First Clue that the New Public Procurement Policy is Going to Cost Everyone Money

Effective immediately, our policy is to only buy “Made in X”, where “X” is the local country or state.

Why is this going to cost you money?

First of all, it’s going to eliminate competition. And we all know what happens when competition goes away. Suppliers, who know they don’t have to worry about being replaced, as there’s only a few alternatives, and they’re already in your door, stop working as hard to be as cost competitive, innovative, or valuable to your organization.

But if that was the worst that could happen, it wouldn’t be so bad.

The reality is that as soon as a “buy local” policy comes into effect, suppliers are going to also (pretend to) “buy local”, which of course is going to raise their costs, because their suppliers are going to also stop working as hard to be as cost competitive, valuable, or innovative because the market is small, they’re in the door, and they know their competitors will also be content to maintain the status quo so they won’t have much competition. And this will continue down to the raw material supplier.

But if this was the worst that could happen, it still wouldn’t be so bad.

The reality is that once a supplier knows that it’s effectively the only game in town, it’s not going to worry about cost increases. In fact, it’s not only going to stop asking how much it has to raise costs to cover its increased costs and ensure it maintains nice, fat margins, it’s going to ask how much it can raise prices and just how fat its margins can get. It’s borderline corruption.

But if this was the worst that could happen, it might still be something that could be grudgingly accepted and dealt with.

The reality is that not all suppliers will be content to inflate their margins. In locales where corruption is common, this is only going to encourage more corruption. As per the public defender‘s post on how “Made in Nigeria” Public Procurement Policy Will Simply Lead To More Corruption, this sort of policy provides the perfect cover for both parties in a typical corrupt procurement transaction. How so? Read the public defender‘s post. Simply put, the buyer can now get away with saying “I had to buy local, and this looked like the best choice” and use it as a defence when caught.

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