Global Logistics: The resurgence of emerging markets

The recovery in Asia’s rapid growth markets, especially those of China and India, is gradually leading the world out of recession. In many developing economies, output is already above pre-crisis trends and logistics investment is vigorous—suggesting that expansion is under way.

“Shippers must align goals in Mexico and other countries for the both the long-term and short-term. That means that they must develop a mutual understanding of value chain goals, as well. In other words, there is no single solution. Each emerging market demands a customized logistics strategy.”
— Ed Fieitzinger, president of contract logistics and distribution for UTI

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By Patrick Burnson · February 1, 2013

While emerging markets felt the slowdown in global economic growth in 2012, they generally continued to grow at a faster pace than traditional developed ones. Indeed, U.S. shippers can continue to concentrate on this area of enterprise say a variety of consultancies and research firms.

However, among the revealing facts contained in the Emerging Markets Logistics Index, compiled by prominent London-based think tank Transport Intelligence (Ti), is that shippers are still taking a cautious approach to investment.

“Trade and logistics professionals surveyed for the index remain wary about prospects for global growth in 2013,” says Jon Manners-Bell, Ti’s chief executive officer. “Forty-six percent said they believe there will be modest expansion, with 47 percent predicting global GDP would be flat. Prospects for the European Union (EU) continue to look bleak.”

Tellingly, 68 percent of the survey respondents said the Eurozone would experience no growth or continue to contract in 2013, while only 2 percent foresee growth in Eurozone economies. By contrast, 59 percent see a year of modest growth for the United States, and 6 percent see resumption of strong growth in the U.S.

China, India, and Brazil, three of the so-called BRIC countries, remain the most dominant emerging markets for investors, exporters, producers of consumer goods, and logistics providers,” says Manners-Bell. “For the second consecutive year, logistics and trade professionals ranked these countries as the likely places to emerge as logistics hubs over the next five years.”

But it is worth noting that this year’s index had Indonesia climbing to No. 5 from No. 10; Bangladesh shot to No. 12 from No. 25; and Thailand rose to No. 14 from No. 29. Manners-Bell adds that this means that the BRICS can’t afford to let their guard down.

Despite their size, growth, and relatively sophisticated logistics networks, China, India, Brazil, and Russia need to do more to address underlying weaknesses that could hurt performance and dim their attractiveness as an increasingly competitive group of second-tier markets—Saudi Arabia, Indonesia, UAE, Malaysia, Mexico, and Turkey—becomes more alluring.

“China confronts rising labor costs, a skills shortage, and a growing gap in income disparity,” says Manners-Bell. “India’s weak infrastructure and bureaucracy threaten its prospects. Brazil’s export sector is slowing, and Russia remains overly dependent on energy exports.”

Strategic sourcing evolves
U.S. manufacturers face an increasing dilemma when it comes to locating production, say Ti analysts. The savings and efficiencies gained by “near-sourcing” on the doorstep of large developed markets—such as producing in Mexico to be close to the U.S. or in Turkey for proximity to the EU—must be balanced with their ability to tap into the growing consumer class in the emerging markets of Asia, the Middle East, Latin America, and Africa.

In fact, 62 percent of trade and logistics professionals surveyed for this year’s Emerging Markets Logistics Index see production eventually going away from China to other emerging markets.

“According to respondents, economic growth remains the leading driver of a country’s prospects as a logistics market, but cheap labor is no longer as important,” says Essa Al-Saleh, president and CEO of Agility Global Integrated Logistics. “They identified foreign investment and trade volumes as greater barometers of a country’s potential than labor costs.”

Agility, which has sponsored the index for the past four years, notes that ongoing political unrest has done grave damage to the “Arab Spring” countries of Egypt, Bahrain, and Tunisia, leaving them less competitive and less attractive as markets and destinations for investment. Egypt was the biggest loser, plummeting nine spots in the index country rankings. Bahrain fell five places while Tunisia dropped three spots.

Mark Pearson, managing director of Accenture’s Supply Chain Management practice, and a regular contributor to Logistics Management, maintains that by 2020, 57 percent of the world’s economic growth could come from emerging markets.

Emerging market household incomes are expected to increase by a total of $8.5 trillion between 2010 and 2020,” says Pearson. “And if emerging-market-to-emerging-market exports continue to increase at their current rate, they will outpace developed-country-to-developed-country volumes this year.”

Accenture analysts say that at the company level, their findings were no less striking. There are now 117 emerging market companies in the Fortune Global 500, a six-fold increase since 2000. Twenty-two emerging-market multinationals replaced companies from more-developed markets over the past two years.

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About the Author

Patrick Burnson
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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