Four Compass Points for global supply chain management…revisited

A rapidly evolving and increasingly global world poses new challenges for business survival. Supply chain managers who use these four interconnected compass points can navigate these unprecedented challenges and find opportunities for innovation.

The points on a compass have kept travelers headed in the right direction for hundreds, if not thousands of years, even as they sailed off into uncharted waters or ventured into new territories. Managers of global supply chains are in a similar boat as their ancient counterparts. Their world’s are changing rapidly as their companies enter new, emerging markets and they confront a host of new cultures and broader trends.

For example, technological advancement has raised consumer expectations for the rapid and convenient delivery of products, while a rising generation of middle class consumers has increased the demand that those products be ethically and sustainably sourced. Supply chain executives can work to maneuver through these challenges when they consider the following trends:

  • emerging markets;
  • mega cities;
  • millennial consumers; and
  • e-commerce

Think of them as four interconnected points on the supply chain compass­—modern global supply chain managers who take them into consideration when designing their processes and networks will stay headed in the right direction. Let’s take a look at each in turn.

Emerging Markets

Emerging markets are defined as countries that have started to grow, but have yet to reach a mature stage of development and demonstrate significant potential economic or political instability.
Emerging economies are becoming larger participants in the global commodities markets, with rising levels of production, consumption, and investment. These economies have significantly raised their share of both import and export commodity flows over the past decade.
The distribution of the consuming and below-consuming classes reveals a marked change from 1820 to 2025 (see Exhibit 1). In the history of supply chain management, markets in the United States and Europe were dominant.

However, in the past decade this was drastically altered and a new set of emerging markets in a range of developing countries are not only rivaling but also displacing the U.S. and Europe as leaders in commerce.

The emerging world’s share of the global value of metals, minerals, and oil and gas exports increased from 49 percent in 2002 to 62 percent in 2012. These countries now produce more than two-thirds of oil and gas exports (more than half of which come from the Middle East), and nearly 60 percent of mining exports (half of which originate in Latin America). Exploration and production is also moving to emerging regions.

Almost half of the world’s known reserves of minerals and oil and gas are in countries that are not members of either OPEC or the OECD. This fact undoubtedly understates the true potential for resource production in the emerging world, where relatively little exploration has taken place so far.
Most exploration has historically taken place in regions like the U.S., South Africa, and Australia where there is a strong mining heritage, and because of a lack of sufficiently sophisticated exploration techniques to explore more hostile regions. A boom in demand, coupled with deteriorating grades and escalating costs, forced mining companies to look at other regions.

As mining technology improved, it became easier to explore in frontier economies and discover more high-quality reserves. The changing resource landscape has a number of significant implications for the network of global commodity flows. First, the growth of consumption in emerging markets—especially in India and China—is likely to have an impact across all the major commodity sectors.

China and India together are expected to account for 60 percent of the total increase in primary energy growth worldwide, and China alone was responsible for 30 percent of the growth of emerging-market commodity imports between 2002 and 2011. China and India will continue rapidly growing as the U.S. likely slides down rankings heading toward 2050 (see Exhibit 2).

Resource prices are likely to remain high, at least in the medium term, due to surging demand at a time of constrained supply. We are also likely to observe continued volatility in commodity prices observed since roughly the turn of the century, but we expect even more fluctuation ahead.
Over the past 13 years, the average annual volatility of resource prices has been almost three times as high as in the 1990s. As production shifts to riskier geographies, it is likely that volatility will continue and even become exacerbated. In fact, resource-driven countries accounted for 19 of the 35 “fragile country situations” identified by the World Bank Group in 2013.
The trend toward greater integration of the global economy, especially in terms of goods traded through global supply chains, has left individual countries more exposed to fluctuations in production in distant regions of the world.

Finally, the shift in energy production to new—and many emerging—regions could reshape the flows of other energy-intensive goods and associated services. For example, industries such as petrochemicals and fertilizers are receiving investment in the United States to take advantage of low-cost natural gas enabled by the shale gas revolution.
The growth of such industries could have a profound effect on the global economy. As the traditional leading markets begin to decline, new markets gain traction even beyond traditional energy and mineral commodity sectors, leading toward technological advancement in supply chain and retail.

Again, this is particularly true in Asian nations such as China, India, and Singapore. The emerging markets have boomed as a result of innovations that have provided quick and direct access to a global population of consumers.

Take, for example, China’s Alibaba, the world’s largest e-commerce company that now handles more orders, products, and consumers than U.S.-based

Amazon. Forbes recently noted that the products and services linked to Alibaba “lie at the core of an extraordinary transformation of China today from a low-cost, export-driven economy to one that is driven by consumers” and, added that “Alibaba has succeeded in making China—a country with countless internal barriers to trade—seem like one market where goods can be purchased, delivered, and paid for with a confidence unimaginable little more than a decade ago.”

India, too, is making powerful strides in creating its own consumer culture, as its rising middle class draws major brands such as Gap and Starbucks into its supply chain. Simultaneously, domestic retail companies, such as Snapdeal, are embracing the same disruptive technologies that are shaping omni-channel retail and providing consumers with quick and convenient methods of purchase.

In these emerging markets, ultimately commerce has the power to cause greater growth and change in the countries’ global economic positioning than even government institutions and policies. Growth of consumption in these emerging markets is also likely to have an impact across all the major commodity sectors.

Resource prices are likely to remain high; and the shift in energy production to new and emerging regions could reshape the flows of other energy-intensive goods and associated services in the long term.

Mega Cities

Mega cities are defined as having very large populations with residence rates of over 10 million people. The U.S. has 15 emerging mega cities, but most are spread throughout the world and can help us better understand where and why emerging markets are cropping up.
Over the next three years, there will be a significant rise in the number of mega cities worldwide. There are currently 28 urban areas globally with at least 10 million people; by 2030, the 12 cities listed below are expected to enter the ranks of the planet’s mega cities.

  • Bogota
  • Lahore
  • Lima
  • Luanda
  • Johannesburg
  • Ahmadabad
  • Hyderabad
  • Bangalore
  • Chennai
  • Bangkok
  • Chengdu
  • Ho Chi Minh City

Notably, these cities are not in the declining markets of the U.S. and Europe, but are spread throughout Asian and South American emerging markets. Exhibit 4 shows a map of the distribution of these 12 important future mega cities.

Mega cities have begun to dominate local and global markets, as residents in emerging economies move toward a centralized location that allows retailers faster access to consumers—a phenomenon that cuts down on travel time between supply chain components and allows retailers to beat previous records in delivery of product. It is of note that the rising middle class is crucial to the appearance and growth of mega cities, especially in emerging markets.

The middle class is the engine of consumer spending in emerging markets. The proportion of middle class houses (defined as those with a disposable income over U.S. $10,000) ranges from a high of 99.5 percent in the United Arab Emirates to a low of 4.8 percent in Kenya. In terms of income, the middle class in those same 20 countries earns from around U.S. $3,000-$6,000 per household in Nigeria to U.S. $74,000–$150,000 in the
United Arab Emirates.

The middle class households in emerging markets are twice as likely to report that spending on education for household members is one of their top five financial priorities (30 percent vs. 16 percent). Emerging middle classes in Indonesia, Mexico, and Colombia are especially likely to prioritize education (38 percent to 44 percent).

The increased education and wealth of residents in mega cities is also an influential factor in retail. Greater wealth leads to a greater desire to build a centralized culture not based in Western values, but rather celebrating an emerging nation’s own traditions and future. The development of a vibrant and active culture in a centralized location draws the younger generation toward cities that offer a vast array of quickly accessible products and experiences.

India’s mega cities of Delhi and Mumbai are strong examples of this. Despite the fact that 70 percent of the country’s population still lives in rural locales, India’s mega cities are encountering massive population expansion, with current populations at approximately 21-25 million inhabitants. Exhibit 5 shows how Indian mega cities’ current and projected populations compare to those of other nations.

The population of these cities is increasingly young, and the millennial generation is a powerful force in shaping Delhi and Mumbai’s economics and culture. This is an emerging global middle class with considerable spending power. For instance, some estimates expect to see 240 million middle class households arise in India and urban China over next the 15 years. Consider the position of the middle class in the mega cities of the following emerging markets.

ASEAN. The middle class income group in the Association of Southeast Asian Nations (ASEAN) region will exceed 100 million people by 2020, according to an estimate from The Boston Consulting Group and McKinsey & Company. They further predict that the political and economic organization of 10 Southeast Asian countries—Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos, and Vietnam—have a combined population of more than 600 million people.

Africa. McKinsey & Company forecasts that 128 million African households will earn U.S. $5,000 a year or more by 2020, enabling them to spend half their income on non-food items. Furthermore, Africa’s middle class families—those earning U.S. $20,000 or more—outnumber India’s. Findings such as these echo ICEF Monitor’s analysis of the situation in Nigeria, an emerging market where the combination of a rapidly growing population and burgeoning middle class has given rise to a huge demand for quality education.

Greater China. A bigger proportion of young and mid-level population dominates China’s age distribution. Although the standard deviation at China’s end is higher, the median income in China is projected to be U.S. $8,366.75.

Millennial Consumers

The “millennial generation” is a demographic cohort that emerged into young adulthood at the start of the new millennium. Compared to their predecessors, they are more likely to live within these emerging market mega cities and belong to an expanding middle class with access to global markets through technology, more disposable income, and greater levels of education.

As a result of their educations and technological proficiency, millennial consumers are much more likely to witness their economic or social situations in a global context—not only local or national. Thus they are driven toward a desire for quick, convenient, and accessible retail experiences as well as a preference for retailers who participate in sustainable supply chains and corporate social responsibility.  They are even willing to pay more to retailers that meet the latter criterion.

The millennial middle class has become the engine of consumer spending in emerging markets. Exhibit 6 shows a Forecast of the World’s Middle Class growth is from 1.8 billion to 4.9 billion from 2009 to 2030. If we break down the millennial middle class by geography, it becomes clear that most of this generation will be concentrated in the emerging markets.

The middle class income group in the ASEAN region will exceed 100 million people by 2020. In Africa, meanwhile, forecasters predict the average middle class family will earn U.S. $20,000 or more by 2020. Across greater China and India, over 240 million middle class households will arise over next 15 years.

The effects on consumption and supply chain will be felt locally and globally, through this population’s use of expendable income as well as its cultural philosophies surrounding consumption. (Exhibit 7 is a prediction of shares of global middle class consumptions from 2000-2050.)
Beyond millennials’ personal goals of travel and retail consumption, there continues to be a widespread belief that businesses and retailers should positively affect a range of societal issues, such as resource scarcity, climate change, and income inequality. This heavily affects how retailers—and the emerging e-commerce market—will function in the future.


Disruptive technologies change how retail works by allowing 24-hour access to retailers, a wider range of retail stock options, and the convenience of swift purchasing and delivery. This technology has severely decreased consumers’ tendency toward brick-and-mortar retail and drastically increased rates of e-commerce and omni-channel shopping.

For example, Amazon surpassed BestBuy in sales consistently over the past 5 years as consumers took to ordering hardware and software as well as entertainment products from their computers for home delivery. As the majority of the population becomes comfortable with smart phone technology in their daily lives, and stores begin taking advantage of smart phone purchasing apps and omni-channel platforms, mobile e-commerce is quickly becoming another impactful trend to follow. (See Exhibit 8.)

E-commerce and omni-channel retail meet the consumer demands of millennials across the globe, and they are rapidly evolving to increase convenience. Technologies such as drone delivery (currently in development at such mega e-retailers as Amazon and Google) will ultimately increase speed of delivery, especially in mega cities with proximity to ports and warehouses where goods are stored.

E-retailers and omni-channel retail sites not only provide this type of extreme convenience but also the transparency linked to millennial consumers’ demands. After all, the Websites and apps can provide extensive consumer reports or information on CSR programs that cannot be delivered as easily at brick-and-mortar stores. 

Navigating Through Supply Chain Evolutions

What then should a supply chain manager make of these trends? And, how do they use them as compass points for navigation? We believe the layering of each of these factors can assist organizations in traveling the rapidly shifting waters of the supply chain. None of the four compass points of modern supply chain management are fully distinct; rather, they point to an increasingly global world that demands an increasingly technology-driven global supply chain.

Yet, worldwide demands for sustainability and ethical sourcing come with the accompanying demand that organizations not sacrifice the globe or the well being of its inhabitants in favor of convenience. Organizations will need to balance these demands in order to stay relevant with their stakeholders.

Editor’s note: This is the first of two articles by Nick Vyas that will look at trends affecting global supply chain management. In the second article, Vyas will examine how these trends will affect supply chain networks and processes.