More proof that the diversification, regionalisation and localisation of global supply chains is gathering steam. Geopolitical, ethical, and logistical pressure is starting to unravel decades of economic integration between China and the west. Meanwhile APAC corporates are basing more of their supply chains in Asia. So finds the latest research from HSBC’s “Global Supply Chains – Networks of Tomorrow,” which predicts that over the next 12-24 months corporates in Asia Pacific will increasingly move more of their supply chains closer to home.
APAC corporates will base more than half (53%) of their supply network in Asia, up by nearly six percentage points from 2020. Alongside counterparty risk, regulations and boarder restrictions driving the trend, companies in the region are also positioning to benefit from the Regional Comprehensive Economic Partnership (RCEP), explains Aditya Gahlaut, Co-Head of Global Trade and Receivables Finance, Asia Pacific, HSBC.
“Companies in Asia Pacific have begun to realign their supply chains to capitalise on the advantages offered by RCEP. RCEP harmonises the rules of origin across much of the region, lowering the cost of inputs for manufacturers and making their goods more price competitive. At the same time, it provides greater access to larger markets for exporters, spurring investment within RCEP and from beyond.”
And while respondents based outside Asia Pacific are more inclined to increase supply chain partners, peers in Asia Pacific will likely reduce their number of counterparties. At a time when supply chain resilience is increasingly heard on earnings calls, two in three (67%) of APAC corporates are looking to reduce their number of suppliers – up by 20 percentage points from 2020, he adds.
“It may seem counterintuitive – if a company faced supply disruptions in the past, you would think it would want to work with more suppliers,” continues Gahlaut. “But it makes sense for companies to secure their sourcing from fewer suppliers while cultivating longer-term, more strategic relationships with them. Where we’re seeing the move towards having more suppliers is when a company is reliant on only one market. Geographic diversification is an important consideration when designing more resilient supply chains.”
Just-in-case triggers inventory rise
The research highlights other key trends in the region. Disruptions to global supply chains and the resulting logistical challenges have caused just-in-time inventory management to give way to just-in-case. Nearly four in five (78%) APAC corporates have held excess stock over the last two years, with an average increase of 36% in inventory. In contrast, corporates outside of Asia Pacific are reporting they feel less of an impact.
“Corporates are planning for uncertainty. Equally, they’re trying to find the balance between stocking up for just-in-case and carrying additional inventory costs,” says Vivek Ramachandran, Head of Global Trade and Receivables Finance, HSBC.
“Our board has insisted we continue to build up inventory onshore “whatever the cost”. We found the whole Covid period to be a near death experience as we’re going down the just-in-time inventory route – we’re a business that if we don’t have product available on demand, we don’t have a business,” said one survey respondent, a treasurer for a Singapore-based wholesale distributor.
Payment and financing
The research found half of organisations view payment and financing terms as a major factor when reviewing existing suppliers. The use of inventory financing and receivables financing among organisations in Asia Pacific both saw a seven percentage point increase since 2020. Elsewhere currency risk, inflation risk and cash flow risks are the three largest supply chain concerns for organisations globally. Organisations are using risk management solutions such as forwards and interest rate swaps to mitigate FX and interest rate risk.
The average “invoice to payment” period is 56 days. Ninety six percent of APAC organisations aim to keep their existing payment terms with their suppliers the same in the coming 12-24 months. Meanwhile 83% of organisations are paying their suppliers in USD, but nearly 80% are settling in their supplier’s local currency.
Visualising transactions and accessing and optimising working capital are the top two digital supply chain priorities. While traditional trade finance and available working capital remain the most popular methods for organisations to fund their supply chains, inventory finance and receivables finance are being used on an increasing basis. Inflation has increased the amount of funding customers require. “We have seen a huge spike in customer demand for working capital solutions, whether it’s supply chain finance or receivables finance,” said Ajay Sharma, Head of Global Trade and Receivables Finance, Asia Pacific, HSBC.
The report also found that organisations are prioritising better visualisation of transactions along their supply chains, as well as improving access to banking solutions and managing their working capital. Sustainability commitment levels differ across regions and markets. Organisations outside of Asia Pacific are leading in the adoption of environmental policies, while those in Asia Pacific are more focused on health and wellbeing policies.
