Balancing Risk & Cost Global Supply Chain Shifts, New Supply Markets that Matter, Strategic Choices & Practical Considerations for the Resources Sector During Times of Uncertainty 21 Sep 2021 [email protected][email protected]www.axisgroupinternational.com 1. Level 11, 125 St Georges Terrace Brookfield Place Perth 6000 Australia T +86 138 0111 2112 E [email protected]Dubai | Beijing | Shanghai | Singapore | Perth | Bangkok | Mumbai | Johannesburg | Denver Axis Group provides market access solutions. For clients that compete in complex international markets, our deep capabilities, expertise and commitment translate into business performance and profitability • Global Procurement & Supply • Market Expansion • Corporate Advisory www.axisgroupinternational.com Global Markets. Connected 3 Source: Axis Group Analysis Balancing Risk & Cost - Global markets offer attractive procurement & supply options but where to start? Four key questions help us navigate – Why, Where, What and How to Source Globally? Why? Where? What? How? Global Procurement • Several factors, such as developed infrastructure and a low price/quality ratio, enable certain markets to have a competitive advantage with regards to global sourcing • Successful sourcing from global markets is complex and requires a thorough and thought- out process • Certain markets have the capability to supply a number of high value-added products that meet international standards at a competitive price See 3 mind maps in appendix Make vs buy Which global sourcing models? Which countries? Which suppliers? What engagement models? Offshore / re- shore / near shore/ onshore? 4 Agenda Global Risk Landscape Trade & Supply Chain Shifts Competitive Dynamics Impact on Global Procurement & Supply in Resources Clusters & Categories Integration
18
Embed
Global Markets. Connected Axis Group provides market ...
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Balancing Risk & CostGlobal Supply Chain Shifts, New Supply Markets that Matter, Strategic Choices & Practical Considerations for the Resources Sector During Times of Uncertainty
Axis Group provides market access solutions. For clients that compete in complex international markets, our deep capabilities, expertise and commitment translate into business performance and profitability
• Global Procurement & Supply
• Market Expansion
• Corporate Advisory
www.axisgroupinternational.com
Global Markets. Connected
3Source: Axis Group Analysis
Balancing Risk & Cost - Global markets offer attractive procurement & supply options but where to start? Four key questions help us navigate – Why, Where, What and How to Source Globally?
Why? Where?
What?
How?
Global Procurement
• Several factors, such as developed
infrastructure and a low price/quality
ratio, enable certain markets to have a
competitive advantage with
regards to global sourcing
• Successful sourcing from global markets is
complex and requires a thorough and thought-
out process
• Certain markets have the capability to supply
a number of high value-added products
that meet international standards at a
competitive price
See 3 mind maps in appendix
Make vs buy Which global sourcing models? Which countries? Which suppliers? What engagement
models?
Offshore / re-shore / near
shore/ onshore?
4
Agenda
Global Risk Landscape Trade & Supply Chain Shifts Competitive Dynamics
Impact on Global Procurement & Supply in
Resources Clusters & Categories
Integration
5
Complexity in ‘Risk & Cost’ tradeoffs and supply market ‘Cluster & Category’ choices define the shifting global sourcing landscape
Clusters
Categories
Risk
Cost
6Source: Various; Axis Group Analysis
A multitude of risks converge – now what? Complexity & dynamism
Now
• Global trade war (led by US-China/US-EU/EU-China etc.)
• Upcoming US election in 2020
• Geopolitical tensions
• Technological shifts (adoption of AI / ML)
• Environmental Challenges
Amalgamation of Risks
New History
• Deep tectonic shifts• How we readjust?
• How we cope?• How we adjust?• How much worse?• Does it get better?• How we correct to the previous
state?
1 Jan 20RiskContext
Impact
Key Previous
Risks
Covid-19 Unfolds
1st & 2nd
Order Effects…
Economic Tremors
Geopolitical Quakes
• Temporary initial scare
• Health crisis• Unregulated
and irrational demand/supply of PPE
• Scramble for masks/PPE
• Initial and on-going disruption in operations
• Will it spread?
History Recent Past Next Further
Out
Stretching a piece of string?
• Ripples widen, intensify
• Lockdowns• Travel bans• Supply delays• Prolonged lead
times• Logistics
disruption• Supply Chains
in crisis
• Significant cyclical damage
• Structural adjustment
• Global decline in production & consumption
• Slow down in global trade
• Social impact
• Hairline cracks in geopolitics become discerning
• International relations order being challenged
• End of Globalisation
• De-globalisation• China’s Rise• Rise of the
digital economy• Growing
demand for low-carbon supply chains
Does the pendulum swing back?
• End of Globalisation
• De-globalisation accelerated?
• Over-exposure to China
• Self-sufficiency?• Stress-testing• Inventory
buildup ‘just in case’
• End of Globalisation
• De-globalisation accelerated?
• Moving from ‘low cost only’ sourcing
• Drastic restructuring of the global supply chain
• End of Globalisation
• De-globalisation accelerated?
• Adapting to the “new normal”
• Fallout widens and organisations bunker down
• Historical proportions
• End of Globalisation
• De-globalisation accelerated?
• Leveraging technology
• Unprecedented ‘temporary’ societal change (At home and at work)
Way we think?
Risky World
Increased Risk
Rapid Risk Ramp Up
Deep Impact
Grave Unforeseen
Consequences
S/M Term L Term
Time
New Normal?
New Normal II?
“Dangerous tipping point or new soothing equilibrium?”
Way we live?
Way we work?
Way we do things?
7Source: Various; Axis Group Analysis
Supply Chains are stressed…
8
... and key risks across the value chain create a complex environment
• Supply Risk• Raw Material Scarcity• Price Risk• Over Exposure• Sustainability• Labor Shortage• Modern Slavery T1,
9Source: Australian Government Productivity Commission; Axis Group Analysis
Australian Government Productivity Commission’s Analytical Framework
Findings on Australian Imports
Australian supply chains are also stressed; however, not all vulnerable imported products are essential or critical goods
1. Vulnerable
2. Vulnerable
and essential
3. Vulnerable, essential
and critical
1 FEW IMPORTS ARE VULNERABLE TO CONCENTRATED SOURCES OF SUPPLY
2 MOST VULNERABLE IMPORTS ARE CONSUMPTION OR INTERMEDIATE GOODS
3 THE MAIN SUPPLIER OF VULNERABLE IMPORTED PRODUCTS IS CHINA
4 MANY IMPORTS CLASSIFIED AS VULNERABLE ARE NOT ESSENTIAL OR CRITICAL
5 VULNERABLE IMPORTS MAY NOT BE CRITICAL TO THE PRODUCTION OF ESSENTIAL GOODS AND SERVICES
6 ESSENTIAL INDUSTRIES USED 130 VULNERABLE IMPORTS IN PRODUCTION
7 THE INCLUSION OF FOOD DOES NOT QUALITATIVELY CHANGE RESULTS
8 THE SUPPLY OF ESSENTIAL GOODS AND SERVICES IS NOT HIGHLY SUSCEPTIBLE TO DISRUPTIONS TO IMPORTED GOODS
10Note: 1. The Australian Government Productivity Commission defines a 3 step filtering process for identifying Vulnerable Imports. Step 1 – The main supplier accounted for > 80% of Australia’s imports. Step 2 – Products are sourced from a concentrated market. Step 3 – Australia sources its supply from the main global supplier
Source: Australian Government Productivity Commission; Axis Group Analysis
Australia’s Imports of Vulnerable Products1 by Country of Origin (HS Subheading level, 8-digit)
Australia’s Imports of Vulnerable Products1 by Product Type and Origin (HS Subheading level, 8-digit)
Vulnerabilities do exist in the supply chain, with Australia’s most vulnerable imports coming from China
199
7
9
4
39
6
28
Italy
Switzerland
France
India
USA
Other
China
0 50 100 150 200 250Number of HTISC products (8-digit)
Eco
no
my
8
47
1412
1617
38
7
45
66
8
2126
3Mineral productsRaw hides, skins, leathers and furs
Stone and glassPlastics and rubbers
Animal and animal productsTransportation
Footwear and headgearFoodstuffs
Machinery and electricalMetals
Vegetable productsWood and wood products
MiscellaneousChemicals and allied industries
Textiles
0 20 40 60 80Number of HTISC products (8-digit)
Pro
duct
type
CHINUSAINIAFRANSWITITALOther
11
Important considerations for the resources sector as macro events such as the COVID pandemic and geo-political tensions amplify global supply chain risk
3 Increasing Supply Market Competitiveness• Supplier propensity to take short cuts to remain competitive
Lead
ersh
ip
Sup
ply
Focu
s Low propensity for change
Security of supply
Highest quality
Protect social licence to operate
Capability to meet requirements
Security of supply
Cost competitiveness
Maximise output On time, within budget
Them
e
Resources Value Chain
Greenfield/BrownfieldDevelopment
Operations
Reso
urce
Sta
ge
Resources Organisational Objectives Global Supply Risks for Resources
1 Capacity Constraints• Stimulus and investment soaking up capacity
2 Increased Logistics Costs• 6x increase, material impact of TCO
4 Single Source Reliance• Clusters of capability depend on the same infrastructure
5 ESG Risks• More complex, deeper supply chain – out of sight
6 Nationalism• Customer co-trade vs local development
7 Specialist Supply Skills • Sourcing and logistics capability to manage complex global
supply chains
12
International inbound supply chains: a maze – much detail, much risk
Client WarehousesDe-consolidation
BondedWarehouse
End User
Port/Airport
BondedWarehouse
International Freight
BondedWarehouse Port/AirportPort/Airport
Raw Materials
Packaging
Air & ocean;sourcing &
procurement
ComponentsSupplier /
Manufacturer ConsolidationQuality Management
Capital Equipment
Finished Product
Inbound Supply Chain Outbound Supply Chain
Supplier Mine Customer
Cost Reduction Diagnostics
Supply Country Selection
Market Studies
Spend Analysis
Price Benchmark
Supplier Shortlisting
Technical Evaluation
Negotiating &
Contracting
RFxPlant Audit
Sample Arrangement
Audits/CSR/ Modern Slavery
Buying Trips
Quality Management
3rd Party Mgmt.
Inspection Expediting
QA/QC Buy & SellExports / Imports
Consolidation / Deconsolidation
Inventory Mgmt.
Delivery / Distribution
Professional Resourcing
What needs to be managed
What needs to be done
Processing
Global Supply Markets
• China & Northeast Asia• India & South Asia• Thailand & South East Asia• South Africa & Africa• Turkey, Poland & Eastern
Europe• Mexico & Latin America
13
Aug-21*Aug
Baltic Dry Index and China & Shanghai Containerized Freight Index (y-o-y growth %, Jan 2020 – Aug 2021)
Note: SCFI is the weighted average index from Shanghai to the main ports all over the world; CCFI is based on their freight rate and volume of 12 routes around the world, reflecting changes in freight rate; The Baltic Dry Index consider 23 different shipping routes carrying coal, iron ore, grains and many other commodities and the index provides a benchmark for moving the major raw materials by sea. The Drewry Compostite World Container Index is a weighted freight rate assessment of eight major east-west trades such as Shanghai to Los Angeles andRotterdamSource: Drewry; Shanghai Shipping Exchange (SSE); Global Maritime Hub; Axis Group Analysis
Logistics has never been a bigger challenge in global supply chains and soaring sea freight costs reflects constrained shipping / container capacity
%
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
Drewry’s composite World Container index
Shanghai-Los Angeles
Shanghai-Rotterdam
Drewry’s Composite World Container, Shanghai-Los Angeles and Shanghai-Rotterdam Index (USD, August 2019 – August 2021)
Freight rate (USD 40ft Containers)
0
100
200
300
400
500
600
Jan Mar May Jul Sep Nov Jan Mar May Jul
Shanghai Containerized Freight Index
China Containerized Freight Index
Baltic Exchange Dry Index
14
20
30
40
50
60
70
80
90
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 2019 2020 2021
Share of Vessels arriving on time (%, Jan 2018- Apr 2021)
Source: Sea Intelligence; ING; Axis Group Analysis
The share of vessels arriving on time at major ports around the world declined towards the end of 2020, further hitting lows of below 40% in early 2021
China has become the major trading partner for most of the world; however, new (& old) markets may challenge that as Risk/Cost views shift
1998
ChinaUSEqual
Who is the larger trading partner?
2021 Next horizon…
Different Risk/Cost views?
Offshoring to i.e China vs. reshoring to i.e. India?
Nearshoring (i.e. Mexico for
US)
Onshoring viable?
Buy vs make?
17
Rank
1990 1995 2000 2005 2010 2015 2020
Country USD bn Country Rank USD bnGlobal Export
Share %
2010‐20 CAGR %
2019‐2020 Growth %
1 USA 552 USA 583 USA 782 Germany 977 China 1,578 China 2,273 China 1 2,591 14.7 5.1 3.72 Germany 405 Germany 524 Germany 550 USA 901 USA 1,278 USA 1,502 USA 2 1,430 8.1 1.1 ‐133 Japan 320 Japan 443 Japan 479 China 762 Germany 1,268 Germany 1,329 Germany 3 1,383 7.9 0.9 ‐7.44 France 266 France 284 France 295 Japan 595 Japan 770 Japan 625 Japan 4 641 3.6 ‐1.8 ‐9.25 UK 252 UK 234 UK 295 France 434 France 512 South Korea 527 Netherlands 5 552 3.1 1.1 ‐4.36 Italy 216 Italy 230 Canada 277 UK 393 Netherlands 493 HK SAR 511 HK SAR 6 552 3.1 3.2 37 Netherlands 173 Canada 191 China 249 Italy 373 South Korea 466 France 494 South Korea 7 513 2.9 1 ‐5.48 Canada 149 Netherlands 178 Italy 240 Canada 361 Italy 447 UK 466 Italy 8 496 2.8 1 ‐7.89 Belgium 127 HK SAR 174 Netherlands 213 Netherlands 350 UK 422 Netherlands 465 France 9 489 2.8 ‐0.5 ‐12.110 Switzerland 109 Belgium 168 HK SAR 203 Belgium 336 Belgium 408 Italy 457 Mexico 10 418 2.4 3.4 ‐9.311 Russia 94 China 149 Belgium 188 HK SAR 292 HK SAR 401 Canada 409 UK 11 396 2.3 ‐0.5 ‐14.612 HK SAR 90 South Korea 125 South Korea 172 South Korea 284 Russia 397 Belgium 398 Canada 12 390 2.3 0.1 ‐12.613 Spain 84 Singapore 118 Mexico 166 Russia 241 Canada 387 Mexico 381 Singapore 13 375 2.1 0.3 ‐7.114 Sweden 73 Spain 90 Taiwan, China 148 Singapore 230 Singapore 353 Singapore 358 Taiwan, China 14 347 2.0 2.4 5.315 South Korea 71 Switzerland 82 Singapore 138 Mexico 214 Mexico 298 Russia 344 Russia 15 347 2.0 ‐1.3 ‐18.616 Singapore 64 Mexico 80 Spain 113 Spain 193 Taiwan, China 274 UAE 300 Switzerland 16 318 1.8 5 1.417 Austria 59 Sweden 77 Russia 103 Taiwan, China 189 Saudi Arabia 251 Switzerland 292 Spain 17 312 1.8 2.3 ‐7.518 Denmark 50 Malaysia 74 Malaysia 98 Saudi Arabia 180 Spain 246 Taiwan, China 280 UAE 18 306 1.8 4.4 ‐21.319 China 49 Austria 58 Sweden 87 Malaysia 142 India 220 Spain 277 Belgium 19 298 1.7 0.8 ‐4.220 Mexico 49 Thailand 56 Switzerland 80 Switzerland 131 Australia 212 India 264 Vietnam 20 283 1.6 14.6 6.821 Saudi Arabia 47 Australia 53 Saudi Arabia 77 Sweden 130 Brazil 202 Thailand 214 India 21 275 1.6 2.2 ‐14.922 Norway 47 Saudi Arabia 49 Ireland 76 Brazil 119 Malaysia 199 Saudi Arabia 204 Poland 22 254 1.4 4.9 0.823 Australia 47 Denmark 49 Thailand 69 Austria 118 UAE 198 Malaysia 200 Australia 23 245 1.4 1.5 ‐824 Brazil 38 Brazil 47 Australia 64 UAE 115 Switzerland 196 Poland 194 Malaysia 24 234 1.3 1.6 ‐1.725 Malaysia 33 Indonesia 45 Austria 64 Thailand 110 Thailand 195 Brazil 191 Thailand 25 229 1.3 1.6 ‐1.926 Finland 31 Ireland 44 Indonesia 62 Ireland 110 Sweden 158 Australia 188 Brazil 26 209 1.2 0.4 ‐5.527 Thailand 29 Norway 42 Norway 60 Australia 106 Indonesia 158 Vietnam 162 Czechia 27 192 1.1 3.8 ‐3.728 Indonesia 29 Finland 40 Brazil 55 Norway 104 Poland 157 Czechia 157 Ireland 28 184 1.0 4.3 7.829 South Africa 27 India 32 Denmark 49 India 100 Austria 145 Indonesia 150 Saudi Arabia 29 177 1.0 ‐3.4 ‐29.930 Ireland 27 Portugal 23 Finland 45 Poland 89 Czechia 132 Austria 145 Turkey 30 170 1.0 4.1 ‐6
1 Calculated based on latest available dataSource: UN Comtrade; World’s Top Exports; Statista; World Bank; Axis Group Analysis
China, several high-income economies and new challengers from developing countries are the winners in global exports; there are also several losers
3 – 4.5%Above 4.5%
0 – 2.9%Below 0%
CAGR %Top 30 entry (after 1990) Last record in top 30Peak rank
Global top 30 exporters (1990-2020); 2010-20 CAGR; 2019 global share; 2019-2020 export growth
AsiaLatamEastern EuropeHigh Income
Positive growth
Negative growth
Countries that rank highest in 20202020 rank higher (or same) as in 1990 but not peakCountries with lower rank in 2020 than in 1990
Key Highlights: USA, Germany, Japan, Netherlands, France and Italy remained in the top 10. Canada, Belgium and Switzerland left top 10.
China, South Korea, HK SAR (China) and Mexico entered top 10. Vietnam, Poland, Czechia and Turkey entered as new top 30 challengers. Various EU countries and South Africa left top 30
18
World’s Major Exporters (2020)
Source: IMF; UN Comtrade; Axis Group Analysis
China was by far the largest global exporter in 2020, with total exports of USD 2.59tn, making up 18% of its GDP
10 Machine Parts Tractors Industrial Printers Iron Ore Iron/Steel Structures Oscilloscopes Rice Refined Petroleum Monitors &
Projectors Carpets
Note: 1. As defined by the World Bank. 2. Top 10 Products 2019 data used for Vietnam, Malaysia and ThailandSource: UN Comtrade; World Bank; Axis Group Analysis
Dynamic emerging markets are among the top 30 global exporters, with high-technology exports entrenched in their portfolios
Simplified Framework of Assessment: Drivers of China’s Manufacturing Competitiveness
Note: It is important to recognize it is not just about absolute position of i.e. China but we rather need to assess relative global competitiveness of all potential supply marketsSource: Axis Group Analysis
Various drivers support or undermine China & other global supply markets’ competitiveness. Underlying these drivers are a myriad of factors to understand
Geopolitics & Geostrategy
China’sManufacturing
Competitiveness
Inputs Integrated Supply Base
Macro DriversEmerging
Alternatives
Rising Wages
Low Total Input Cost
Increased Productivity
Manufacturing Clusters
Strong Infrastructure
Policy Support
OvercapacityStronger RMB (1 year)
Aging Population
Emerging LCCs / BCCs
Reshoring, Nearshoring &
Onshoring
XX
Category Clusters that Win or Lose?
Supporting Factors XX Undermining Factors
Key Advantages Persist or Not?
Weaker RMB (2014-2020)
22
61
294 307
199
39
118
17
283
23
160
51 78 62106
39
9411
1618
21
11
11
7
15
9
10
7
1513
5
11
919
23
47
39
31
18
23
27
16
29
19
2323
21
14
169
10
16
29
10
3
3
26
6
16
10
1016
6
10
3
0
100
200
300
400
China USA Germany Japan Mexico Russia India Australia Vietnam Poland Malaysia Thailand Brazil Turkey Indonesia SouthAfrica
Direct Labour Costs Warehouse Space Electricity Natural Gas
*Note: To facilitate a cost input comparison across economies, China’s total cost (i.e.. sum of labour, warehouse space, electricity and natural gas) is assigned a value of 100 within the index, and the costs in other economies are scaled accordingly
Source: Various; BCG, Axis Group Analysis
China remains very competitive relative to developed economies but other developing countries present lower cost alternatives in global context
Consists of total salaries of Blue-collar workers = 100; Engineers =
10; Operations Managers = 5
China’s total input cost (labour, warehouse space, electricity and natural gas) in 2020 is assigned a value of 100
Area = 6000 sq. m
1022 kWh per sq. m annually
1690 kWh per sq. m annually
Mexico’s labourcost is now 20% lower than China’s
India and Vietnam have some of the lowest manufacturing input
costs in the world
Input Cost Comparison* Across Selected Major Global Manufacturers (2020)
23
Product Manufacturing Complexity Spectrum – High Tech, High Capital Complexity (E.g. – Robotics)
Source: Axis Group Analysis
For high-tech products, China has largely caught up with developed markets; few developing countries compete
Low High
Reflects the expected relative competitiveness of manufacturing the product during the time period
China Significant growth in capabilities expected in
the LTLimited but growing capabilities
Maintain position in high tech manufacturingGlobal leaders in high tech manufacturing
Emerging player in high techLimited capabilities
Limited potential upsideLimited/no capabilities
Very limited capabilities Potential to emerge as high-tech hubs
Limited potential upside
Low High Low HighLong-termMedium-termShort-term
Limited/no capabilities
India
Others (Mexico, Turkey,
Poland)
Other Asian Economies (Indonesia/Vietnam/
Bangladesh)
Africa
US/Germany/Japan
24Source: Axis Group Analysis
For medium-tech products, China, India and several developing countries are becoming manufacturing powerhouses; expect significant shift
India• Rich talent pool, lower cost unskilled labour• Rapid economic growth• Increasing infrastructure focus• Govt. support• Atmanirbhar Bharat – Self Reliant India• Sweeping reforms such as GST, DBT, etc showing
visible result in ease of doing business ranking (63rd)• Accelerated technology adaptation due to Covid 19• English language skill
• Demographic diversities – languages, culture ..• Poor infrastructure• Issues with bureaucracy and red tape• Need for labour reform, legal reform• Trade deficit• Very few Free Trade Agreements
Asia Facts 2050• 50% of world GDP• 54% of world population• GDP predominantly driven by services
sector• China is the world’s largest economy
ASEAN• Low manufacturing cost• Location (close to both India and
China)• Launch of AEC• Demographic dividend
• National vs. regional interests• Lack of supply chain integration• Regulatory/governance issues• Lack of infrastructure
Major manufacturers of certain product categories
Emerging player in global high-tech manufacturing
Losing competitive edge in low-end manufacturing
Governance and infrastructure need to be upgraded
The Indian govt. launched the ‘Make in India’ initiative in 2014 to develop India as a manufacturing hub by developing local manufacturing and attracting further FDI and technological investment. Start-up India, Digital India and Skilled India further underpin prospects
Poised to become a global manufacturing powerhouse
Fundamental economic issues still curtail growth
27Source: Various; Axis Group Analysis
Offshoring, reshoring, nearshoring and onshoring are complex choices. China vs India (or i.e. Vietnam) or US/Mexico make interesting case studies
Onshoring (USA)
• Low labour cost• Access to other markets in the
Americas through FTAs• Low energy costs
• Largely unskilled workforce• Relative lack of supply chain
integration• Lack of supplier base
3) Nearshoring:• Factors such as more favourable logistics and
reduced supply chain complexity are driving US manufacturers across all industries to seek out alternative LCCs such as Mexico
4) Onshoring:• The American ‘Manufacturing Renaissance’ has been a
critical driver of the reshoring trend• As the labour cost gap has closed, quality considerations
have become more important• Reduction in global supply chain complexity and the need
for ‘speed to market’ favouring the local market• Relocation costs do remain a critical issue
• Regained competitiveness in recent years
• Sustained technological advantage/focus
• Strong innovation focus• High productivity• Strong policy support
• High labour costs• Smaller range of manufacturing
capabilities (buyers for high-end goods only)
• High corporate tax rates• Growing FDI in overseas R&D
Reshoring (India)• Low labour cost• Strong government support
towards foreign investment• Improved ease of doing
business
• Increasing R&D spending• Low cost of manufacturing• Supply of primary goods • High domestic consumption
• Increasing cost of labour• Slowing economic growth
Offshoring (China)
2) Reshoring:• Lower cost of production, labour and a rising cost of
labour in China, make India the next destination for American businesses to shift their bases to
• A strong push from the Government towards foreign businesses to manufacture in India as well as efforts to upskill the labour force are other factors making India an important business destination
1) Offshoring:• China has world-class ports and a continuously improving
infrastructure• High production capacity, highly trained labour force and better
opportunities to diversify and expand make it a favourable manufacturing destination
28
Best practice leaders across industries incorporate EMs, such as China, India, the rest of Asia, Eastern Europe, and potentially Latin America
Retail• China, Bangladesh, India,
Pakistan, Cambodia, Myanmar, Vietnam, Turkey, Morocco and Romania
• Mainly sourcing from China and SE Asia
• New markets matter
Upshot• China still the main sourcing destination, several companies have
procurement offices in China, most often in Shanghai• Companies are adopting a portfolio approach complementing their existing
Chinese supplier base • China transitioning into a high-tech sourcing destination with increased
quality and supplier capabilities as well as high local demand but increased cost
• New markets matter – but not everyone can open multiple global sourcinghubs
• Local and regional proc. increasingly important; creates tension with EMspend objectives
Petrochemical
EPC/M
• China is the main sourcing destination
• Other important destinations include India, Mexico, Russia, Vietnam and South Korea
• New markets matter
• China is the main sourcing destination
• Other important destinations include India, Russia, Vietnam, Thailand, Philippines, South Korea and Mexico
• WP sources from at least 32 countries: China, Europe, Mexico, Canada, India, Israel and Indonesia
• New markets matter
Cement, Auto, Pharma, Manufacturing• China is the main sourcing
destination• Other major sourcing
destinations include India and South Korea among others
• New markets matter
Mining• China is the main sourcing
destination• Other important destinations
include India and Southeast Asia
• New markets matter
Rank & Location
1. China
2. Thailand
3. India
4. Other Asia
5. Eastern Europe
6. Latin America
Rank & Location
1. China
2. India
3. Thailand
4. Other Asia
Rank & Location
1. China (Pharma: India #1)
2. India (Pharma: China #2)
3. Thailand & Vietnam
4. Other Asia
5. Eastern Europe
6. Latin America
Rank & Location
1. China
2. India
3. Vietnam
4. Other Asia
5. Eastern Europe
6. Latin America
Rank & Location
1. China
2. India
3. Thailand
4. Other Asia
5. Eastern Europe
6. Latin America
Note: Selected industries consist of Cement, Auto, Pharma, Manufacturing, Retail & ApparelSource: Various; Axis Group Analysis
29
EU-27
Japan
China
US
India
Canada & Mexico
Central & South America
Asia-Pacific
Africa-Middle East
Developed countries are net exporters of mining equipment but developing countries are decreasing their deficit
-15 -10 -5 0 5 10 15 20
2011
2012
2013
2014
2015
2016
2017
Net Exports of Mining Equipment by Select Regions and Countries (USD bn, 2011-2017)
Source: European Commission; Axis Group Analysis
30
0 20 40 60 80 100 120Telephone
Data processing machinesIntegrated circuits
Other cloth articlesLight fixtures
Semiconductor DevicesModels and stuffed animals
Vehicle partsMonitors and projectors
Office machine partsFurniture
Electrical TransformersSeats
Other plastic productsRefined petroleum
UnspecifiedElectric heatersInsulated Wire
Liquid crystal devicesTrunks and casesElectric batteries
China’s exports are dominated by machinery & electronics products, which constituted 44% of its total exports in 2020
223170
X%
USD bn
44
12
1
10
14
1044
China’s top 100 global exports (USD bn, 2020)
Export Profile
China’s total export value for 2020:USD 2,591bn
Top 100 Shown:USD 1,815bn;
70% of total exports
Top 50 Shown: USD 1,458bn; 56%
of total exports
X%
31
Towards a ‘Risk vs Cost Scenario’…
Source: Axis Group Analysis
How to measure Risk & Cost NOW? How about in the FUTURE?
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
2
0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 1,8 2
Risk
Cos
t
China India
2019
2021 ‘Prediction is very difficult, especially if it is about the future’
- Niels Bohr
2030a2030b
Poland Vietnam Mexico
2010
2010
2010
2030
?
?
??
2010
2030
2010
2030
20302030
2010
2021
2019 2021
2019
2021
20192021
2019
32
Rank
1990 1995 2000 2005 2010 2015 2020
Country USD bn Country USD bn Country USD bn Country USD bn Country USD bn Country USD bn Country Rank USD bn2020 Aus
Import Share %
2010‐20 CAGR %
1 USA 9 USA 12 USA 14 USA 17 China 38 China 46 China 1 61.1 28.8 4.92 Japan 7.2 Japan 8.7 Japan 9.4 China 17 USA 23 USA 22 USA 2 25.1 11.9 1.13 UK 2.7 Germany 3.7 China 5.6 Japan 14 Japan 18 Japan 15 Japan 3 12.7 6 ‐3.14 Germany 2.5 UK 3.4 UK 4.2 Germany 6.9 Thailand 10 South Korea 11 Thailand 4 10.2 4.8 ‐0.35 New Zealand 1.7 China 2.8 Germany 3.6 Singapore 6.9 Singapore 10 Thailand 10 Germany 5 9.8 4.6 ‐0.26 Taiwan, China 1.4 New Zealand 2.6 South Korea 2.9 UK 4.9 Germany 10 Germany 9.2 Malaysia 6 6.9 3.3 ‐2.17 Italy 1.2 Taiwan, China 1.9 New Zealand 2.7 Malaysia 4.8 Malaysia 8.5 Malaysia 7.3 South Korea 7 6.5 3.1 ‐0.58 China 0.89 Singapore 1.8 Malaysia 2.6 New Zealand 4.3 South Korea 6.9 Singapore 6.9 Singapore 8 5.7 2.7 ‐5.69 France 0.87 South Korea 1.6 Singapore 2.2 South Korea 4.2 New Zealand 6.9 New Zealand 5.7 UK 9 5 2.4 ‐0.910 South Korea 0.87 Italy 1.6 Taiwan, China 2.1 France 3.9 UK 5.5 UK 5.4 New Zealand 10 5 2.4 ‐3.111 Singapore 0.75 France 1.4 Italy 1.9 Thailand 3.9 Indonesia 5 Italy 4.3 Italy 11 4.9 2.3 0.412 Canada 0.65 Sweden 1.1 Thailand 1.7 Italy 3.5 Italy 4.7 Indonesia 4.2 Vietnam 12 4.5 2.1 4.213 Sweden 0.61 Malaysia 1.1 Indonesia 1.7 Indonesia 2.9 France 3.6 India 3.6 France 13 4.2 2 1.414 HK SAR 0.5 Canada 1.1 France 1.4 Taiwan, China 2.9 Taiwan, China 3.5 Taiwan, China 3.6 India 14 3.9 1.8 7.415 Malaysia 0.49 Indonesia 1 Vietnam 1.3 Vietnam 2.7 Vietnam 2.9 Vietnam 3.4 Taiwan, China 15 3.6 1.7 0.116 Saudi Arabia 0.49 PNG 0.86 Canada 1.2 Sweden 1.6 PNG 2.8 France 3.3 Indonesia 16 3.4 1.6 ‐417 Switzerland 0.49 Switzerland 0.75 Sweden 0.98 PNG 1.5 Ireland 2.2 Switzerland 2.4 Switzerland 17 2.4 1.2 1.718 Netherlands 0.43 HK SAR 0.75 Saudi Arabia 0.94 Canada 1.5 UAE 2.1 PNG 2.2 PNG 18 2.4 1.1 ‐1.519 Indonesia 0.39 Thailand 0.72 PNG 0.85 Ireland 1.5 Sweden 2 UAE 1.9 Mexico 19 2.1 1 4.520 UAE 0.37 Saudi Arabia 0.58 HK SAR 0.78 South Africa 1.2 Switzerland 2 Mexico 1.8 Netherlands 20 2 0.9 4.621 Thailand 0.36 Belgium 0.56 Switzerland 0.75 Switzerland 1.2 India 2 Canada 1.7 Canada 21 1.8 0.8 0.222 Belgium 0.34 Finland 0.55 Ireland 0.6 Saudi Arabia 1.1 Canada 1.7 Netherlands 1.6 Spain 22 1.5 0.7 ‐0.523 PNG 0.29 Netherlands 0.5 UAE 0.59 Belgium 1.1 Spain 1.6 Ireland 1.6 UAE 23 1.5 0.7 ‐3.524 Finland 0.23 UAE 0.41 Netherlands 0.59 HK SAR 1.1 Belgium 1.5 Spain 1.5 Ireland 24 1.4 0.7 ‐4.225 Brazil 0.23 India 0.41 South Africa 0.53 Spain 1 Mexico 1.4 Sweden 1.5 Belgium 25 1.4 0.6 ‐0.926 India 0.22 Spain 0.37 Belgium 0.48 Netherlands 1 Netherlands 1.3 Belgium 1.2 Sweden 26 1.3 0.6 ‐4.427 Denmark 0.19 Brazil 0.35 Finland 0.48 India 1 HK SAR 1.1 HK SAR 0.9 Austria 27 1.2 0.5 2.828 Austria 0.16 Ireland 0.35 India 0.45 Austria 0.78 South Africa 1.1 South Africa 0.89 Poland 28 1.1 0.5 13.129 Spain 0.16 Denmark 0.25 Spain 0.41 Denmark 0.75 Brunei 1 Denmark 0.85 Finland 29 1 0.5 3.530 Ireland 0.13 Austria 0.22 Brazil 0.4 Finland 0.69 Denmark 1 Austria 0.84 Brunei 30 1 0.5 ‐0.1
Top 30 194.6 91.8 0.48Other Countries 17.4 8.2 0.68Global Total 212 100 0.5
Australia’s import composition reflects the dynamics between traditional export leaders and new challengersAustralia’s top 30 import partners (1990-2020); 2010-20 CAGR (%)
Countries that rank highest in 20202020 rank higher (or same) as in 1990 but not peakCountries with lower rank in 2020 than in 1990
3 – 4.5%Above 4.5%
0 – 2.9%Below 0%
CAGR %Top 30 entry (after 1990) Last record in top 30Peak rank
Asia & APACLatamEastern EuropeHigh Income
Key
Source: UN Comtrade; World Bank; Axis Group Analysis
Highlights: 6 of Australia’s top 10 import partners are in Asia, namely China, Japan, Thailand, Malaysia, South Korea & Singapore. Vietnam, Mexico & Poland have also increased their share of Australia’s imports
33
Composition of Australia’s Total Imports by Sector (USD bn, 2020)
Australia’s top sector for imports in 2020 was in Machinery & Electronics, with China being its top import partner in this category
0 50 100 150 200 250
0 10 20 30 40 50 60 70 80 90 100
China
USA
Japan
Thailand
Germany
Malaysia
South Korea
Singapore
UK
New Zealand
Machinery and Electronics Metals and Minerals Fuels Chemicals and PlasticsAgriculture and Forestry Transportation Textiles, Hides and Skins Others
OthersTextiles, Hides and SkinsTransportationAgriculture and ForestryChemicals and PlasticsFuelsMetals and MineralsMachinery and Electronics
USD bn
Sectorial Composition of Australia’s Total Imports from Top 10 Countries of Origin (%, 2020)
Source: UN Comtrade; Axis Group Analysis
61.1
25.1
12.7
10.2
9.8
6.9
6.5
5.7
5.0
5.0
34
Australia’s top 100 global imports (USD bn, 2020)
Source: UN Comtrade; Axis Group Analysis
Australia’s manufacturing imports i.e. machinery & electronics, transportation, textiles & chemicals will see further dynamic changes in ‘source countries’
Australia’s total import value for 2020: USD 212bn
Top 100 Shown:USD 151bn; 71% of total imports
Textiles, Hides & SkinsMetals & MineralsAgriculture & ForestryOthersChemicals & PlasticsFuelsTransportationMachinery & ElectronicsPercentage of total imports
USD bn
27
14
8
14
11
6
10
10
X%
Top 50 Shown:USD 121bn; 57% of total exports
35Source: Western Australia Government; Axis Group Analysis
Western Australia import profile reflect same characteristics – machinery from China in the lead
$0b
$10b
$20b
$30b
$40b
$50b
2000-01 2005-06 2010-11 2015-16 2020-21
Total Machinery & transport equipment Other(a)
$1.0b
$1.0b
$1.0b
$1.6b
$1.6b
$1.6b
$2.0b
$2.4b
$4.4b
$6.4b
$0b $2b $4b $6b $8b
Spain
Indonesia
Germany
Malaysia
United Kingdom
Singapore
Thailand
Japan
United States
China (Mainland)
2019-202020-21
• Western Australia accounted for 11% of Australia’s goods imports in 2020-21.• The value of Western Australia’s goods imports rose 1.4% to $34.4 billion in
2020-21, with: o Machinery and transport equipment imports rising 23.1% to $12.3 billion.o Other imports falling 7.6% to $22.1 billion, due to decreases in gold,
mineral fuels and chemicals imports.• Western Australia’s real goods imports rose 1.3% in the 2019-20 financial year.
The 2020-21 WA Government Pre-Election Financial Projections Statement forecasted Western Australia’s real goods imports would grow 0.25% in 2020 21 and 1.0% in 2021-22.
• In 2020-21, Western Australia’s largest market for goods imports was China ($6.4 billion or 19%), followed by the United States ($4.4 billion or 13%) and Japan ($2.4 billion or 7%).
• The largest increases in Western Australia’s goods imports in 2020-21 were from Spain (up $786 million or 452%, mainly due to higher imports of ships, boats and floating structures), United Kingdom (up $744 million or 88.3%, mainly due to higher silver, platinum and gold imports) and China (up $563 million or 9.6%, mainly due to higher gold imports).
• The largest decreases in Western Australia’s goods imports in 2020-21 were from Papua New Guinea (down $1.5 billion or 94.9%, mainly due to lower gold imports), Thailand (down $1.2 billion or 38.8%, mainly due to lower gold imports) and United States (down $482 million or 9.9%, mainly due to lower petroleum imports).
Western Australia’s Total Imports (AUD, 2000 – Aug 2021)
Western Australia’s Major Import Markets (AUD, Jul 2019 – Aug 2021)
36
Agenda
Competitive Dynamics• Measure Risk & Cost real-time• New options, complex choices• Opportunities & threats are
intertwined; also for Australia
Impact on Global Procurement & Supply in
Resources Clusters & Categories
Integration
Trade & Supply Chain Shifts• Change of the order• China leads• Strong high-cost incumbents• New challengers & losers
With improved production capability in BCCs, procurement decision drivers are becoming more multilayered with cost remaining an important element; but there are many complex considerations that stretch bandwidth in teams
Source: Axis Group Analysis
Production Time
Short production time led by advanced technology in relevant industries
China,EE, SEA, Mexico
Transportation Time
Major shipping ports are more practical for export and offer faster services
China, India, Turkey, S.E.A.
Supplier Base
Large and diverse supplier base create competitivenessin the market and lower the price
China,India,S.E.A.
Raw Material Supply
An abundant supply of raw materials is conducive to BCC sourcing
Low HighCapabilities: Enhanced capability as a result of foreign cooperation
Blue highlights represent China’s “core” capabilities
Orange highlights represent potential areas for Chinese participation if working alongside a foreign company
Grey highlights represent China’s “non-core” capabilities where opportunities exist but require further evaluation
Assessment of China’s Capabilities Across the Mining Value Chain for Overseas Projects
In addition to China’s core capabilities across the mining value chain, China’s non-core capabilities can also be leveraged with the help of non-Chinese partners with relevant expertise
50
Agenda
Clusters & Categories• China will still lead• Explore alternatives• Opex, Capex and Services• Much internal resistance
Integration
Impact on Global Procurement & Supply in
Resources• Many potential choices• Not easy process
Competitive Dynamics• Measure Risk & Cost real-time• New options, complex choices• Opportunities & threats are
intertwined; also for Australia
Trade & Supply Chain Shifts• Change of the order• China leads• Strong high-cost incumbents• New challengers & losers
For clients that compete in complex international markets our experience, global reach, integrated solutions, multi-disciplinary capabilities and ethos of excellence translate into business performance and profitability
www.axisgroupinternational.com
Global Procurement & Supply. SolvedAxis Group International delivers comprehensive end to end global procurement and supply solutions
Best value
Quality assurance
Schedule adherence
Risk mitigation
ESG compliance
Our value proposition includes
Our offering spans the entire international value chain and includes
• Founded in 2002 to enable best-cost country alternative supply• Acquired by Imperial in 2019 – a USD 3bn conglomerate • Addressed over USD 8bn spend globally• Achieved on average 10-30% cost reduction (within a 5%-70% range)• Multiple industries and categories covered• Over 70 staff in 8 best-cost country sourcing hubs• Significant presence on-the-ground in Asia, Middle East and Africa• An Axis Group database of 8,000+ suppliers across markets & industries
About usA truly global capability positioned to be a direct supply partner or procurement Service provider
Facts and figures
67
• Integrated freight management & contract logistics provider with significant scale, offering end-to-end solutions in key industries using technology as a differentiator
• Reduce time-to-market, improve customer service & mitigate risk
Logistics AfricaMarket Access
• Take ownership of inventory & responsibilityfor the full order to cash function
• Build complex route-to-market solutions that provide our clients & principals’ access to consumers across Southern, East & West Africa -mainly in healthcare & consumer industries
Logistics International
• Partner with clients to integrate logistics functionsinto their end-to-end supply chain
• Leading capabilities in chemical & automotive industries
• Specialised express distribution capabilities
Imperial at a glance
www.imperiallogistics.com
USD3 billion in revenue in 2020
Leading provider of market access & logistics solutions