importance of international supply chains to performance...
TRANSCRIPT
Importance of International Supply Chains to Performance of APEC Developing Economies
Douglas H. Brooks
Asian Development Bank 16 May 2012
The trade and growth nexus appears strong at the global level
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0
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-20 -10 0 10 20
Per
cen
t
Time
Openness and Growth -113 Economies
annual growth 3-yr moving ave average growth pre and post liberalization
Source: ADB staff estimates from Penn World Tables 7.0, using the Wacziarg and Welch (2008) methodologies
and classification
The same is reflected in developing APEC economies
Source: ADB staff estimates from Penn World Tables 7.0, using the Wacziarg and Welch (2008) methodology
and classification
Note: Does not include Brunei Darussalam and Viet Nam
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0
1
2
3
4
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6
-20 -10 0 10 20
Per
cen
t
Time
Openness and Growth - APEC
annual growth 3 yr moving ave average growth pre and post liberalization
Trade plays an important role in APEC economies
0
100
200
300
400
500
Un
ited
Sta
tes
Jap
an
Au
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lia
Per
u
Ru
ssia
Ind
on
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Mex
ico
New
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Can
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Ch
ina
Ch
ile
Kore
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ep. o
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Ph
ilip
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Bru
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a
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gap
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Val
ue
of
Trad
e as
Per
cen
t o
f G
DP
Source: Penn World Tables 7.0, 2011
Well functioning supply chains are important to trade
Transport Cost
• Elasticity of trade flows to transport costs ranges from -2 to -3.5 (Limao and Venable, 2001)
• 10% increase in ad valorem transport costs lowers trade by 3-4% (De 2009)
Inventory Cost
• Storage and warehousing costs (can be high for specific types of products)
• Possibility of just in time inventory system
• Implications on cash flow
Transit Time
• Export delays reduce the exports of time-sensitive agro products are reduced by 7% (Djankov et al. 2006)
• $ 1 billion collective GDP gain of GMS from export and import time reduction by 25% (Strutt et al. 2008)
Quality of Products
• Some products require special transport and storage conditions
Others
• Security - Pilferage or piracy
• Feed back mechanism between supply and demand
• Information and trade finance complement logistics
Recent changes in technology and business models reinforced the supply chain- trade nexus
• Telecommunications
• Transport – including
intermodal operability
• Storage – ‘just in time’
• Increased flexibility
• Changing tastes and
preferences
Global supply chains
Economic Growth
Parts and components forms a substantial part of trade for some APEC economies
Source: Kim, Lee and Park (2010)
Notes: East Asia refers to PRC, Hong Kong, China, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand
Parts and components trade exemplifies the importance of global supply chains for APEC
Source: Ferrarini (2011)
Global Network Trade Index – All Industries
APEC economies have among the highest NTI values in the world
Country Pairs Average NTI
PRC-Japan 0.646
Mexico-USA 0.611
Canada-USA 0.579
Austria-Germany 0.507
Czech Rep. – Germany 0.489
PRC – Hong Kong, China 0.443
Germany- Hungary 0.422
Japan-Thailand 0.395
PRC- Korea, Rep. of 0.375
Japan – Korea, Rep. of 0.363
France - Tunisia 0.359
Germany – Slovak Rep. 0.349
Germany – Poland 0.348
Japan- USA 0.342
Germany- Italy 0.288 Source: Ferrarini (2011)
The automotives industry illustrates the importance of the global supply chain network
Source: Ferrarini (2011)
Illustration 1: Automotives
The same story is observed for the electronics industry
Illustration 2: Electronics
Source: Ferrarini (2011)
But supply chains are vulnerable to disruptions…
Source: World Economic Forum Supply Chain and Transport Risk Survey 2011
6%
30% 17% 17%
19% 26% 26%
30% 44%
6% 9%
15% 17%
32%
33% 46%
11% 30%
59%
0% 20% 40% 60% 80%
Transport infrastructure failures Information and communications disruptions
Shortage of labor Ownership/investment restrictions
Global energy shortages Border delays
Currency fluctuations Extreme volatility in commodity prices
Sudden demand shocks Nuclear/biological/chemical weapons
Maritime piracy Illicit trade and organized crime
Corruption Terrorism
Export/import restrictions Conflict and political unrest
Pandemic Extreme weather Natural disasters
Tech
no
logi
cal
Ec
on
om
ic
Geo
po
litic
al
Envi
ron
men
tal
Percent of Respondents
Key Triggers of Global Supply Chain Disruptions as Identified by Respondents
Controllable
*
* *
Uncontrollable
Influence-able
*
These suggest the following to be appropriate metrics of a good supply chain:
• Costs of transferring products from one node to another (from source to final destination)
• on time delivery
• Delivered products in ideal condition
• minimization of losses due to spoilage, damage, loss, mishandling
• Flexibility
Source: ESCAP Trade Cost Database 2011
0 50 100 150 200 250 300 350
Papua New …
Peru (2009)
Chile (2008)
Mexico (2009)
New Zealand (2006)
Philippines (2009)
Japan (2008)
Indonesia (2009)
Australia (2008)
Viet Nam (2009)
Canada (2007)
Malaysia (2009)
Russian …
Thailand (2009)
Korea, Rep. of …
United States …
Tariff Equivalent Trade Costs (percentage)
Agriculture and Manufacturing Non-Tariff Comprehensive Trade Costs with PRC
mfg agri
Some notes on flexibility • Just in time
inventory – more frequent shipments in smaller quantities
• Sensitivity to changing demand
• Different commodities have different needs
• As response to risks
Players in the supply chain system
Origin
Infrastructure
Institutions
Service Providers
Destination
Infrastructure
Needs
• Transport
• Storage
• Port facilities
• ICT (information and coordination)
• Support sectors (electricity, finance, etc.)
Key Actors
• Government
• Private Public Partnerships (PPP)
• Private sector
• International – FDI, development agencies
Institutions
Key Actors
• Government
• International organizations and agreements
• Collaborative arrangements
Needs
• Regulations –regulatory requirements; customs procedures
• International agreements
• Competition
• Cooperation
Service providers
Needs
• Management of supply chains
• Integrated information
Key Players
• Brokers
• Logistics companies
• Regulatory agencies
• Customs authorities
Some use SEZs as a means of circumventing shortcomings in logistics performance and supply chain weaknesses
Economy Number of Zones
Key Sectors Key Markets
United States 266 Automobiles, petroleum, electronics US – domestic
Chile 6 Warehousing, duty free shopping MERCOSUR, US, Canada
Mexico 109 Automotive components, electrical US
Peru 4 Textile, automotive, agribusiness Brazil, Chile, PRC, US, EU, Canada
Taipei,China 14 Electronics, semiconductors, electrical, high technology
Japan, US
Korea, Rep. of 10 Electronics, high technology Japan, US
Malaysia 13 Electronics, semiconductors, electrical, automotive parts
Japan, US, ASEAN
Philippines 83 Electronics, semiconductors, electrical, automotive parts
Japan, US, ASEAN
PRC 187 Apparel, electronics, electrical US, Japan, EU
Indonesia 27 Apparel, footwear, electronics, food processing
Japan, US, ASEAN
Viet Nam 185 Apparel, footwear, luggage, electrical, metal working
Japan; ASEAN; Taipei,China
Source: FIAS, World Bank, 2008
But the overall development of supply chains through infrastructure, institutions and services remain important
• SEZs are dominated by multinationals
• Geographically contained positive effects of trade
o FDI
o Employment
o Reforms
o Productivity
The LPI provides a good summary of the quality of supply chains in APEC economies
2.4 2.6 2.8 2.8
3.0 3.1 3.1 3.1 3.3 3.4 3.5 3.6 3.7 3.7 3.8 3.9 3.9 3.9 4.0 4.1
0 1 2 3 4 5
Papua New Guinea
Russian Federation
Indonesia
Peru
Viet Nam
Mexico
Chile
Philippines
Thailand
Malaysia
PRC
Korea, Rep.
New Zealand
Taipei,China
Australia
United States
Canada
Hong Kong, China
Japan
Singapore
Logistics Performance Score 2010
Source: Logistics Performance Index, 2010
Components of the LPI
Efficiency of the customs clearance
process
Quality of trade and transport related
infrastructure (ports, railroads,
roads, information and technology)
Ease of arranging competitively
priced international shipments
Logistics competence of transport
operations, customs brokers
Tracking and tracing of
consignments
Timeliness of shipments in reaching
destinations
