Greater regionalization, supply chain integration, and rising consumer power now allow businesses to source and serve Asia from Asia, leading to a reconfiguration of trading patterns. Traditionally the world's factory, primarily serving the United States, Europe, and Japan, Asia today is also a hotbed of demand from both consumers and businesses. New intra-Asia trade flows have important implications for business and government. Because Asia is now responsible for a larger share of global supply chains, governments here should more aggressively work to address protectionism, facilitate transport connectivity, and improve border clearance with its regional partners. Global businesses can better capture this opportunity by fostering geo-specific expertise, supporting the competitiveness of economic engines such as Asia's SME base, and developing solutions to address the unique needs of this emerging region.
A dramatic shift is occurring in Asia as a result of new supply chain synergies and rising consumer power. Traditionally the world's factory, primarily servicing the United States, Europe, and Japan, Asia today is also a hotbed of demand from both consumers and businesses and, as a result, a growing origin, intermediate, and destination point for trade flows. Today, over fifty percent of Japan's total trade is with Asia, compared to twenty percent with the US, and it continues to grow.1 South Korea has undergone a similar shift, with its total China trade now twice its US trade.2 A similar story can be told for Australia3, Singapore4, Thailand5, and Hong Kong6.
Three trends explain the expansion of intra-Asia trade. First, economic integration efforts through the Association of Southeast Asian Nations (ASEAN), ASEAN's Free Trade Areas (FTAs) with China, India, Korea, Japan, Australia & New Zealand, and regional FTAs such as the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) have promoted integrated sourcing in manufacturing, and regionalization of supply chains and production networks. Second, e-Commerce trade is booming, bolstered by rising disposable income and Asia's rapidly expanding middle class. Third, Asian businesses are internationalizing, realizing business opportunities in their own backyard.
Nowhere are these trends more evident than in the hi-tech sector, one in which UPS is intimately involved. To reduce inefficiencies in inventory but stay close to customers to enable time-specific launches and effective after-sales service, Original Equipment Manufacturers (OEMs) are sourcing parts and components from all over Asia, conducting final assembly, leveraging savings and preferences from free trade agreements, and delivering from Asia to Asia. In many cases, OEMs are going from the factory floor directly to the end-consumer, and by-passing traditional distribution networks. The smartphone business in particular is positioning itself for Asia, to reap the benefits of the biggest and fastest growing share of e-Commerce globally, expected to represent thirty-seven percent of the world's total e-Commerce spend by 2018.7 It is no surprise, in our view, that the top ten smartphone companies in the world ? the likes of ZTE, Vivo, LG, Lenovo, Huawei, Samsung, and Xiaomi ? are Asian, preparing themselves for gold rushes in markets such as India where today only one in ten people owns a smartphone, but by 2020 smartphone penetration is expected to reach 40 percent. At that point, nearly 250 million smartphones will be shipped each year. 8
The shifts in supply chain patterns have important implications for both government and business. As Asia content accounts for a larger portion of global supply chains, and more businesses source and serve Asia from Asia, governments are focusing more on facilitating trade lanes with their neighbors to improve market access for goods and services, enhance transport connectivity, and support efficient border clearance processes. For example, to reap the benefits of the lucrative hi-tech sector, time-guaranteed customs clearance is critical to supporting customer-centric business models based on just-in-time manufacturing, lean inventory, responsiveness to demand, and short-product cycles. In addition, improved transport connectivity, such as efforts made by ASEAN to facilitate inter-state transport and transit and boost open skies, will offer businesses additional and more competitive transportation options, to lower the cost of logistics which is still today disproportionately high in Asia. These policy efforts cannot stop here, and must continue to be ambitious and innovative to drive investment and competitiveness in Asia. Important new areas to study are how to support e-Commerce growth by facilitating the flows of goods, payments and data; and cross-border transportation solutions such as rail and road to help manage Asia's growing carbon footprint.
For American businesses, the Asian growth fulcrum is a stark reminder that the United States must continue to play or risk being left out of this new opportunity. It also is an urgent call for American companies to keep up with the innovation and rapidly-evolving demands of the region. Many businesses are already moving to develop Asia-specific products and solutions to tackle the new opportunities, as new sourcing, production and consumption patterns with unique characteristics emerge.
UPS is certainly no stranger to this call. In addition to connecting Asia to the US and Europe, in 2010, the company established its intra-Asia air network, offering customers integrated freight and express solutions, and enhanced time-in-transit for moving raw materials, components, and finished goods between Asian markets. More recently, to develop solutions unique to Asia's circumstances, leveraging Asia expertise and knowledge, UPS recently launched two new groups based out of Singapore ? Advanced Solutions Engagement Team (ASET) and UPS Trade Management Services (TMS) ? to help UPS customers navigate the complexity of today's supply chains and manage the region's trade rules and compliance responsibilities. We continue to explore innovations and partnerships applicable to Asian circumstances, such as investing in capacity building for SMEs, to help companies in the region's largest economic base compete, join global supply chains, and find new markets.
Without a mindset shift, multinationals used to the world being their oyster could one day find local companies out competing them. Indeed, Asia is waiting for no one and it is high-time that all of us ? whether government or business ? rethink our go-to-market strategy.
Jim Barber is the President of UPS International.