More Challenges, But Some Opportunities
Technology, too, can be a barrier to entry for mid-market companies looking for sources of supply in Asia-Pac. Industry observers generally agree that operating an effective global supply chain requires the same high level of visibility necessary for a "domestic" supply network. Technology providers do offer a number of solutions to help buyers and logisticians better source goods in foreign markets, track goods in transit through the supply chain and otherwise manage a global supply chain. But mid-market companies with constrained IT budgets may be loath to invest in applications or services with uncertain paybacks. "It's a Catch-22," says Datta. "The mid-market companies know they need the technology to get the visibility so they can plan and source properly, but until they have the technology in place, they don't have the visibility they need to figure out whether they're going to get a return on the investment in the technology."
Naturally, many of the risks facing midsize companies sourcing from Asia-Pac are identical to those confronting large enterprises. In addition to the local political, economic, social, regulatory and legal environments in different countries, companies must be aware of potential hidden costs of doing business overseas. Those costs can include increased transaction costs, changes in currency valuations or tax/tariff regimes, higher inventory carrying costs due to increased lead times, and higher logistics costs. In addition, both large and midsize enterprises must take steps to ensure that they are protected against the loss of trade secrets or proprietary information when working with suppliers in countries with less stringent intellectual property environments than are typically found in the West.
The news is not all bad, of course, since the Asia-Pacific market does offer opportunities for mid-market companies, too. Datta believes that, in some ways, midsize companies can be more agile in their sourcing or in how they operate their supply chains than large enterprises, giving them the ability to adapt more rapidly to changes in the various local markets and move more quickly to take advantage of new opportunities as they arise. Moreover, the entrepreneurial mindset that often drives mid-market companies may find fertile ground in the developing Asia-Pacific countries. China alone is projected to have 149 million middle-income households earning incomes of greater than $20,000 by 2010, according to figures from Chris Holling of Global Insight reported in Newsweek last year.
Bottom line: Whether sourcing or selling in the East, research is the name of the game, Datta says. "In the mid-market, we often see a significant gap in education about the opportunities and risks in the Asia-Pacific region," he says. "Many times they're afraid to do anything, or they have done something without doing all the due diligence, so they got burned later on. And once they get burned, they don't want to go back. But if they don't go back, they're losing a competitive edge in the marketplace, because someone else is going to come in and get the cost advantage."