Building global supply chain resilience through regional distribution centres in Asean

THE outbreak of the Covid-19 pandemic has caused disruptions to global supply chains.

The worldwide supply crisis and ensuing demand shock from countries' lockdowns and travel restrictions have exposed the supply chain and production vulnerabilities of many multinational companies. Businesses should reconsider their global supply chain strategy as they stay focused on meeting changing customer preferences.

While diversification is a strategic business decision that will take time to execute, it has been of focus for many companies as they look to broaden their base of suppliers to multiple locations. This also enables them to be nearer to their key customer markets so that they can continue to operate even if borders are closed.

To this end, companies should consider building one or two more regional distribution centres (RDCs) near to or in their end-markets to provide contingency for supply chain disruptions and to enhance distribution capabilities through speedier fulfilment and faster response time.

RDCs can also strengthen companies' ability to provide value-added services such as repackaging and quality control checks to meet local customer demand and requirements.

Asean countries offer a good mix of cost-effectiveness and competitiveness for companies looking to diversify their supply chains for resilience and business growth.

Across the region, Singapore, Malaysia and Thailand are popular locations for RDCs. Reasons include their strategic geographical location, supporting facilities and infrastructure, quality or cost-efficiency workforces, ease of doing business and conducive government policies.

Above all, the three countries offer various advantages for businesses looking to tap into Asean's growth and rising middle class. Ultimately, choosing an RDC location depends on where key customers are located, preferred transportation modes, as well as sensitivity to cost.

Singapore: regional hub for global corporations

The island nation is home to one of the world's busiest maritime transport networks - connected to more than 600 ports in 123 countries. Singapore Changi Airport is also one of Asia's largest cargo airports.

Although its domestic market is small, Singapore has focused on its role as a transhipment hub connecting port lines between countries and providing value-added services such as contract logistics that provide end-to-end solutions for companies.

In addition to building logistics connectivity and reliability, Singapore places an emphasis on innovating its supply chain capabilities. For example, DHL's Asia-Pacific Innovation Centre in Singapore houses a design thinking studio that looks into logistics innovations such as smart glasses for warehouse assembly lines and drones for delivery of time-critical goods.

During the pandemic, the Singapore government also proactively helped logistics companies continue their operations, with the launch of a business continuity planning guide with appropriate measures and arrangements for suppliers and their customers.

Malaysia: diversity of hub locations

To establish a RDC in Malaysia, the key considerations are the differences and advantages of the country's three key hubs: Kuala Lumpur, Johor and Penang.

Kuala Lumpur International Airport is Malaysia's largest airport. Its relatively close proximity to Port Klang, as well as its central location between Thailand and Singapore offer transportation options, be it air-land or sea-land.

Johor is the Malaysian state closest to Singapore and RDCs operating here can tap Malaysia's lower land and labour costs while serving the Singapore market. There are also active efforts by both countries to promote sustained economic cooperation for greater synergies.

Penang's attractiveness lies in its strong base of technology or electronics manufacturing activities across a network of more than 3,000 local suppliers covering areas such as automation, electronics, packaging, plastics, precision engineering, metal work and software development.

This is evident in the state's ability to attract foreign direct investments into its electronics and electrical, machinery and equipment, scientific and measuring equipment industries, which contribute half of the country's total and take the third spot in manufacturing investment inflows.

Technology and healthcare companies also continue to flock to Penang because of its supportive investment ecosystem via the country's investment promotion agencies such as InvestPenang and the Penang Development Corporation.

A key effort that would boost Malaysia's role as a RDC is the development of digital free trade zones (DFTZs) to capitalise on the growth of the Internet economy and cross-border e-commerce activities.

One of the components of the DFTZ is the development of an eServices Platform to manage cargo clearance and other processes needed for cross-border trade efficiently. The intent is to enhance Malaysia's attractiveness as the regional fulfilment hub for global brands to reach Asean buyers.

Thailand: electric (automotive) dreams

Thailand, and specifically Bangkok's strategic location in the heart of the Mekong region, enables manufacturers in Indochina to connect with their customers in the South China region.

To strengthen its infrastructure developments as a manufacturing and logistics hub further, Thailand launched the Eastern Economic Corridor (EEC) that will turn three of its provinces, namely Chachoengsao, Chonburi and Rayong that cover a total of 13,285 square kilometres, into a manufacturing hub reachable by land, sea and air.

The EEC also provides connectivity to Cambodia, Myanmar and Vietnam - South-east Asia's next growth markets.

Logistics and supply chain company, CEVA Logistics, has since set up a new branch in Laem Chabang - an area known for its major deep seaport, transit cargo terminal and future home to Thailand's third airport.

Further, Thailand has long been a key automobile production hub and can tap on its highly qualified resources in automotive manufacturing to serve as an RDC for the automotive sector for the region.

Thailand is targeting to have electric vehicles account for 30 per cent of total car production by 2030 to tackle toxic air pollution.

In boosting its capabilities in electric vehicle manufacturing, the Thai government has implemented incentives such as a three-year tax holiday for manufacturers of plug-in hybrid vehicles and an eight-year corporate income tax waiver for battery electric vehicle makers.

As consumer demand for electric vehicles grows and activities in this sector pick up, the country's role as an RDC for this new emerging sector would likewise increase.

Through our established network across Asean and linkages to Greater China, UOB is well positioned to connect our customers from around the world to the region's diversified markets.

Our unique combination of in-market presence, local insights and expertise, coupled with the partner ecosystems we forge, enable us to help businesses and consumers seize opportunities for sustainable growth.

• The writer is managing director, country head of wholesale banking, at UOB Thailand.

This article is brought to you by UOB.