Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
As the Fourth Industrial Revolution transforms global trade, Isabelle Meere from Asia House’s Research and Advisory team considers the key changes that new technologies will bring.
Since 1996, the overall cost of global trade has been reduced by approximately 15 per cent. In addition to the lowering of tariffs and non-tariff barriers, technological developments have driven changes in the way trade happens, revolutionising communication and fuelling supply chains to extend their global reach.
Emerging technologies such as blockchain, artificial intelligence, the internet of things, 5G internet, and 3D printing have the potential to further transform trade – this goes beyond ‘more of the same, but quicker’. The technologies have the potential to disrupt global systems by changing the way value chains operate – disrupting the fundamentals of how goods are produced, and services delivered.
Disruption creates winners and losers, and, as value chains are redefined, companies, sectors, or even entire economies could be faced with existential challenges. But for those who get it right, there are huge opportunities.
By assessing the potential of new technologies, and the changes already taking place, it is possible to construct three trends for trade in the coming years.
1. Sectors will collapse into multi-service platforms as industry boundaries are redrawn
The increased importance of digital integration and data-driven business is leading to the reimagining of traditional industry boundaries. While many technology companies provide free or nominally paid-for services to consumers, user data is a treasured asset to be sold or used by the companies to expand into new services.
Capturing consumers’ attention with one service and expanding to others horizontally (selling hotels and hire cars along with flights) or vertically (integrating a payments platform with an ecommerce site) leads to the collapsing of sectors into one platform experience for the captive consumer, posing competitive challenges to incumbents across sectors.
Rise of the platforms
Examples abound. Amazon has rocketed from being an online bookstore, to an all-purpose e-commerce site, to offering cloud-computing, logistics, consumer electronics, online payments, and commissioning film and television productions.
This is far from being a Western model. The Chinese firm Tencent is likewise best known for the messaging platforms QQ and WeChat, but now produces its own online games and is involved in banking and payments, transport, and self-driving cars. Tencent’s national rival Alibaba operates Alipay, the top payment platform in China, which is expanding across Asia and beyond. Another Chinese e-commerce site, JD.com, has pioneered the use of drones for delivery in China, opening up rural areas and cutting out logistics service providers.
Indonesian firm Go-Jek started as a ride-hailing app but now delivers food, groceries, tickets, medicine, massages, beauticians, cleaners, and fuel through its app ecosystem, as well as facilitating utility bill payments.
An outside chance
This doesn’t mean, of course, that it’s game over for the incumbents.
Brands can take advantage of the platforms. The oil company Pertamina formed a partnership with Go-Jek for fuel delivery in Indonesia. Leveraging the internet of things, FMCG brands such as Tide and Huggies partnered with Amazon on their ‘dash’ buttons which automatically re-order one specific product.
However, the use of big data and consumers’ captive attention has put big tech firms in the same position as supermarket retailers – and has put them in the sights of competition regulators. In addition to trust issues, a lack of regulatory alignment in many sectors will challenge the platforms as they seek to provide a hugely varied basket of goods and services across multiple jurisdictions.
2. Tech enables hyper-efficient supply chains
The internet of things and advanced data analytics are transforming traditional linear supply chain models into dynamic, interconnected systems. This has the potential to make supply chains more flexible, reactive and transparent.
Smart supply
The employment of technology in supply networks means production and distribution can be informed by real-time data from many different sources, including customers, retailers, logistics providers and raw materials manufacturers.
With these innovations, supply chains become more flexible – they more easily incorporate new partners and suppliers, divert resources, change procurement or production location and can change or add distribution hubs. Systems will be optimised over time but also remain reactive to changes as small as an increase in consumer demand, or as large as a hurricane taking out an electric grid or production site.
The world’s biggest fashion retailer, Zara, has used data to make its distribution more agile and reactive. Real- time consumer transaction data informs smaller, more frequent deliveries from warehouses and cuts wastage along the supply chain as a result.
Meanwhile, technologies such as blockchain can be harnessed to increase traceability and authenticity. Blockchain ledgers have been applied to fruit and vegetables to prove authenticity of provenance to consumers. Similar technology is being trialled to revolutionise the logistics and shipping industries, providing greater transparency and reducing reams of paperwork.
3. Reshoring and distributed production
Advances in technologies such as 3D printing and the shrinking costs of industrial robotic systems could allow small-scale production close to consumer centres to be more cost-effective than centralised production and large logistics chains.
In answer to political narratives promoting economic nationalism, this could result in reshoring production from manufacturing-export hubs to developed economies. However, as the technology allows greater flexibility, and with the predicted increases in consumer spending taking place in export-manufacturing hubs such as China, production for those consumers can also remain there.
Increases in distributed production – even final-stage assembly – could have major impacts for global trade as trade of intermediate or finished goods shrinks. Low- skilled labour in developing economies may lose out, and opportunities for countries seeking to develop a manufacturing-export base may decline. However, it makes intellectual property and its protection even more important for patent holders and designers.
Winners and losers
The emergence of a new set of technologies enabled by data processing power creates opportunities for massive increases in efficiencies in supply chains, and more targeted consumer engagement. But as tech firms and tech-forward incumbents leverage the technology, the change in traditional trade flows and use of labour may have a significant impact on both developed and developing economies.
But perhaps most important of all is the shift in the form of the most valuable assets and capital, which is increasingly intellectual property: data, software and coding. In a world of distributed production, the designs and software are the most important things a company can own. In a market where commerce is undertaken almost exclusively online, the management of the consumer relationship through data is the most important tool. The companies who can best develop and protect these assets are best positioned to capitalise on disruptive technologies.
This article is featured in Asia House Insights: Asia Trade in the New Global Order.
