3 strategies to shore up Asia Pacific’s supply chain

3 strategies to shore up Asia Pacific’s supply chain

Glen Hilton, CEO & Managing Director, Asia Pacific | Glen Hilton

With the global trade landscape entering a tumultuous period, here’s how the Asia Pacific region is protecting – and enhancing – its supply chains.

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From trade wars to Trump – as well as ongoing geopolitical conflicts – global business has been bumpy these past few years, to say the least.

In a week that sees the US President return to power with plans to intensify American protectionism, and the World Economic Forum convenes its Annual Meeting with a counter focus on collaboration, it seems a timely moment to assess what 2025 could hold for the Asia Pacific (APAC) region.

Our annual Trade in Transition report finds that APAC businesses are responding to supply chain challenges with three main strategies: diversification, regionalisation and rapid technology adoption. Here’s what that could look like for the region in the coming year.

Safety in diversification

With the re-election of Donald Trump to the White House, protectionist policies are dominating discussion. The new administration is considering applying a 10-20% tariff on most imports, and up to 60% on Chinese goods. Indeed, countries are bracing for what could turn into an extremely bruising trade war, preparing themselves through various measures.

In APAC, diversification is favoured, with over a third of businesses establishing additional supply chains to address potential disruptions.

One example is Hewlett-Packard, which is shifting its reliance on China by aiming for an initial 50% of its computers to be produced elsewhere. Thailand appears to be emerging as a key hub for the company, with plans to reach 70% production in the longer term. Other so-called ‘China+1’ approaches include chipmakers Micron, Intel and Ferrotec, which are all investing in Malaysia.

Meanwhile, what we have traditionally thought of as ‘China+1’ is evolving. For some time, Western businesses in APAC have adopted a dual supply chain strategy – one linked to China and another entirely independent. This approach is now being embraced more widely. Almost 3 in 10 APAC businesses are busy creating parallel supply chains for the Chinese and US markets, hoping to reduce the risk of operational delays.

Chinese businesses are also reflecting this move as they look to shore up market access: setting up supply chains to service the Western markets, while also strengthening their operations at home.

This is playing to the advantage of markets in India and Southeast Asia, which are becoming more prominent in the region as a result.

Local advantages

Some APAC businesses are going in the opposite direction: instead of opening out their supply chain, they’re keeping it much closer to home. Our report found that, globally, the need to reduce transport costs and logistics lead times were the primary motivators behind such a move.

And APAC is already well set up for the regionalisation model. In 2022, well over half of its trade was intra-regional. What’s more, key agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), are increasing opportunities for regional businesses, according to 38% of APAC business leaders.

APAC and AI

While both approaches have pros and cons – and some businesses are therefore opting for a combination of diversification and regionalisation – what isn’t in doubt is technology’s part in transforming the supply chain.

As I predicted last year, artificial intelligence (AI) continues to play a key role in streamlining operations. The integration of AI has resulted in significant reductions in trade operation costs for 36% of businesses in APAC, our report shows, with 28% seeing better resource planning and supply chain efficiency.

In today’s unpredictable world, AI-powered technologies are enabling businesses to proactively identify and mitigate supply chain risks, optimise inventory levels, and swiftly adapt to disruptions caused by geopolitical tensions, trade conflicts and climate change-related events.

The road ahead demands a balance of bold strategies and flexibility. I look forward to the conversations unfolding at Davos this week, which will help shape a resilient and sustainable future for trade – in APAC and beyond.