There are numerous benefits to having all or part of your supply chain based in Asia. Lower costs, higher and faster output, and easy market expansion opportunities are just a few of them. But like any other part of the world, Asia also carries potential supply chain risks. Knowing what they are will allow you to mitigate as many of them as possible.
Avetta’s supply chain experts know Asia’s supply chain risks and the consequences for companies whose supply chains pass through Asia and the Pacific. We’re here to inform your organization so that, with good preparation, you can have success in that particular part of the world.
Below are six potential supply chain risks in Asia.
1. Asia-Area Legislation
Each country’s evolving regulatory changes and shifting industrial policies can affect the critical pace and trajectory of supply chains. Whether the legislation affects human rights, food, due diligence, the environment, or other factors, supply chains in Asia must be ready to adapt.
With Asia’s new free trade agreement, RCEP (Regional Comprehensive Economic Partnership), Asia is now in direct competition with Europe as the largest global trade player. This deal cements and expands China’s trading relationship with the world.
Another area of legislation and reform that has gained attention is in the labor sector. Some believe labor markets in Asia are too rigid or believe particular policies inhibit employment creation. Watch for the supply chain in Asia to grow and make changes to human capital policies in the coming years.
2. Safety and Security
According to the World Bank, South Asia owns only 10% of the world’s automobiles but suffers 27% of the world’s traffic deaths. These deaths and injuries negatively affect the workforce, and the transportation delays negatively affect supply chain logistics. Regional security challenges also play a role, with terrorism, maritime disputes, and human trafficking all taking a heavy toll.
When it comes to occupational safety, ASEAN-OSHNET has identified and is working across its ten countries to implement various projects that include deeper research, better training, and more regular inspections. Ideally, these initiatives should improve safety and security for workers throughout Asia and make the supply chain even more reliable.
However, some experts say, “ASEAN’s impact is limited by a lack of strategic vision, diverging priorities among member states, and weak leadership.” Any safety and security concerns inevitably lead to supply chain challenges.
3. Poor Local Water and Energy Conditions
Water security (the availability of clean water) is a clear concern in Asia. Companies may have (1) difficulty with sick employees, (2) higher operating costs due to an inadequate supply of water, or (3) more expenses because they must pay to purify contaminated water. Unfortunately, the water conditions are likely to worsen as climate change increasingly challenges Asian countries.
Additionally, energy security (access to affordable energy) is a top concern across the continent. The changing energy expectations, evolving environmental concerns, and uptick in demand have all contributed to energy supply shortages and volatile prices.
4. Shortages of Raw Materials
Almost across the board, we are seeing a shortage of raw materials affecting supply chains in Asia. Here are a few of the most recent examples:
- Cambodia warns that up to 10% of its garment manufacturing sites will temporarily shut down due to a shortage of raw fabric materials coming from China.
- An auto company in Southeast Asia is facing a shortage of “aluminum and imported chemicals.”
- The coatings and printing ink industry in Singapore and China has a shortage of solvents, epoxy resins, pigment, oil, plastic polymers, tin, and shipping containers.
- China is experiencing a shortage of imported seafood raw materials for seafood factories.
- There are shortages, both to and from Asia, of synthetic raw material imports for rubber and plastics manufacturers.
- Construction materials such as foams, adhesives, silicones, and powder coatings from China are in short supply due to growing demand, the COVID-19 outbreak, and freight problems.
5. Disruptions to Distribution
Both natural and human-made disasters seem to regularly afflict parts of Asia. Earthquakes, tsunamis, volcanic eruptions, floods, nuclear accidents, and protests are not uncommon and threaten to disrupt distribution.
There are plenty of other factors that challenge distribution in many industries ranging from mining, transportation, and logistics to consumer-facing skincare and luxury goods. The five most notable are:
- Material shortages (as mentioned above)
- Worker shortages
- Planning issues
- Cash-flow issues
- Drops in demand
6. Lack of Proper Vetting Practices
Many of the above five Asian supply chain risks can be mitigated through proper vetting practices of all suppliers, vendors, and contractors along Asian supply chains. But this practice is not nearly as common as it should be.
All countries, including those in Asia, have objectives and ways of conducting business that may not only carry the potential of reputational fallout but that also may not safeguard against liability.
To avoid these risks, prequalifying partners in Asia is pertinent. Prequalifying partners significantly reduces not only known Asia supply chain risks but hidden ones that can catch any supply chain off guard and create larger problems.
Avetta Mitigates Supply Chain Risks in Asia
All over the world, Avetta helps supply chain professionals maintain a safe, healthy, uninterrupted, and profitable supply chain from beginning to end.
How do we do that? By:
- Providing a free risk assessment
- Giving access to a network of over 100,000 prequalified suppliers
- Matching organizations with suppliers who pass customized compliance criteria
- Streamlining compliance certification and documentation
- Helping companies build transparent, trusting relationships across the globe
- Evaluating real-time analytics to aid in split-second decision making
- Overseeing the workforce in its entirety as well as on an individual level
Avetta’s easy-to-use and fully configurable platform makes managing supply chain safety, sustainability, and risk easier than ever before. The industries we serve include aerospace, chemical, construction, entertainment, facility management, telecommunications, transportation, and more.
Wherever your supply chain begins and ends, trust Avetta’s supplier prequalification to mitigate significant supply chain risks in Asia.
