Global Value Chain Management

Discuss about the Global Value Chain Management.

Introduction

Globalization of business is the best thing that improved value chain management in the last 30 years. Driven by irresistible market services, globalization has forced business organizations to implement more competent value chain management. Each business organization had to create relevant infrastructure and competitive advantage necessary to survive early rounds of globalization. According to Ahi and Searcy (2013), because of globalization, value chain management has become more complex for companies that are operating globally. Most of those companies are outsourcing their value chain activities to third party organizations to manage its global operations. Outsourcing has helped those organizations to reduce their value chain operating costs. However, if not managed properly, it can jeopardize their global operations critically. The case of Star Bucks is t he perfect example of it. In order to provide a positive response to globalization, Star Bucks management signed outsourcing agreements with several third-party companies. This allowed them to spread their business operations globally. However, as a result of mismanagement operation costs of value chain management and supply chain management rose steeply. According to Stadtler (2015), their 60-70% operating costs were due to mismanaging outsourcing agreements. Globalization has affected value chain management in different ways. In this study, a brief description will be provided on how globalization has affected different aspects of value chain management.

Corporate considerations

Value chain complexity continues to increase in a number way as a result of globalization. Business organizations are forced to outsource more aspects of their operations to globally distributed suppliers. The production process has also become composite than a simple assemblage line. Today, manufacturers need to handle manifold artifact lines where parts for each manufactured product are coming from dissimilar suppliers. Besides, in some countries, those parts may require sub-assembly by other suppliers (Waters and Rinsler 2014). This is not the end of confusion and complexity as lack of data is another major corporate issue. The companies are expanding globally, does not matter whether they are getting right information or not. Before spreading a business in a different country, it is important to understand the impact of adverse events such as natural disaster, supply disruptions, political and economic instability and economic volatility on that country. Most of the time, lack of communication and collaboration with the suppliers is preventing the companies to gather relevant data on those factors which are increasing the amount of risk involved.

Financial consideration

According to Antràs and Chor (2013), globalization of value chain management has helped many organizations to decrease theirs in general operating cost. Expenses related to plants, equipment, and other capital expenditures have changed from product owners and new gear manufacturers to their trading associates. However, as mentioned by Marchi et al. (2013), the cost of some elements have also increased counting those connected with the capital competence of the value chain. For example, inventories occasionally are pressed downstream to suppliers, who habitually have an advanced cost of capital. Worldwide operations can insert weeks to the value chain that can tie up as much as 30% of artifact price in the operational capital. It is obvious that these factors possess extreme risks and that is why several new strategies are introduced to deal with them properly. Strategies such as decreasing unit product cost by availing the advantages of arbitrage opportunities due to the advanced cost of capital in rising market are the most popular process used by companies to reduce financial costs on global value chain management.

A worldwide value chain can offer a monetary prevaricate in the case of tumultuous international circumstances. In a multinational company have some suppliers across various countries of the world then it can advantage of the switch rate instability and can vary the stream from one country to another as the relative currency values oscillate (Gereffi and Sturgeon 2013). However, it is also true that due to restrictions on foreign direct investments in many countries, most of these advantages such as hard currency transfer, low transportation cost and low cost of capital do not work.

Technological consideration

As a result of the globalization of value chain management, technology transfer has become an important procedure. The most popular way that is introduced to facilitate technology transfer is through the licensing of technology by a foreign farm to domestic producers. In this process, a farm that owns the technology does not take an equity position in the firm that receiving the technology. It only allows using the technology in return for payment of a fixed sum. According to Humphrey (2014), the risk even higher in this process than any other method as the possibility of leakage is higher. However, it is also true that equity investment also carries risk and that is why; in countries, where law and contract enforcements are strong, licensing technology is an effective solution. It will allow upgrading technology while maintaining a relationship with the third party logistic companies. Technology licensing is known to have a considerable scope to support productivity upgrading.

On the other hand, multinational companies like to employ enhanced technologies relative to their domestic counterpart. It is highly possible that the engineers in any other country where an organization is operating discover an enhancement in technology. This development of technology must be should be spread through their vast number of operating branches in other countries, before the local farms get any idea about it (Gopalakrishnan et al. 2012). This flow of technology among the different operating value chain branches should be managed carefully.

HR considerations

The impact of globalization on value chain management cannot be underestimated, especially in human resource management. Some major challenges that human resource department face while maintaining a globalized supply chain management are mentioned below,

Visibility: According to Brandenburg et al. (2014), this might be the most critical issue faced by human resource personnel while maintaining global value chain management. Globalization has made supply chain management very complex. Therefore, now it is not easy to achieve visibility for Tier 1, 2, 3 and suppliers beyond that. As mentioned by Cattaneo et al. (2013), disruption in the supply chain in last five years has proved that how critical these sub-tier suppliers can be.

Traceability: Human resource management of any organization handles a critical task of tracing materials from origin to finished product (Soosay et al.  2012). Global and complex value chain management have made it very difficult to trace materials back quickly and efficiently for human resource management personnel.

Cost: Human resource management of an organization also serves to reduce operational costs in order to gain a competitive advantage over the rivals. Lean concepts and procurement strategies of global supply chain management serve to improve efficiencies and reduce cost (Milberg and Winkler 2013). However, the problem occurs for human resource management personnel when mismanagement and lack of communication introduce risks such as supply chain disruptions that increase cost.

Sustainability: Adopting sustainability method is a major challenge for the companies in the current business scenario. Consumers are asking for sustainable operations from business organizations and this is no more apparent than in supply chains (Zailani et al. 2012). However, in global value chain management and supply chain management, the major challenge is to balance the need to demonstrate sustainable sourcing while maintaining cost competitiveness.

Technological Innovation: Technological innovation is another responsibility of human resource management department. It can improve supply chain visibility and performance. However, if not managed properly, it can create significant difficulties.

Cultural considerations

Cultural issue is another major problem that organizations face while dealing with any third party logistic organization of another country. It is obvious that cultural background of those two countries would be different from each other. With that, the method of working and handling complex responsibilities would be different too. Besides, employees of a third party logistic organization will mostly deny taking order from an organization that belongs from a different country, background, and culture (Estampe et al. 2013). They will try to work using their own methods and processes, which might affect the main organization. Therefore, it would be a big challenge for the human resource management team of a brand company to deal with a company that belongs from a cross-cultural country. Some examples of cultural differences are here by mentioned below,

In the United States of America, the primary goal behind each decision is to make more money. The business organizations in the US always try to employ the minimum amount of people to get a job done. On the other hand, In most of the parts of China, the mentality is to keep as many people employed as possible, does not matter what they are doing (Liu et al. 2014). Foreign companies that are about to set up operations in China will have to verify production capacity and worker quality in order to ensure that skilled people are recruited in that organization and everyone has a meaningful job.

Contractual situations are also dissimilar in each nation. For example in Brazil, tariffs, labor circumstances and customs change regularly. That is flexibility must he added into agreements as a provision for accomplishment. In Netherlands, people are as challenging as Americans are. Therefore, the chances are high that “pushback” will be experienced by foreign farms during negotiations (Neilson et al. 2014). In some parts of Asia, contracts and agreements are just a general assurance to do business. People there mostly believe in the personal relationship between individuals.

In Japan, personal associations are so significant that a business transaction might fail if a stranger company personnel turns down an invitation to go on a “hashigo” which is a Japanese adaptation of pub-crawl (Winter and Knemeyer 2013).

With these problems, another cultural problem in global human supply chain management is the difference in language and units of measure. Miscommunication is another critical issue between global partners that can also lead to severe supply chain and value chain disruptions. That is why; international organizations are strictly requested to respect the culture of others when working in a global environment to avoid any type of “cultural complexities.”

Global supply chain managers find it difficult to take advantage of endowment factors in international markets. As a result of dissimilar social patterns, cultural nuances and legislations can make setting up an IS quite arduous (Tatoglu et al. 2016). Different cultural practices can cause communicational errors between various nodes of a supply chain.

Political and Economic Considerations

Political risks and stability are major concerns for the companies that are doing business in global markets. In some countries, political, economic and financial stabilities are weak and that is why; government officials take decisions that create a negative impact on businesses. If a government of a country is facing economic crumple of a banking system, or a fall of currency or an IMF bailout, the consequence can be widespread for companies that are operating in the market in their supply chain stability. British Service Institution or BSI has encountered situations where weak political and economic situation has affected their business proceedings. In Bangladesh and Cambodia, government operations were totally shut down as a result of massive strikes. As a result, global companies that had suppliers in those countries were threatened with the continuity of their business.

Competitive advantage consideration

Any multinational company can gain competitive advantage through its global value chain management that helps to satisfy customers all over the world through faster services. The main objective of a global value chain management that has an objective of gaining competitive advantage is to achieve a strategic fit between an organization’s competitive strategy and supply chain strategy (Wolf 2014). This strategic fit can be understood by discovering the consumer demand. It will allow a multinational organization to define costs and service requirements. The performance of global supply chain management can be optimized by providing a response to a wide range of quantities demanded by the consumers. The organization can also gain optimized supply chain management by handling a variety of products. If global supply chain management is achieved then, a multinational organization can meet very high service levels (Zacharia et al. 2014). In order to develop a global supply chain management that can help an organization to gain competitive advantage in international market, it must contain some options such as,

Inventory: Inventories will have to contain all types of raw materials relevant to the products that an organization manufactures. In different countries, inventory policies are different; therefore, it can dramatically alter an organization’s supply chain efficiency and responsiveness (Milberg and Winkler 2013).

Transport: This includes delivering supply from point to point in a supply chain. Transportation can be done using several different types of modes and routes where each type has its own recital distinctiveness (Estampe 2013). In global supply chain management, it is highly important to choose the right mode of transportation as selecting cost-effective transportation can affect receptiveness and competence of supply chain performance.

Facilities: Facilities are another important part of supply chain network where inventory is saved, assembled and made-up. Two most important types of facilities are manufacture and storeroom. For global supply chain management, organizations must monitor the facilities that are located in separate countries in order to ensure that the quality of the products is kept intact.

Information: Information sharing is the most critical part of the global value chain or supply chain management. This includes data and analysis related to inventory, transport, customer demand and facilities right through the supply chain (Milberg and Winkler 2013). It is also considered as the main driver of presentation in a global supply chain because it can unswervingly affect other drivers of global supply chain management. 

Corporate Social Responsibilities

International business organizations must review their purchasing practices in order to allow their suppliers to have better prices so that they can afford to pay workers higher wages. Any multinational organization should maintain a long-term trading relationship with its suppliers. Instead of shopping around for the cheapest deal, multinational companies must secure better work conditions at the bottom of global supply chains (Gereffi and Sturgeon 2013).

Multinational organizations should not expect that their suppliers would carry all the responsibilities of the costs of compliance with codes of conduct.

Conclusion

Global supply chain management is facing more risk than other areas of a multinational organization because of global nature. In this study, all the risks associated with global supply chain management are described in details. In spite of having several issues and risks in global supply chain management, most of the companies tend to provide less attention to it tan it deserves. Each international organization must put more emphasis on their global value chain or supply chain management processes by using some important steps. As a first step, organizations must build a supply chain strategy team that will be responsible for identifying the risks in their organization. As a step two, after finding out risks related to global supply chain management, the higher authority will have to take proper measures to eliminate them. However, it is feasible to try to eliminate all the risks at once. In the final step, of risk management process, mitigation plans must be developed for the risks that have the highest priority. The higher authority of that organization will have to involve themselves in the process deeply along with the other stakeholders. The mitigation plan must include plans that can focus on lowering the impacts of that risk in the performance of that company’s global supply chain management.

References

Ahi, P. and Searcy, C., 2013. A comparative literature analysis of definitions for green and sustainable supply chain management. Journal of Cleaner Production, 52, 329-341.

Antràs, P. and Chor, D., 2013. Organizing the global value chain.Econometrica, 81(6), 2127-2204.

Brandenburg, M. Govindan, K., Sarkis, J., and Seuring, S., 2014. Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research,233(2), 299-312.

Cattaneo, O., Gereffi, G., Miroudot, S., and Taglioni, D. 2013. Joining, upgrading and being competitive in global value chains: a strategic framework. World Bank Policy Research Working Paper, (6406).

Estampe, D., Lamouri, S., Paris, J. L., and Brahim-Djelloul, S. 2013. A framework for analysing supply chain performance evaluation models.International Journal of Production Economics, 142(2), 247-258.

Gereffi, G. and Sturgeon, T. 2013. 14 Global value chain-oriented industrial policy: the role of emerging economies. Global value chains in a changing world, 329.

Gopalakrishnan, K., Yusuf, Y. Y., Musa, A., Abubakar, T., and Ambursa, H. M. 2012. Sustainable supply chain management: A case study of British Aerospace (BAe) Systems. International Journal of Production Economics,140(1), 193-203.

Humphrey, J. 2014. Internalisation theory, global value chain theory and sustainability standards. International Business and Sustainable Development (Progress in International Business Research, Volume 8) Emerald Group Publishing Limited, 8, 91-114.

Liu, S., Moizer, J., Megicks, P., Kasturiratne, D., and Jayawickrama, U. 2014. A knowledge chain management framework to support integrated decisions in global supply chains. Production Planning & Control, 25(8), 639-649.

Marchi, V. D., Maria, E. D., and Micelli, S. 2013. Environmental strategies, upgrading and competitive advantage in global value chains. Business strategy and the environment, 22(1), 62-72.

Milberg, W., and Winkler, D. 2013. Outsourcing economics: global value chains in capitalist development. Cambridge University Press. Cambridge.

Neilson, J., Pritchard, B., and Yeung, H. W. C. 2014. Global value chains and global production networks in the changing international political economy: An introduction. Review of International Political Economy, 21(1), 1-8.

Soosay, C., Fearne, A., and Dent, B. 2012. Sustainable value chain analysis-A case study of Oxford Landing from “vine to dine”. Supply Chain Management: An International Journal, 17(1), 68-77.

Stadtler, H. 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

Tatoglu, E., Bayraktar, E., Golgeci, I., Koh, S. L., Demirbag, M., and Zaim, S. 2016. How do supply chain management and information systems practices influence operational performance? Evidence from emerging country SMEs. International Journal of Logistics Research and Applications,19(3), 181-199.

Waters, D., and Rinsler, S. 2014. Global logistics: New directions in supply chain management. Kogan Page Publishers. London.

Winter, M., and Knemeyer, A. M. 2013. Exploring the integration of sustainability and supply chain management: Current state and opportunities for future inquiry. International Journal of Physical Distribution & Logistics Management, 43(1), 18-38.

Wolf, J. 2014. The relationship between sustainable supply chain management, stakeholder pressure and corporate sustainability performance. Journal of business ethics, 119(3), 317-328.

Zacharia, Z. G., Sanders, N. R., and Fugate, B. S. 2014. Evolving functional perspectives within supply chain management. Journal of Supply Chain Management, 50(1), 73-88.

Zailani, S., Jeyaraman, K., Vengadasan, G., and Premkumar, R. 2012. Sustainable supply chain management (SSCM) in Malaysia: A survey.International Journal of Production Economics, 140(1), 330-340.

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