Soaring Emerging Markets: New Business, New Challenges

By Brian Littlefield UPS Emerging market growth is reshaping commercial aircraft manufacturing and the supply chain as it becomes more globalized overall. The shifting landscape creates fresh opportunities for plane-makers and suppliers, but the resulting complexities can be daunting. These trends require expertise aerospace manufacturers generally don’t have, and collaborating with logistics partners can help them meet new demands, according to a UPS white paper, Aerogistics: Insight on Emerging Markets and Supply Chain Complexity. In many cases, this means producing planes or parts in or near new markets.

In emerging markets, especially the Middle East, Asia/Pacific and Latin America, aerospace companies must strive for operational agility and precise logistical coordination between countries while being resilient to operational disruptions. Once the customers are on board and investments are flowing to promising new regions, there’s practically no margin for error. Establishing aerospace operations in emerging markets is tricky, even in the best circumstances and even for companies with experience. But these are fast-developing opportunities. They present unfamiliar and tough demands coupled with inadequate local resources and know-how. Lots of Moving Parts The aerospace industry is in the midst of a prolonged growth spurt with commercial aviation in its third consecutive year of record sales. Airbus and Boeing reported combined net new orders for 2,888 planes in 2014, totaling $1 trillion in sales. And order backlogs continue to grow, meaning coming years should be profitable for aerospace companies – as long as they are able to maintain production schedules and avoid penalties. Expanding sales are good news for these legacy firms. But there are a significant number of players and moving parts to the supply chain that support them. And, in many cases, localizing parts sourcing and manufacturing is a customer requirement and not necessarily a first choice of original equipment manufacturers. Aerospace firms surveyed for the Aerogistics paper said finding skilled and talented workers in new markets is often difficult. Some have sent engineers and scientists to these countries. Throw in country-specific compliance requirements and the overall challenges of standing up and maintaining operations to produce a quality product can be quite steep. Some companies pass on the prospect of emerging markets or just avoid certain countries due to supply chain challenges and other complexities that, in their view, make doing business untenable. It’s unfortunate when companies pass on opportunities like these. But it happens. “The cost of having your own operation in another country can exceed the profit, so you always have to be careful,” one aerospace company said. “It just depends on the country. We pulled out of China because of operating costs.” The Aerogistics study identified these top five barriers to expanding emerging markets: • Internal compliance concerns • Establishing initial operations • Limited resources to pursue new markets • Determining which markets to enter • Keeping up with regulatory changes Trusted Partner Aerospace companies should look for a trusted logistics partner that operates on a global scale. Such a partner should have a global presence, provide visibility into inventory and activities up and down the value chain. Logistics partners must be able to navigate country-specific transportation infrastructures across a variety of modes and be able to compile and file necessary regulatory reports. “We don’t want to ship something that’s never going to get there,” one Aerogistics survey participant said. When it’s all said and done, an experienced logistics provider will provide the agility and responsiveness necessary for aerospace companies to thrive in emerging markets and enable them to focus on their core business and customer needs.