Exploring Logistics in the Developing Markets of China, India and Vietnam.

Mark Millar, who will be moderating two sessions at the upcoming 3PL Summit, discusses the challenges and opportunities in emerging and developing logistics markets.
 
As Chair of the Emerging Markets Sessions at the 3PL Summit next month in Chicago, Mark Millar will be facilitating two sessions, joined by Alcon, J&J and Wells Lamont Retail.  He will be bringing his first-hand experience based on 15 years in the Asia market, including 10 years of living and working in China, to these sessions. One of which will be a Supply Chain focus, discussing how to mould globalized Supply Chain operations into shape.  He’ll then moderate a session on 3PL expansion into emerging markets, where he will be joined by: UTi, Caterpillar Logistics Services, Dimero, HCL and WNS.
 
This article is an insight into to what is to come next month in Chicago. 
 
Opportunities -revolve around the fact that the emerging markets are experiencing rapid economic growth and the resulting increase in trade and commerce drives increasing demand for logistics services.
 
Challenges- are many and varied, with the top three consistently being infrastructure limitations, bureaucratic regulatory procedures and skills shortages.
 
A broad indicator of the efficiency of a market’s logistics sector is the Logistics Costs as a percentage of GDP. In developed markets this is generally less than 10%, however in emerging markets the percentage is much higher – reflecting inefficiencies in the sector. 
 
As we can see below, in our three developing markets logistics represents 18% of GDP in China, 13% in India and 25% in Vietnam . As these economies continue to develop and mature, they will gradually improve and enhance their logistics sectors, and we will see these percentages decline over time.
 
 
Regulatory Environment
 
Compared to developed markets, the regulatory environments for logistics in China, India, and Vietnam are somewhat restrictive – but are gradually improving. Companies doing business in these three emerging markets will often encounter government bureaucracy, onerous paperwork procedures, customs delays and high duties and tariffs. Non-tariff barriers are also widespread. All these obstacles to business are costly in both time and money.
 
China – one of the challenges in China is the variation in interpretation and application of customs regulations. In fact, foreign companies often think that there are different customs regulations in different locations, however this is not the case. It is the interpretation and application of the regulations that varies – by location and in some cases by individual officials. This often results in companies being able to process goods a certain way in one port location, but not in another. This results in additional complexities within the logistics networks of global supply chain ecosystems.
 
India – companies in India generally establish warehouse operations in each of the different states in which they do business. This is due to the traditional tax system that operates at state level, rather than national level – each state has its own tax systems with different regulatory frameworks. This introduces unnecessary additional complexity into domestic supply chains and whilst companies may save on tax, they spend more on logistics than would otherwise be necessary. After years of debate, a national, standardised tax system is finally underway and once implemented – due within the next year will result in more efficient domestic logistics networks.
 
Vietnam – the regulatory environment for logistics in Vietnam is not dissimilar that in China ten years ago. With Vietnam’s accession to the WTO, restrictions on foreign entities will gradually be reduced. From year 2014, overseas companies will be allowed to operate 100% wholly foreign owned logistics businesses – foreign ownership is currently restricted to 49%. Hence during the intervening years, we will see a flurry of merger and acquisition activity – at both local and global levels.
 
Infrastructure Developments
 
China has made massive progress in transportation infrastructure development, accelerated a massive boost from the four trillion RMB stimulus package initiated in late 2009. The highway system now has over 75,000 km of expressways, new airports are being constructed at the average rate of one new airport every five weeks, inland waterways are being developed and expanded, and container port infrastructure developments continue unabated, with Shanghai port handling over 31 million twenty foot containers (TEU) in 2011    Furthermore, the huge development of the high-speed passenger rail network is expected to free up some of the existing rail infrastructure to be converted for cargo use in the future, including containerised rail freight.
 
In India, the transportation infrastructure is nowhere near as developed as in China. The level of investment and support has not been enough to keep up with modern logistics requirements, resulting in limited road infrastructure and congested container ports, leading to huge delays and inevitable inefficiencies – costing time and money. A Washington Post article quoted experts as saying that “If urgent steps are not taken, by 2020 the cost of waste and delays will increase from $45 billion annually to $140 billion.” Several years ago,India took the initiative to allow private companies to operate on the state railway systems. One major player, Arshiya, is investing heavily in the rail sector in a bid to improve India’s overall logistics efficiency, including investments of over 1.5 billion rupees in order to double their rail capacity.
 
Vietnam – with the support of foreign investment and through several public-private-partnership (PPP) projects, Vietnam has been able to make good progress in recent years on infrastructure developments, particularly in southern Vietnam. One example is Cai Mep port — the large, impressive, modern container terminal development south of Ho Chi Minh City. Together with the huge industrial zones and logistics parks built in Binh Duong province, north of the city, there are now much better options available for logistics activities. However there are still opportunities to further improve the overall planning and coordination of the logistics infrastructure projects – despite the Cai Mep port container terminals being open, there is limited highway connectivity to and from the port. There is also a need to develop multi modal ground transportation networks and corridors – specifically road and rail infrastructure – to connect the new industrial zones and logistics parks in Binh Duong province to the container ports – both the city terminals and the new Cai Mep facilities.
 
 
 
Talent Shortages
 
One logistics challenge common to China, India and Vietnam – indeed throughout all emerging markets – is the skills shortage. As the economies are expanding, then logistics activity increases, which in turn drives demand for trained, skilled and experienced professionals.
 
One of the key findings of the Global Chief Supply Chain Officer Report 2011 was that “talent acquisition and leadership development” represents a significant challenge in supply chain management, with 35% of respondents listing it as one of their top challenges and a further 56% agreeing that it is an important challenge.
 
 In China the difficulty of recruiting skilled professionals is exacerbated because of its scale and also due to China’s expanding role in global supply chains, leading to increasing demand for skilled logisticians. At the same time, the sheer size of the population gives it a larger pool of experienced workers than in other countries.
 
India’s leadership role in global commerce has developed in areas such as telecommunications and business process outsourcing. The impact on supply chain management is a smaller pool of experienced talent to fill the expanding demand in the logistics sector. As India plans to modernise many sectors, in particular the retail trade, there will be further increasing demand for experienced logisticians.
 
In Vietnam, the majority of the population are young, well educated, and English is spoken widely. Thus there is a large pool of potential workers for the logistics sector. However, as in many other countries, there are not enough young people choosing the logistics sector as their career path. Therefore in Vietnam, we are also seeing skills shortages.
 
 
 
Conclusion
 
The logistics sectors in China, India and Vietnam have improved significantly during the last five years, and as they continue to do so, we can expect to see gradual reduction in the logistics costs as percentage of GDP.  
 
In line with maturing logistics sectors in developing and emerging markets, we will also see an increase in the level of outsourcing, which is good news for the 3PL logistics service providers.

Quelle: eyefortransport

Portal: www.logistik-express.com