Asian Companies Worry About Rising Supply Chain Costs

Many leaders of small- and mid-sized businesses in Asia are confident they've turned the corner on the recession, but they're also worried about rising costs in their region, according to a recent survey conducted by UPS. UPS surveyed 1,350 SME leaders across 13 markets: Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam.

Unlike the United States, where inflation remains largely under control, the Asian business leaders cite rising costs as their No. 1 "most pressing business concern" by a margin of 2-to-1 over other issues such as cash flow and interest rate hikes.

And unlike most large regional and multi-national companies in Asia, the small- and mid-sized enterprises (SME) say they will continue to focus their foreign trading efforts on other countries in Asia, not the United States or Europe. These smaller firms say they're conducting more than 80% of their cross-border business inside Asia and over the mid-term, some 56% of the SME leaders say they'll stay focused on expansion in Asia.

"Many regional SMEs have broken free from the financial shackles of the 2009 crisis," says Derek Woodward, president of the UPS Asia Pacific Region. "More than half (52%) expect greater growth opportunities in 2010, while only 4% anticipate a decline."

SME leaders in the Philippines are by far the most bullish on their country's prospects, while Korea's SMEs foresee the fewest opportunities in 2010.

The projections of SMEs for trade growth within Asia have more than doubled since last year, from 28% to 69%, the survey found. That positive attitude seems to have been fueled, in part, by the number of Free Trade Agreements (FTA) that took effect or were negotiated this year, including pacts between Southeast Asia countries and China, Australia and New Zealand and between Singapore and Costa Rica. The Obama administration announced earlier this summer it intended to move forward with a U.S.-Korea FTA.

"The confidence of the Asian SMEs in overseas trade is close to levels seen during the pre-financial crisis period," says Dan Brutto, president of UPS International. "They're just focusing first on their own region, which is not surprising. That certainly is consistent with the strong, double-digit package volume growth we saw last quarter across Asian trade lanes."

While information technology and manufacturing continue to be the leading industry sectors in terms of predicted growth opportunities, the SME leaders named the automotive sector the third of the Top 3 sectors for 2010, a development in line with recent industry reports. For example, the automotive industry in India grew at a compound annual growth rate of 11.5% over the past five years, while expectations of sales growth in South Korea's auto market now total about 16% in 2010.

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