Australia undergoing ‘drastic’ supply chain changes
Of all nations in the Asia-Pacific region, Australia appears to be in the midst of the most significant shifts in supply chains, production centres and attractiveness of alternate sources of supply.
Global law firm Baker McKenzie has published its State of play: Supply chains and trade realignment report, which surveyed over 800 business leaders across APAC in the first quarter of 2021 about trade disputes and increasing protectionism.
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The findings show that two in three (67 per cent) of businesses in the Asia-Pacific region are in the process of transforming their supply chains and production centres, or they have already done so. Those based in Australia and Japan, the firm said, are “planning for the most drastic change” of all nations in the region.
There is currently a “huge realignment” of global supply chains, Bakers noted, as companies with operations in APAC “seek to de-risk their sources of supply, and geopolitical and regulatory risks overtake cost as a key determining factor”.
The vast majority of businesses, the firm continued, are either onshoring (46 per cent), nearshoring (78 per cent), insourcing (67 per cent), seeking out new geographies (73 per cent), or are undertaking a combination of these activities.
When asked where businesses are looking for alternative sources of supply, Australia emerged as the most attractive destination in the region, with 76 per cent saying they are considering it as a new supply destination.
This was in contrast to Mainland China (54 per cent), Philippines, India and Singapore (all 48 per cent) and Japan (47 per cent).
However, Bakers added, there are still “immense” legal and regulatory challenges to overcome to successfully transform supply chains across the region.
Cahyani Endahayu, who is a partner at Bakers’ Indonesian member firm HPP, said that the challenges for supply chain diversification centre on diversity of geographies, political conditions, legal certainties, ease of doing business and investment incentives for foreign investors.
“In general, due to the array of different business languages in the region, as well as the fact that individual countries do not operate as one single market or a single supply chain hub, the key challenge ahead is to streamline different legal and licensing requirements, and national standardisation between countries,” Ms Endahayu detailed.
This perhaps explains why – as the firm found – almost all (97 per cent) of business leaders surveyed for the report said they are now redirecting their investments to jurisdictions with lower barriers to investment, or focusing primarily on domestic investment.
Bakers partner and head of international commercial and trade Anne Petterd (pictured) reflected that APAC countries have “diverse” geographies, cultures and economies, and as such, the response by governments to rising protectionism and global trade tensions will vary.
“One way for the region to tackle these hurdles is to find common ground and collaborate. Initiatives like the Regional Comprehensive Economic Partnership (RCEP) which include mechanisms to tackle non-tariff barriers to trade can help to facilitate trade and mitigate some of the wider global risks,” she said.
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