The emerging high-tech market
Rapid growth in the technology sector is being driven by demand from the emerging markets of Asia, Latin America, and Africa - with profound implications for both high-tech industry and cutting-edge logistics.
The technology sector meets a unique set of challenges: rapidly changing consumer tastes and, innovation that doesn't stand still.
Cell phones, tablets, PCs, smartphones - high-tech devices are no longer the preserve of wealthy western nations. Sometime in 2013, the number of mobile phone accounts in operation around the world is expected to match the number of people on the planet. Demand in developing markets - from the so-called BRIC countries to Africa and beyond - is outstripping that in mature economies and driving rapid growth. Accompanied by dynamic high-tech trends, this shift has profound implications for the entire technology sector.
Here's some perspective. In 2012 China became the largest consumer market for both PCs and smartphones. Russia is the world's fourth-largest PC market. Brazil isn't far behind. India's demand for electronics hardware was $45 billion in 2009 and is expected to be $400 billion by 2020. And looking beyond the BRICs, as these four rapidly growing countries have become known, Africa's demand for cell phones is mushrooming. There were 500 million subscribers in 2010 (double what there were in 2008) and some 850 million are expected by 2015. As Scott Allison, DHL Technology Sector senior vice president, points out, calling them "emerging markets" is misleading. "They are developing markets," he says. "China is now the second-largest economy in the world."
After the BRIC countries come Mexico, Turkey, and Indonesia, which together are expected to contribute about 45 percent of global GDP growth in the coming decade. And beyond those seven economies, Africa, Malaysia and the Middle East are a significant part of the new growth-market mix.
Finding a strategy and keeping pace with high-tech goods
With such rapid growth happening right now, it isn't a surprise that most major technology companies are prioritizing strategies to deal with these developing markets.
For a company such as Nokia, which suffered from not being able to stay ahead in the massive smartphone market, getting the right strategy for the developing markets could pay significant dividends and help put it back on top. "In our mobile phones business, the positive consumer response to our new Asha full touch smartphones translated into strong sales," said Stephen Elop, Nokia CEO, while presenting the company's interim report in October 2012. The ultra-low cost phone market (cell phones under $100 and as cheap as $40), is doing particularly well in India, the Philippines, Malaysia, and Indonesia. Africa's cell phone use is growing too - which is good news for Nokia. Its already strong position in the low-cost cell phone market means it could step up as a serious competitor in the burgeoning smartphone market. In India, smartphone penetration is, at the moment, relatively low, so that market has huge potential. India and Brazil are set to become the third- and fourth-largest smartphone markets by 2016.
The technology sector must also meet a unique set of challenges: rapidly changing consumer tastes, innovation that doesn't stand still, and, as Allison puts it, "razor thin" margins. In a market where even an average cell phone might have a shelf life of just 30 days, vigorous research to assess and predict trends in consumer technology is vital.
An example of the pace of the industry and the need to be ahead of the curve was the way tablets and smartphones took off, leaving some major players behind. That plus the limited lifespan of a product and the dynamic nature of the technology sector brings many pressures. New models must be brought to market quickly, and marketing strategies shroud products in secrecy until the much-anticipated launch, which is often an almost celebrity-style event. The success of the launch and the speed with which the product arrives in the shops have become critical factors with implications for logistics providers. In addition, the short lifespan of the product is attended by a rapid drop in its selling price, which in turn puts great pressure on the value chain.
New tech trends
In 2011 the technology industry was almost overwhelmed by the astonishing growth of smartphones and tablets. Personal computing habits are changing, and PC manufacturers are feeling the pinch as consumers find mobile tablets an attractive substitute for a desktop or laptop. As more and more users go mobile, the global wireless market and 4G and 3G data networks are trying to keep pace, driving spending on telecom and related equipment.
Supply chains need to keep up with these fast-moving trends. So a flexible infrastructure and the ability to expand or contract quickly are prized resources. However, only companies that are very large and have been established over decades can have the global physical capability to serve these needs. This points to the importance of a dependable global logistics operation for high-tech manufacturers. A third-party logistics provider can take on the task and scale up, or back, to meet the needs of the customer - without exposing it to the fixed costs of unneeded facilities.
Acer computers in India is a good example of all this. It decided to take advantage of an established third-party logistics provider - DHL - to respond to the rapid growth it was experiencing. DHL consolidated the warehouses into three regional hubs. It then streamlined an end-to-end process for warehousing, repair, and transportation, and improved Acer's turnaround times and customer service. Acer's partnership with DHL's supply chain and integrated logistics gave it full visibility of its inventory and transport costs, plus significant savings. This was all built on DHL's knowledge of the country and its experience in supply chain management in Asia.
Providing solutions in some developing markets, however, is not without problems. For example, China might implement incentives to encourage growth in its western regions, but it takes time for the logistics infrastructure to catch up. And in Brazil, where production can be cheap, the costs attached to getting the product out are significant. These are challenges for logistics providers, as it is increasingly important to respond faster and with greater flexibility.
Rob Siegers, president DHL Global Technology Sector, emphasizes the importance of customer dialogue. "Our customers are constantly looking for new solutions to shorten the time to market, and more flexible and cost-efficient distribution. This is why we have to stay in close dialogue with them - to better understand their needs and to create innovative supply chain solutions at a similar pace."
This highlights DHL's claim that collaboration is a good way to exploit opportunities in developing markets. The company has attempted to make the best use of its well-established local knowledge and share it with customers. Its leadership initiative has been to organize workshops in developing market countries. These help customers "connect the dots" across the supply chain, bringing together, for example, a PC manufacturer and a distributor/retailer who could then discuss how to streamline their operation. DHL facilitates the dialogue, listens, and is then in a position to provide an efficient supply-chain solution.
These workshops demonstrate DHL's understanding of local markets - established over many years - and customer needs. Recent workshop events in Mexico, China, and India have attracted between 30 and 40 customers in each of the locations. In addition, the logistics provider has hosted conferences for its global partners - most recently in Berlin, with over 100 customers present - to serve a similar purpose.
As Siegers says, "Customers will only go for supply-chain solutions which create concrete value. To respond to this, you have to work closely with your customer early on. In discussions with our customers, we have learned what really drives value for them. It is all about enabling revenue and growth in targeted markets with flexible and cost-efficient supply chains which simplify the business of our customers yet still keep them in full control."
In short, he concludes, especially in the fast-changing global markets of the 21st century, listening to feedback remains vital in fine-tuning a service to meet customer needs.