Manufacturers have been forced to rethink their strategies ranging from the sourcing of raw materials to the relocation of production units. As the pandemic has highlighted the challenges companies face due to the reliance on a single geography, manufacturers are diversifying and relocating their supply chains to become more resilient. This has led to the emergence of countries and territories in Asia and the ASEAN region as attractive alternatives. Last year, KPMG’s report, Rethinking supply
ly chains in Asia Pacific revealed which markets in can offer an advantage when rethinking the supply chain.The markets include Hong Kong (SAR) China, India, Malaysia, Singapore, Vietnam, Thailand, and Taiwan. Together, they contribute 13 per cent to global trade in 2020. They have 301 seaports, 612 airports, USD270 billion of foreign direct investment inflow in 2020.
Hong Kong (SAR) China
As a free port, with a long history of trade and experienced workforce in international business practices, and with its interconnectivity with the Greater Bay Area, it is one of the most favoured destinations for supply chain hubs. Its dominant sectors are property, finance, insurance, and banking industries.
India: Over recent years, India has emerged as a potential manufacturing hub for several sectors, owing to the government’s strong focus on initiatives, such as ‘Made in India’, the country’s purchasing power parity and a large population of engineers and factory workers. Its main sectors are specialty chemicals and life sciences, while its sunrise sectors are electronics and telecom.
Malaysia: Its manufacturing sector appears to be in a stable position to leverage supply chain realignment opportunities in the short- to medium-term, backed by government policy measures, improving external demand outlook, attractive incentives, and its Covid-19 vaccine roll-out program. Its dominant sector is semiconductors, and their sunrise sector is petrochemicals.
Singapore: One of the most important manufacturing hubs in Southeast Asia, Singapore holds a leading position in several sectors, with manufacturing activities contributing to nearly 20 percent of the country’s gross domestic product. Its dominant sector is electronics manufacturing, and its sunrise sector is healthcare.
Taiwan: One of the most prominent sectors is manufacturing, supported by government incentives and investments, availability of skilled labour, well developed infrastructure, and connectivity. Its dominant sector is semiconductor manufacturing, its sunrise sector is food and beverage.
Thailand: An attractive manufacturing hub, the region has deep expertise in manufacturing, lucrative investment incentives, availability of labour, and relatively well-developed infrastructure. Its dominant sector is automotive, and the food and beverage category is a growing area.
Vietnam: Vietnam has attractive manufacturing costs, trade policies, economic growth, and infrastructure. It is one of the most preferred destinations for companies looking to diversify or relocate supply chains. Its main areas are in electronics manufacturing, and healthcare is on the rise.
A time for change
Lower production costs have long been a key consideration when businesses rethink their supply chain strategies. However, there are more important factors to consider than just monetary benefits. A paradigm shift of business mindset is being called for.
At COP26, Stella McCartney admitted that the fashion industry has one of the worst track records for sustainability. Coalitions and working groups such as the UN’s Fashion Industry Climate Charter have formed, but change is not yet apparent. To achieve tangible results, every element across the entire apparel supply chain has an important role to play. The questions to be answered now are how to start and what to do next.
KPMG China and Serai joined forces to conduct a study into transparency in the supply chain of the apparel industry. Over 200 senior executives in the industry were surveyed in 2021. The report Moving the needle – Threading a sustainable future for apparel aims to give an overview of the current state of transparency and offers recommendations on how the industry can initiate change.
Transparency in the supply chain
Supply chain transparency is an essential component to meet increased demands for sustainability. It consists of two components: visibility and traceability. Visibility is when a company has a broad-ranging view of all parties that play a role in its supply chain, from farms and raw material suppliers to manufacturing, distribution and logistics. Traceability deals with tracing all materials and components used in a product from their origins, through each step of processing and manufacturing, to the final goods sold to a consumer.
The apparel industry acknowledges the importance of supply chain transparency. In the survey for the report, two-thirds of respondents stated that supply chain transparency was “extremely important” for their business, and nearly a third said it was “somewhat important”.
Pressure for the industry to change has come from increased consumer interest in sustainable fashion, new government regulations and a focus on ESG factors by the investment community. The study showed that corporate reputation was the main driver of supply chain transparency for both brands (59 per cent) and suppliers (52 per cent) in the apparel industry. This was ahead of other factors such as business goals, operational excellence, and internal risk management.
However, the findings do suggest that transparency is a more pressing issue in North America and Asia Pacific than it is in Europe. This could be due to recent regulatory moves in the US that place greater transparency requirements surrounding how apparel is produced, with suppliers in Asia Pacific keen to meet those demands so as not to lose business opportunities.
“Businesses need to think strategically. Today, the major issue impacting the industry is cotton traceability, but tomorrow it will be carbon footprints or water consumption. Solutions need to be able to grow with the industry’s needs.” – Vivek Ramachandran, CEO of Serai
Achieving a sustainable future
A paradigm shift in thinking about supply chain is needed.
Here are some considerations for businesses to move towards a sustainable future:
1. Internal alignment: The entire organisation needs to be aligned in setting enterprise-wide transparency goals and the pursuit of sustainable growth.
2. Collaboration: Partnerships should be established across the end-to-end supply chain.
3. Data standards: Supply chain stakeholders need to ensure consistency in the way data is collected, shared, and consolidated.
4. Technologies: Manual processes need to be replaced by dedicated systems/platforms to collect and share information
There appears to be a strong intent in the apparel industry to become more transparent, but there is a seeming lack of urgency by many companies to deal with a range of issues. If the whole industry is to build resilience for tomorrow’s sustainability challenges, supply chains need to become more collaborative and adapt a forward-looking, customer-driven, and predictive approach.
This article was originally published in the Asian Retail Outlook, powered by Tealium