Now is the time to shift from supply chain resilience to growth

Jakarta, 30 November 2023 - PwC launched a new report “Global Supply Chains: The Race to Rebalance” at the Asia-Pacific Economic Cooperation (APEC) CEO Summit 2023 in San Francisco, where PwC is once again the exclusive Knowledge Partner.

The report outlines key considerations business leaders need to act on to survive in a rapidly evolving business environment, one of which includes supply chain disruption. There’s a global race happening right now as businesses look to rebalance their supply chains and seek new suppliers, locations and talents. It’s no longer enough to focus on resilience and short-term profitability. Businesses need to transform for viability and to survive this challenge, especially in Asia Pacific.

Raymund Chao, PwC Asia Pacific and China Chairman, said “Rarely in history have business leaders dealt with as many challenges as they have in the last three years, each uniquely complex and compounding. And never before have leaders had to respond to them all at once. While Asia Pacific continues to be primed for growth, minor business tweaks like lift and shift are no longer enough. A shift from resilience to growth is necessary. A race to rebalance for growth is happening at this very moment.”

Fortunately, as stated by Eddy Rintis, PwC Indonesia Territory Senior Partner, “Despite global economic turbulence, Asia Pacific is weathering the storm. Asia Pacific is expected to contribute 70% of global growth over the next ten years. This growth will probably be boosted by the Regional Comprehensive Economic Partnership (RCEP). The region is set to have the highest aggregate consumer expenditure by 2030. The consumer markets in South and Southeast Asia are expanding at a phenomenal rate; in the case of Indonesia and the Philippines, this growth is predicted to reach 200% by 2030.”

Thus, this RCEP partnership will be beneficial and has advantages for Asia Pacific, since it involves cooperation among countries with the largest economies in Asia, including China, Indonesia, Japan and South Korea, which cover 30% of GDP and world population. The supply chain in Asia Pacific is a major driver for 60% of industry profitability. The US is at 45% versus Indonesia at 76%, Singapore at 70% and Japan at 67%. From this calculation, Asia Pacific is in an even better position taking into account how dependent the US is on the area for input costs.

Aside from supply chain and consumer potential, another important factor influencing investment is incentives from the government, especially in locations that attract foreign direct investment due to attractive government incentives. These incentives often lead to intense competition for talent as demand exceeds the availability of skills in the existing talent pool. However, incentives are not a golden ticket. Discerning businesses will look beyond the easy win and dig deeper with due diligence to survive this competitive economy. 

The report further highlights three fundamental questions that we believe businesses need to consider when repositioning their supply chains for growth:

• How to navigate the competitive landscape of supply chain transformation

• How to use next generation technologies

• How to turn Environmental, Social and Governance (ESG) performance into a value driver for business growth

New markets compete for global supply chains

The report also considers the challenges facing organisations seeking to relocate supply chains given geopolitical uncertainty. Companies seeking to rebalance operations more evenly across the region are unlikely to find a single location that can replace China. Instead, businesses seeking alternative locations in Asia Pacific or Latin America will require trade-offs between political risk levels, workforce profiles, infrastructure capabilities and the regulatory environment. CEOs also need to consider (although they are not always directly responsible for) the availability of labour in the locations they are scoping. 

It proves a significant challenge for many companies and suppliers, particularly in locations that are attracting foreign direct investment due to attractive government incentives. These incentives often lead to intense competition for talent, as the influx of demand outweighs the availability of skills within existing talent pools. Unfortunately, Indonesia is in fifth position in average monthly wages behind four other countries (based on Renminbi/RMB). 

This is in line with recent PwC analysis that showed 65% of companies surveyed considered labour costs and availability to be the top concern when relocating supply chains. PwC also found via a survey that 56% of companies cited varying supply chain standards without guidelines as the biggest ESG challenge facing their supply chains. 

Eddy closed by saying “As we can see, there is an increased focus on the ‘S’ in ESG so businesses must invest now to identify and manage human rights risks in their operations and supply chains so that they’re able to address them, avoid doing harm to people and protect their reputation and right to operate.”