Special attention must be paid in five key areas: organization, supply chain design, planning, demand shaping and managing transitions.
Emerging markets in the Asia-Pacific region--including China, India and Southeast Asia--have become a key driver of the global economy. Already representing some of the world's largest markets, China and India--each with populations over 1 billion--average annual economic growth of more than 10 percent. By 2030, China is projected to be the single largest market in the world, with India the third-largest.
While companies in the United States and Europe have certainly recognized the value of these Asia-Pacific countries for cost-effective outsourcing--with China known for manufacturing and India primarily for services-- only a few Western businesses have achieved any success in capturing the potential of these markets.
As the rapid growth of these countries' economies continues, an increasing number of Western manufacturers have begun to view the Asia-Pacific region not simply as a supply source, but as a growing demand center. Many Western businesses have engaged in mergers or acquisitions that have served the dual purpose of gaining a foothold in Asia-Pacific, while also managing the competitive threat posed by Asia-Pacific manufacturers who are exploring the global marketplace themselves.
Whatever strategy Western manufacturers employ, entering these expanding markets brings unique challenges. In many ways, the Asia-Pacific region represents an entirely different world--with its own business rules, government regulations, transportation and logistics challenges and a consumer population that is far more fragmented and diverse than in either the United States or Europe.
In addition, the Asia-Pacific region has not historically placed an emphasis on end-to-end supply chain management. Concepts that have been widely embraced in more mature markets--such as integration across functions, demand-driven supply models and visibility across the end-to-end value chain--have not been broadly introduced in this region. And, while technology solutions may exist in some facilities that serve as suppliers to Western businesses, they are primarily focused on simple cost minimization. Even if the most sophisticated technologies were deployed within Asia-Pacific businesses today, they would be unable to deliver meaningful results until core supply chain philosophies are more widely adopted.
As a result, capitalizing on the huge potential of Asia- Pacific markets will require a significant effort on the part of Western businesses. But that effort comes with an opportunity for dramatic growth in both revenues and profits. The first step is gaining a clearer insight into these emerging markets.
Understanding the Asia-Pacific opportunity
One of the single-biggest deterrents for businesses entering the Asia-Pacific marketplace is the high cost of operating a supply chain there.
Some of the region's challenges, including its overwhelmed transportation and logistics infrastructure, are being addressed. Recognizing that an outdated and insufficient infrastructure represents a barrier to economic growth, many Asia-Pacific countries are investing in improved air transportation, seaports, railways and highways. However, manufacturers accustomed to the sleeker transportation systems--as well as lower logistics and distribution costs--in the United States and Europe will experience a certain degree of culture shock, at least in the short term.
Western manufacturers will also see a significant difference in service costs. Markets in the United States and Europe are relatively homogeneous, keeping service costs down, but populous Asia-Pacific countries are extremely diverse in language, culture, income level and product needs. To compete successfully in these countries, much higher levels of service and personalization are required to deliver the customized products that address extremely heterogeneous market segments.
An additional challenge is identifying local supply networks in the Asia-Pacific region and successfully integrating these companies into the end-to-end supply chain. Many Western manufacturers already partner with Asia-Pacific suppliers, but there are still language, technology and cultural obstacles to overcome, as well as a lack of the industry standards, protocols and business metrics that are common in the United States and Europe.
There is certainly an opportunity to gain significant sales revenues by competing in Asia-Pacific markets; the key is to control costs and ensure profitable growth. It is imperative that manufacturers understand and address the supply chain challenges involved, as well as balance their domestic demand with the often enormous potential of the Asia-Pacific region.
Fortunately, some pioneering businesses have already taken the bold step of entering high-growth international markets, paving the way for other manufacturers. By studying the successes and failures of these risk-taking companies, manufacturers in the United States and Europe can maximize their own opportunities for growth and profitability as they prepare to compete in the promising Asia-Pacific marketplace.
Five keys for success
The Asia-Pacific region offers its own unique challenges, but it is not the first fast-growing market that has represented a target for international expansion. Based on its experience in helping manufacturers successfully adapt their supply chains to high-growth global opportunities, i2 has defined five key steps for succeeding in a rapidly expanding marketplace.
1. Put the right organizational structure and talent in place. The Asia-Pacific region, like many fastgrowing markets, has not historically placed an emphasis on broad, end-to-end supply chain management. Instead, companies have focused more narrowly on individual transactions, and the daily operational demands of keeping pace with an explosively growing marketplace. For this reason, manufacturers must create a local organizational structure that emphasizes the importance of supply chain management. In nearly every instance, a vice president of supply chain must be appointed, along with an associated staff. This new function should report to the chief financial officer, the chief operating officer or the head of the business. This will help the supply chain--historically viewed as a cost center--to be seen as a well-managed profit center, with clearly defined performance metrics and servicelevel agreements with other functions.
In addition to establishing the right organizational structure, businesses entering high-growth markets need to focus on attracting, developing and retaining the personnel required to manage a complex, diverse and fast-moving supply chain. In many growing markets, employees drawn from the local community might have a better understanding of regional business practices or government regulations, as well as personal relationships that may be leveraged for the good of the organization. But it is equally important to source talent globally to ensure that processes and knowledge can be transferred across all parts of the worldwide business--and that the best employees will remain with the business over the long term, supporting worldwide growth.
2. Match the supply chain design to the global opportunity. Every manufacturer faces a difficult transition when changing from a single-site business serving domestic markets to a truly global business--with multiple manufacturing locations, a variety of transportation modes, diverse cost structures and highly differentiated markets. Decisions about where to source materials, where to manufacture and where to sell products are suddenly much more complex. Careful consideration must be given to risk management strategies, and to weighing the service and margin implications of various market results--so that supply chain strategies are "stress tested" before being put into practice. (See risk articles on pages 36 and 39.)
It may seem logical to match the overall supply chain design to what is perceived as the largest opportunity in the new market--for example, by building new factories in India or China. However, businesses must consider the demands of the global marketplace to ensure that all market opportunities will be leveraged. This means first gaining an understanding of the costs and drivers associated with every global supply chain activity, from sourcing through distribution. Manufacturing facilities should be located where they can maximize their contribution to profitability, whether that means being close to raw-material sources, taking advantage of low-cost labor or becoming part of the consumer communities they will serve.
Manufacturers also need to understand the diversity of consumer needs in fast-growing markets, such as the Asia-Pacific region, to make intelligent decisions about which promising segments to focus on, as well as which challenging segments to avoid. There is a natural focus on China and India in particular--each of which is quite diverse--but manufacturers must also consider smaller, up-and-coming markets such as Vietnam.
3. Balance global and distributed planning. One key difference between Western businesses and Asia-Pacific companies lies in the degree of centralized control that has traditionally been exerted across the endto- end supply chain. Manufacturers in the United States and Europe are accustomed to tightly controlling all business processes and supply chain partners; however, this philosophy is not always embraced in international markets. Even though local supply chain organizations need flexibility and autonomy to succeed, manufacturers need to balance this with global control. A certain degree of centralized control ensures that the worldwide business is operating under a single strategy, that key lessons and knowledge are broadly shared, that common metrics are applied and that there is no unnecessary duplication of resources or business processes.
Ultimately, there is no universal answer. Each manufacturer must work to achieve the correct balance between global control and regional autonomy that is largely dependent upon the culture of the country in which manufacturers are doing business. In weighing centralized versus localized planning, executives must also consider such factors as the corporate culture, the impact on strategic objectives, customer service implications, the impact on costs and profits and the efficiency and effectiveness of decision-making processes.
Even if they choose to empower their international business units, manufacturers must still create and manage a global business planning process--including sales and operations planning--that aligns and synchronizes regional metrics with corporate goals.
4. Understand and shape consumer demand. Entering a fast-growing market, especially one as diverse as the Asia-Pacific region, requires manufacturers to develop a systematic way to gather information about consumer needs and then apply this information to their most important supply chain decisions. Manufacturers need to ensure that they are offering the right products, at the right price, at the right time, to the right consumer groups. This is a basic tenet for any business, but it is especially true when a manufacturer enters a new international marketplace, in which little may be understood about the real-world needs and purchasing values of end users.
Once products are launched into the market, demand shaping--which is commonly associated with the retail environment--emerges as a critical concept in all consumer markets. By linking key business processes to point-of-sale information, manufacturers can make intelligent decisions about markdowns that protect their profit margins while also ensuring a steady stream of revenue. In a diverse, heterogeneous market, demand shaping should be done at a very granular level, to maximize profitability across every market segment.
5. Manage transitions with flexible tools. Manufacturers typically arrive in a new international market ready to apply the tools, processes and strategies that have proven successful in their domestic businesses. But, in addition to language and cultural obstacles, they often encounter local supply chain partners with technology platforms that are outdated and underutilized, as well as business processes that will not easily mesh with their existing operations.
A flexible technology architecture that overlays existing systems is critical in enabling manufacturers to manage transitions and business changes, facilitate rapid technology deployment and adoption, integrate many individual processes and platforms, and reduce the total cost of ownership. Disparate operations data, legacy systems and technology platforms, can be unified by implementing a service-oriented architecture that allows a high level of visibility and collaboration across international partners. A flexible technology architecture can not only enable current business processes, but also ensure that processes can change as rapidly as the business changes.
A success story
These five keys for success can best be illustrated by describing how one consumer goods manufacturer used these strategies to successfully enter not just one, but multiple fast-growing global markets--where today the company holds a significant leadership position.
In the mid-1990s, this manufacturer was primarily known as a regional supplier of product parts and components to larger companies, before it embarked on an ambitious strategy of entering fast-growing markets under its own brand name. In doing so, the company implemented each of the five steps described above, including creating a series of regional business units that placed an emphasis on supply chain excellence. It devoted a significant percentage of supply chain employees to ongoing improvement initiatives. The manufacturer also recruited heavily in each new market, combining local talent with experts from its domestic operations to create a staff that is customtailored to regional needs.
While each regional business unit operates with a high degree of flexibility, the business has established a global center that ensures visibility and integration across the worldwide supply chain. The business has installed a set of best-practice systems and processes that ensure the speed, efficiency and consistent high quality needed to serve fast-growing markets located in different corners of the world. There is also a global process innovation team that ensures objective performance monitoring, measurement and continuous innovation throughout the company's facilities to ensure that performance remains at peak levels.
A service-oriented technology architecture supports this global collaboration, enabling geographically diverse business units to leverage one another's strengths, as well as participate in global production and distribution plans that consider the capacity and cost constraints of every plant. Customer needs can be met by a number of plants, depending on the current state of local market demand, production capacity and work-in-process inventory at each of the company's regional facilities.
Sales, manufacturing and transportation plans are synchronized daily, and the flexible, multi-platform technology architecture addresses inputs from such diverse functions as marketing, forecasting, research and development and procurement. No matter where in the world employees are located, they share a single view of end-toend supply chain activities, as well as a common perspective on the key issues and opportunities facing the business.
As a result of its aggressive efforts to enter and dominate high-growth markets around the world, this manufacturer today holds a global leadership position in eight key product categories. This once little-known supplier to domestic industry is now recognized by major retailers and business publications as a world leader in its product categories.
Now that it has reached a position of market leadership, the company is making a strategic move from being a supply-driven business to implementing a demanddriven supply chain model. i2 is currently working with the company to focus on closer customer collaboration, greater end-user knowledge, more accurate forecasting and more effective demand shaping to drive even greater revenues and profits.
Maximizing your investment in growth markets
Not every business can expect to realize this kind of dramatic success when entering fast-growing markets, but manufacturers can certainly improve their chances for success by developing a sound understanding of supply chain issues early in the process.
While it is easy to focus only on the potential new revenues offered by high-growth global markets, it is critical that companies plan for profitable growth--and that means putting in place the right organization, supply chain design, global planning capability, market understanding and technology architecture before significant capital investments are made. Of course, speed is of the essence in serving fast-growing markets, but much more important is the ability to make intelligent decisions that will increase the chances for profitable growth over both the short and long terms.
— by Gaurang Pandya and Venky Nayar
