Opportunity to Gain with Companies' Capabilities Match their Strategic Plans for Facing China-ASEAN FTA

Source : Kompas Daily News and SCM article

In 2010, the China ASEAN FTA (CAFTA) will take affect and many local industries are fearing the worst. On the other hand, this situation could be understood from another perspective. With FTA implementation, it is true that many more Chinese products will enter the Indonesian market and it is estimated, for example, that trucks from China could sell for as much as 40% less than local trucks, but this in turn could kick start development in logistics investments, especially transportation equipment. Unfortunately, local suppliers of trucks will be forced to compete with Chinese suppliers in order to survive, but this could prove positive for the local transportation industry if it can gain the support of collective investment through Indonesia and other ASEAN investor first. Meanwhile, if we look at Indonesia's textile industry, it is predicted that Indonesia will lose big to China because China has access to much cheaper raw materials. It is easy to see that Indonesia's local industries badly need the attention and assistance of the government to stay competitive with China.

The Indonesia government needs to be focused on development in the manufacturing and infrastructure sectors to push economic development and boost buying power in order to defuse fears of FTA implementation. There are 10 industrial sectors which have potential to gain through the FTA ASEAN - China agreement and the role of the government should be aimed at specific developments to enhance the competitiveness of industries like machinery, plantations, food and beverages, petrochemicals, plastics, textiles and textile products, foot wears, electronics and electronic tools, iron and steel and machine services.

Most realize that all this added competition will surely enhance customer value as end users of product and services. The role that supply chain management will play will only increase as good management from end to end, from production to consumption, from factory to store and from growers to table, must be focused on how to get the right products of the highest quality at the most competitive prices to the customers as fast as possible. An example of as well managed supply chain can be found in the clock speed industry, specially computers and other gadget, which is growing fast and has proven time and time again that it can deliver the right product to the place at the right time in the desired condition. Every link in the supply chain must be carefully examined, constantly monitored and improved upon to stay more agile and lean than the nearest competitors. When FTA is implemented, Indonesian industries can survive and even thrive, but only if they can gain a competitive advantage.

 

INFRASTRUCTURE: URBAN AND RURAL

Throughout Asia, there is a large need for traditional infrastructure, such as roads, bridges, airports, utilities and rail networks. Goldman Sachs has estimated that India alone will require more than US$1.7 trillion in infrastructure investment during the next 10 years, particulary in energy, transportation, water and sewage. China's $600 billion government stimulus package, which was implemented a few months after the start of the economic crisis, is bringing in a new wave of new infrastructure and investment to that country. The package includes support for thousands of miles of high-speed rail transit and nearly 100 new airports.

Asia is also likely to adopt smart technologies as many of its countries transportation systems from scratch. In the U.S. and Europe, systems built decades or centuries ago are far more difficult to upgrade.

Also, government is placing a high priority on driving the economies of rural areas. The Chinese, Indian and Indonesian governments are all encouraging private companies to serve these markets profitably and sustainably without government subsidies.  China's name for its focus on rural development is the New Socialist Countryside, but the plan has many capitalist elements, including incentives for consumers to purchase new appliances. Institutions such as HSBC, the Bank of Beijing and China Life are trying out new banking and insurance services in rural areas. In India, ICICI Bank, after making its name serving the consumer banking needs of the emerging Indian loans for cattle, Internet kiosks, and funding for countryside business initiative. (Capturing Asian Opportunity, Nov 24 2009, by Andrew Cainey, Suvojoy Sengupta, and Steven Veldhoen)

 

THE SHAPE OF ASIA'S INDUSTRIES

As Asia recovers from the global economic crisis, a new series of mergers, acquisitions and partnerships will be initiated by Asian companies, which will lead to consolidated global industries. No longer will the key economic benchmark for the region be foreign direct investment in China, India, and other parts of Asia, but instead, the future of Asia, but instead, the future of Asian economies will be determined by an increasingly complex web of investment.

Success in international mergers and acquisitions always requires a high level of market and cultural understanding. For example, British retailer Mark & Spencer had problems with its store opening in Shanghai in 2008 as management had underestimated the impact of variations in shopping habits between consumers in Shanghai and those in Hong Kong, where the company's stores had traditionally done well. The retailer also experienced unexpected supply chain delays involving Chinese customs. Asian companies moving into Africa, Latin America and other parts of the world and will experiences the similar difficulties.

But that won't stop the movement toward Asian mergers. In Japan, for example - a country that has often resisted consolidation - companies with excess capacity, such as those in the paper and computer storage device industries, are reducing factory capacities through mergers. The Lawson convenience store chain recently acquired its insolvent rival am/pm and it can now compete more effectively against market leader 7-eleven in Japanese metropolitan areas.

In short, the Asian recovery will not represent a return to business as usual. It will lead both to more consolidated industries at home and to a far greater global presence for companies from India, China and elsewhere on the continent.

The companies that will best capture the resulting opportunities well be those with a coherent, focused approach to their markets, combined with a distinctive set of capabilities that give then an edge in reaching those markets. For Asian companies, the conventional strategy of moving abroad by acquiring assets will not work as well as it has in the past. For Western companies, moving established operations into Asia will be equally frustrating. There's only one way for both types of companies to be successful, and that is by determining the capabilities they need to drive operations and investing in those exclusively. If companies' capabilities match their strategic plans, Asia's growth can provide a powerful counterweight to the worldwide recession - and a platform for global expansion afterward. (Capturing Asian Opportunity, Nov 24 2009, by AndrewCainey, Suvojoy Sengupta, and Steven Veldhoen)