key qualities as seen in the figure below.

However, in reality, the current supply chains in Asean lack some of the necessary qualities. Instead, in Asean, we have difficult-to-navigate logistics-supply markets, manual collection of inventory data and low-to-no tracking of ocean vessels. 

There is a better way – imagine this:

  • Advanced software to predict an upcoming stock shortage
  • Automatic placing an order with a manufacturer with the inventory needed to fulfill it
  • An online Asean transport platform to shop for the best logistics option
  • The goods being picked up from the manufacturer by crowd-sourced vehicles (essentially Uberised trucks) 
  • The track-and-trace enabled truck providing all concerned parties with live-location data at any given moment
  • The quick and easy online filling of cross-border customs documentation
  • Trade documents being stored in blockchain-enabled databases for added security. Any additional services—such as insurance and trade financing— being arranged with similar ease thanks to digitalisation. 
  • The goods passing through customs without a hitch due to digitalised customs documentation
  • During disruptions, AI-equipped system recommending an alternative route to minimize delays. New first-mile and last-mile arrangements are made automatically

But how do we get these from where we are today? There are 4 main themes of actions to path the way: Institutional reform, infrastructural upgrade, technological advancement and adoption, and human capital growth.

Institutional Reform – At a regional level, a good starting point would be for holdout nations to adopt the ASW. Additionally, ASW can be integrated with the Asean Smart Logistics Network (ASLN) and non-member nations can be included in the ASW. On a national level, governments can redirect some resources allocated to support businesses during COVID, to digitalize trade services. Nations can also continue COVID-related debottlenecking efforts – such as streamlining custom processes for ‘low-risk’ traders – and even expand it into non-emergency product categories. These efforts in tandem with digitalisation measures that are already planned or under way, like the parts of the Asean Comprehensive Recovery Framework (ACRF), can go long way toward shifting Asean into a higher logistical gear.

Infrastructural Upgrade – With 9 out of 10 member states having higher logistical costs—relative to national GDP—than the global average, supply chain infrastructural upgrades are a necessary step to achieve this goal. Although some such infrastructure projects, like smart ports and improved internet access in underserved areas, are already underway, an estimated US$1.26 trillion needs to be further invested in infrastructure projects through 2025 to adequately digitalise the Asean supply chain. Learning from the past successes of Indonesia, public-private partnerships (PPPs) is powerful method of ramp up the much-need infrastructural spending.

Technological Advancement and Adoption – Access to up-to-date information and communication technology varies widely across Asean, with small and medium sized enterprises (SMEs) at low levels of adoption of even basic levels of digitalisation. National governments are mindful of these shortfalls and have advanced regional initiatives such as the Regional Digital Trade Connectivity (RDTC) project. To make a meaningful difference, policies need to drive significant expansion of digital access across supply chains, particularly at the SME level. Asean should consider establishing testbeds to try out pilot projects with regional tech “unicorns”, including the selective relaxation of regulations that may be hindering tech innovation. Additionally, as the region becomes more reliant on tech, nations should also invest and cooperate with each other to develop the cybersecurity muscle concurrently.

Human Capital Growth – Asean has an annual digital talent shortfall of 1.08 million workers. The supply chain talent deficit is even deeper—13 million annually and worsening by 14 percent year over year. Two primary causes of these talent gaps seem to be low levels of tertiary education enrolment and relatively meagre rates of Internet usage. A significant compounding factor is a regional failure to realize the full professional potential of its female population; only about 53 percent of women in Asean nations are currently in the workforce. Apart from existing top-down national and regional level efforts, Asean nations should also increase female economic participation and deploy PPPs to incentivise companies to do what is necessary to foster upskilling within their workforces.

SMEs will continue to be the backbone of Asean. With less than 10 percent of SMEs using advanced digital tools for their core business processes, and with just over a third have an online presence of any kind, governments will need to focus on accelerating SME digitalisation to achieve a truly digital supply chain. A potentially effective way to coordinate regional initiatives would be through an Asean SME Control Tower, or ASCT. Such an entity, ideally under the auspices of the Asia Development Bank (ADB) or a similarly trusted authority, would act as an institutional bridge between SME-related activities across Asean countries. It could measure the effectiveness of ongoing initiatives, identify policy gaps, and gain a working understanding of new challenges affecting SMEs as they arise.

One potentially potent way Asean can ensure the long-term success of its digital supply chain initiatives is by tying these efforts to a growing regional push toward more environmentally sustainable business practice. Taking operational cost as a proxy for relative global greenhouse gas (GHG) emissions, logistical inefficiencies account for 15 to 20 percent of global GHG emissions, through such activities as engine idling during roadblocks, inefficient routing of truck traffic, and shipping idle on open waters due to delays. Supply chain digitalisation can greatly enhance our understanding of environmental impacts throughout the logistical chain (e.g., Life Cycle Assessment), aid decision-making for everyone along the length of the supply chain and provide unprecedented level of detail to consumers and social influencers regarding the true environmental impacts of products and services throughout the economy.

In conclusion, the different segments of the economy and society have a great deal to gain from a timely and well-executed digitalisation of Southeast Asia’s supply networks. The work required to make this happen will take years to unfold—and the time to begin is as soon as possible.

Source: The Business Times

Link: Here

June 22, 2022