The Uberisation of King Consumer

IN today’s market, big data can forecast probable demand before orders come in, and traders can make smaller and smaller runs to serve niche markets – in retail parlance, the ‘long tail’. The supply chain has become more complex and nuanced, and local 3D manufacturing will come into its own as individual markets become smaller . . .

HONG KONG — As Victor Fung, one of Asia’s best-known internationalists and business leaders, sees it, the world economy is
going through a major structural adjustment.
This transition is causing uncertainty and economic pain, but, encouragingly, there is light at the end of the tunnel ­— although some distance away.
In the interim, he says, there will be something of a re-energisation of globalisation.
The global supply chain, which was basically one-directional from East to West, is giving way to what he calls “a more sophisticated multi-directional Global Supply Chain 2.0”.
Fung believes that, increasingly, distribution of products will be geared towards what is known in retail parlance as “the long tail” — servicing millions of small/medium enterprises.
As Honorary Chair of the Li & Fung Group, Fung is in a vantage position to observe emerging global trends. Li & Fung, a company founded by his grandfather, is a world leader in consumer goods design, development, sourcing and logistics. Last year, it chalked up total turnover of US$18.8 billion.
Apart from international commerce bodies, Fung is a regular sounding board for the governments of Hong Kong and China —and for foreign governments, through inter-governmental committees where the focus is often on deepening global trade liberalisation.
Change, says Fung, is ultimately driven by consumers. In today’s world of e-commerce and social media, the consumer has been transformed.
The consumer is King, and the global supply chain will evolve to meet his needs and wants.
Increasingly, King Consumer will live in the developing world.
Fung says there is now a lot more in-country production to satisfy in-country needs, caused primarily by the changing consumer.
“Consumers today are demanding products more targetted to them. Markets are moving towards more niche products to satisfy a larger number of smaller markets, serving what we call the “long tail” — smaller orders in faster response time (see ATI, June 2016).
“Consumers buy something on the web and want it delivered within 48 hours.  When you are producing half a world away, it is difficult for you to do that.
“So you need to locate the production closer and closer to the consumer — and that means in-market. When the Americans talk a lot about reshoring, it is really to meet consumer demand for fast delivery.
“We now talk about producing in China for China. It is not China producing just for the
developed economies.
“Since the Lehman crisis in 2008, China, while still producing for OECD countries, is increasingly producing for itself and other developing markets — India, ASEAN and so on.
“The future for workers in developing economies will be producing not just to satisfy demand in developed countries, but to meet new demand in developing countries.

Fung told ATI: “We are definitely moving
rapidly to the tipping point in global aggregate
demand. The next big thing in the world will be the introduction of new aggregate demand from the developing economies. That will provide plenty of jobs for workers in both the developed and developing economies.
“So your supply chain has become a lot more complex and nuanced. It is not a one-directional movement.”
With the change in consumption patterns, Fung says manufacturers in the developing world are broadening from OEM to the creation of products to satisfy the demand of their domestic customers. In
doing so, these manufacturers are moving to the upstream part of the supply chain.
Fung does not believe that such a shift will diminish the value of global brands.
“Brands will become ever more important because, on the one hand, you are developing and continuing to develop old networks in old economies, but you are also developing new networks in the new economies.
“The two are very different. How you tackle consumption in the developing economies is a very different proposition, because you are dealing with millions and millions of small to medium enterprises.
“I always say that Li & Fung has 7,000 customers around the world, probably 400 in major OECD countries, accounting for most of our business, but if I want to think what Li & Fung has to do to tap the new consumption in the developing economies, it has to service millions of SMEs, including some very small accounts.” Fung told ATI that technology will help process the myriad of small orders.  Payment services such as PayPal and Alipay will be essential.
But people are still trying to figure how to distribute to this vast army of buyers. That is the real challenge, says Fung.
“You will have to think through how you distribute. Maybe you have to forward-deploy the merchandise to depots, deep into the market. And then, within the markets, delivery to the shops and so on, and maybe delivery to homes, eventually will be completely Uberised.
Fung calls it a process of “hyper-localisation”. “The new supply chain actually is very different from the traditional supply chain we have known for the past 30 years. Then, if I were a global marketer, I would source in China and the East to meet demand in the West.”
No more. King Consumer has spoken.
In today’s market, big data can forecast probable demand even before the orders come in, says Fung.
“If I have 1,000 depots all over China and I need to forward-deploy my merchandise, I can almost predict how much will be sold to each of these depots, based on the information in big data. I can deliver before the orders come in
because I can anticipate the orders.
“We will be able to make smaller and smaller runs to service niche markets, so serving the long tail.” Here, he sees 3D printing technology playing a role.
“We are already using 3D printing in a major way, for example, to produce samples for test runs. But 3D printing will come into its own in mass production because the markets are getting smaller.
So does a shift to in-country production and hyper-localisation spell the reversal of globalisation? Fung does not think so.
“Global production is still relevant,” he says.
“This is because, while production is being located closer to consumption to enable retailers to respond to market changes more quickly, it is impossible to produce everything a market needs by using the near-shoring strategy. And the use of data analytics for better forecasting of demand will sway the pendulum back
towards offshore production.”
He adds: “My faith in trade in the long term is still very much there.”