Category Archives: Global Trade

Risk – The More Things Change, The More They Stay the Same III – Geopolitical

In our last post, we discussed the top environmental risks facing your Supply Management organization that were chronicled in the World Economic Forum‘s 7th annual Global Risks report. Chronicling dozens of risk divided into five categories, this report did a tremendous job of covering the types of risk that an average Supply Management organization needs to prepare for. Today, SI is going to continue its coverage of the report by discussing the top risks from a geopolitical perspective, which haven’t changed at all in the past year.

03: (Pervasive Entrenched) Corruption

Corruption can take many forms — bid rigging, bribery, collusion, fraud, embezzlement, organized crime, price fixing, and thievery just to name a few. Each of these can be devastating to your supply chain. Bid rigging, collusion, and price fixing can significantly increase your costs. Bribery and thievery can result in a loss of your IP and product plans which could negate years and tens of millions to hundreds of millions of research and development. Embezzlement and fraud could drain your organization of necessary operating capital and organized crime could result in an entire warehouse of inventory disappearing overnight. This is one risk that’s never going away.

02: Terrorism

Terrorism is on the rise, and terrorists are getting their hands on more powerful and destructive weapons by the day. And it’s not just religious extremists that you have to be afraid of. There’s also anti-establishment extremists, new-age radical groups, and anarchists. Each of these groups could decide that your goods or services are against god, pro-establishment, anti-progress, or too orderly and decide that your corporation needs to be taken down here and now. One well planned strike and your factory, or headquarters, is a smouldering crater.

01: Geopolitical Conflict / Fragile States

Civil unrest can often quickly escalate into civil war and civil war can quickly result in cities, counties, and even provinces becoming inaccessible and if the conflict escalates, entire borders will close. Once a border closes, nothing gets in our out. Your factories become cut off from the rest of the world, and all of your inventory, tying up all of your capital, becomes inaccessible for an indeterminate amount of time. And your supply management organization, like the goods in your cut-off factory, is at risk of total destruction.

CASSH starts with Canada!

Wall Street is about to go gonzo again and you can …

Blame Canada! Blame Canada!

With all our beady little eyes
And flapping heads so full of lies

Blame Canada! Blame Canada!

Time to form a full assault
It’s all Canada’s fault!

Yes, it’s all our fault. Because of our strong risk aversion and sound fiscal and financial management policies (with the exception of any policy Harper wants to implement), we are emerging from the global financial crisis in a comparatively healthy state. We don’t have a fiscal cliff, a systemic debt crisis, grossly unbalanced budgets or high levels of unemployment. We tend to make good policy decisions (with the aforementioned example) and, as per this recent article on CNN, we have hidden value.

And, like the other CASSH countries (Australia, Singapore, Switzerland, and Hong Kong), we’re looking at a 3% increase in GDP in 2013, compared to the 2% expected in the United States and Japan and the 1% in the EuroZone. We’re becoming the GDP leaders of the developed world! We’re stealing your thunder! (That’s right, you’ve been ThunderStruck.)

So what does this mean? For those of you South of the border, it’s time to take a closer look at your northern neighbour for investments of all kinds. Need a new R&D lab? Put it here! (And maybe even save some tax dollars while you’re at it. You can save Millions in taxes with SR&ED if you qualify, for example.) Need a new high tech manufacturing facility? Put it here! (And in addition to our productivity gains, take advantage of our highly educated workforce – our University completion rate is over 25%, meaning over 1/4th of the population between 25 and 64 has a degree.) Need a new corporate headquarters? Put it here! (Our banks won’t go bankrupt and take your cash with them!)

And, again, you can:

Blame Canada! Blame Canada!
It seems that everything’s gone wrong
Since Canada came along

Blame Canada!
Blame Canada!
We’re not even a real country anyway

:-;

Wrong on So Many Levels

Editor’s Note: Today’s guest post is from Dick Locke. Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book. (Check out his archived posts.)

The fire that killed 112 Bangladeshi garment workers has brought out some appalling purchasing practices that seem rampant in the garment industry. And this is the second such fire in three months. The previous fire killed more than 300 people in Pakistan.
The New York Times has had several articles on the issue. Here are some quotes. This picture is wrong on so many levels.

From one article:

“… mounds of flammable yarn and fabric were illegally stored on the ground floor near electrical generators. Had the fabric been stored in an enclosed, fireproof room, as required by law, the fire could have been contained and the workers could have escaped.”

“After the fire, Walmart, Sears and other retailers made the same startling admission: They say they did not know that Tazreen Fashions was making their clothing.”

“Much of the factory’s business came through opaque networks of subcontracts with suppliers or local buying houses.”

“The factory’s owner, Delowar Hossain, said his managers arranged work through local middlemen. ‘We don’t know the buyers’, Mr. Hossain said in an interview. ‘The local man is important. The buyer – I don’t care’.”

“The Bangladeshi government has started inspecting the country’s 4,500 garment factories; it has already found fire code violations in almost a third of the hundreds it has examined.”

From another article:

“Sridevi Kalavakolanu, a Walmart director of ethical sourcing, along with an official from another major apparel retailer, noted that the proposed improvements in electrical and fire safety would involve as many as 4,500 factories and would be ‘in most cases’ a ‘very extensive and costly modification’.

‘It is not financially feasible for the brands to make such investments’, the minutes said”.

Folks, this is so basic. You need to know your suppliers personally, wherever in the world they may be. You also need to know where your products are being built. It’s time to bring garment purchasing into the modern world. If you can’t afford to have your own people in the suppliers’ country, you can’t afford to buy there.

Thanks, Dick. (Global Supply Training)

Who to Blame if Your Supply Chain Complexity is Spiralling Out of Control?

Management, for demanding ever cheaper costs? No.

Consumers, for demanding ever more variety in your product offerings? No.

You blame information and communication technology, or ICT. We made it all possible. We opened the world up to you. It’s true that you didn’t have to try and conquer it, but you did, and now you have supply chains with complexity spiralling out of control.

And this view is backed up by recent research by Mr. Richard Baldwin of the Graduate Institute of Geneva, which was summarized in a great article in the Economist this summer about Chains of Gold. According to Mr. Baldwin, cheaper communications allowed firms to manage supply chains over ever greater distances. Companies discovered they could build plants in cheap locations, ship components there to be assembled and export the finished product around the world. While the first unbundling separated producing markets from consuming markets, the second broke up production entirely across long, multinational supply chains.

And, in addition to a much faster rate of industrialization of developing and emerging economies, you now have supply chains that are increasing in complexity by the quarter where a single component may be exported several times, adding to tallies of gross trade but not to measures of value added. We have a plethora of Pakled emerging markets that now merely “borrow” technology from rich-world firms, who are incented to limit technology transfer out of fear of theft and unexpected competition.

But supply chains are maturing. As per the article, evidence suggests that supply-chain trade may have declined less and recovered faster than overall trade during the financial crisis, which is promising. So maybe you’ll get that complexity under control after all!

The Real Reason We’re Losing Manufacturing Jobs (in North America)?

Because the Chinese are taking them? No.

Because we’re not subsidizing them? No.

Because, as pointed out by Mitch Free of MFG.com in a great article in Forbes this summer, we’re not exporting.

Instead of using North American know-how to build great products and sell them to other countries and optimizing the value generation chain, we’re optimizing the cost saving supply chain to instead import great products from other countries. Now, in some cases it makes sense when these products can be produced cheaper and in greater quantities than they can be produced in the US, especially when those products are going to be sold around the world, but I’m still not sure it makes sense in all cases. Especially for custom made products or high-end manufacturing or medical devices which are high value and require very high-end expertise that we possess a lot of in this country.

And while some North American companies have figured this out, and are doing a great job of selling product abroad (like Apple and Caterpillar), they are few and far between and all large companies. As Mitch says, the key to (North) American Manufacturing success is for small and mid-size manufacturers to get into the exporting game and sell their products outside of North America. There are less than 460 Million people in North America. That’s less than 6.6% of global population. And with large middle classes emerging in China and India, where 2.585 Million people live, North America is quickly becoming a (very) small portion of the global market for whatever product you are making.

So why aren’t we exporting? Because, as Mitch says, we have been spoiled by our home business market of more than 300 million people who speak the same language, largely embrace the same culture, abide by the same laws, use the same currency and have freedom of movement and disposable income. In the past, our market has been so robust that you did not need to sell abroad in order to have a great business and live a comfortable lifestyle. But this isn’t the case anymore. Now, we have a lot of work and learning to do in order to catch up with our global competitors whose small- and medium-sized businesses are already skilled exporters. They understand and appreciate different cultures, speak multiple languages and are good at adapting to the markets they are selling in. Because, for the most part, they had no choice. For example, Germany only has 81 Million people. It couldn’t build great, now globally recognized, brands if it just tried to build for it’s home market. And the UK and France only have 62 Million and 65 Million respectively.

We’re losing jobs because we aren’t exporting. But there’s no reason we shouldn’t be. We are among the most productive and technologically advanced countries in the world. We can compete with anyone; we just need to learn to export. And it shouldn’t be hard. We’re already masters at importing with some of the most advanced supply chains in the world. We just have to point them the in the other direction now and then.