Clicks Need Brick & Mortar Infrastructure
“Clicks” Need Brick & Mortar Infrastructure
Without hard distribution and logistics infrastructure, there’s no “commerce” in Asian E-commerce
In September, Tractus Asia’s Executive Director Dennis J. Meseroll presented “Asian Trends Impacting Global Transport & Logistics Investment” to the annual Site Selectors’ Guild Fall Forum in Seattle, Washington. China’s One Belt One Road initiative as well as the growth of e-commerce in the Asia Pacific were two interrelated trends impacting investment discussed during the panel session.
China’s One Belt One Road initiative is the most comprehensive international logistics infrastructure development initiative in modern history, yet most of the American business community is unaware of it. Amazon’s HQ2, which dominated the business press during the Forum, pales by comparison to the US$4 trillion China has stated it will invest as part of the initiative; not to mention the millions of jobs expected to be created if even a small portion of the expected investments are made. Expansion of existing and the creation of new transportation infrastructure will connect inland regions of Africa, Asia, and Europe over land and by sea by establishing six new “economic corridors”…all of which connect China to markets to its west. If the impressive One Belt One Road initiatives are implemented, in the 21st Century, all roads will lead to China.
While on the surface the One Belt One Road initiative seems to exclude North America, there are opportunities for US companies to take advantage. While Chinese companies will undoubtedly win the lion’s share of construction contracts, expanding infrastructure means more efficient access to expanding markets in landlocked Central Asia as well as Africa, Southeast Asia, and Eastern Europe. Manufacturing and other investment in these regions, previously uneconomic due to poor transportation access, will become more feasible. Global logistics providers are already eyeing these markets as avenues of future growth.
E-commerce is another area changing the face of FDI, and not only in North America. E-commerce and its impact on retailing is exploding in Asia and the volumes and values dwarf the North American market. E-commerce’s negative impact on retail real estate development is well known and likely to continue, but its influence on the transportation and logistics sector is only beginning. Over 30 billion e-commerce-related parcels were delivered in 2016 in China alone compared to 12.4 billion in North America. As consumer expectations of same day delivery increase, so will the demand for higher concentrations of warehousing and distribution centers as well as the logistics infrastructure (highways, roads, airports and rail) to support it, whether in North America or Asia. Many e-commerce platforms now offer same-day delivery—a service available in China well before Amazon offered it in select US cities. These consumer expectations are driving investment in air cargo with SF Express, one of China’s Big 3 express courier companies investing in an 18,000 acre air hub in Wuhan in China’s central Hubei province. It has also partnered with UPS to offer better B2C logistics services between China and North America to support e-commerce sales. These trends are replicated throughout the rest of APAC as Internet and mobile penetration continue to rapidly grow in step with growing per capita income. We can expect further significant investments in transportation and logistics infrastructure in the years to come as traditional retailers and distributors are disintermediated and supply chains directly link manufacturers with consumers.
As One Belt One Road projects come to fruition and e-commerce forever changes the retailing landscape in Asia, decisions about where to locate manufacturing and distribution assets become more complicated. Transportation infrastructure which makes more destinations viable locations for manufacturing investment means it is even more imperative for companies to evaluate their options in an objective, systematic and disciplined manner taking into account the disruptive aspects of new infrastructure developments and e-commerce. Most critically the risks of choosing one location over another in light of these disruptive changes must be explicitly taken into account if a defensible long-term competitive location and site is to be chosen.
About Dennis J. Meseroll, Executive Director of Tractus Asia
Mr. Meseroll is a founding partner and Executive Director of Tractus Asia Ltd. Mr. Meseroll and the firm have advised on more than US$5 billion in trade and investment transactions across a wide variety of sectors.
In his over 25 years living and working in Asia, Mr. Meseroll gained strategic and operational experience running service and manufacturing organizations. He brings this practical experience to his current role assisting companies, in a variety of manufacturing and service sectors from North America, Europe and Asia, to make informed decisions about where to locate their investments and how to structure and operate them for growth and profitability. This experience has also made him a sought after advisor to multilateral, national and regional economic development organizations from North America, Europe the Middle East and Asia on trade and investment-related issues.
He is a founding member of the Site Selectors Guild as well as active member of the Industrial Asset Management Council’s (IAMC) International Advisory Council and the International Economic Development Council (IEDC). Mr. Meseroll is an active member of the American Chamber of Commerce in Thailand where he was a co-founder of the organization’s SME Committee.
About Tractus Asia
Tractus Asia Limited is an Asia-based foreign direct investment strategy and execution advisory firm with offices in Shanghai, Hong Kong, Chennai, Jakarta, Yangon, Singapore, Bangkok, and Ho Chi Minh City. Tractus advises corporations in developing effective market entry strategies and assists them throughout the execution process, including site selection, real estate transactions and investment incentives negotiations to corporate establishment and start-up management. For more information about Tractus Asia, visit www.tractus-asia.com and follow us on LinkedIn.