Today, the negative impact that problems in global business management have on multinational corporations’ performance and productivity, as well as regional and national economic growth, has been identified. Although logistics and distribution factors are crucial when choosing international suppliers, they are insufficient if internal and external forces are not taken into account. This paper provides a thorough and organized analysis of global supply chain management, with a specific focus on micro and macro cultural considerations.
INTRODUCTION
Organizations are experiencing amplified competition on a global scale, economic instabilities, and shifting markets. The advancement of technology is altering business operations and information management. The outsourcing of important functions by businesses and organizations adds complexity to supplier relationships.
Suppliers and vendor partners may be situated locally or internationally, posing unique obstacles for business management. The past two decades have witnessed a significant increase in international strategic partnerships. The global marketplace has heightened the necessity of harmonizing business strategies with a risk management approach that emphasizes enhancing global supply chains and vendor partnerships.
Wiley (2004) emphasizes the importance of supply chains, stating that in the near future, it is not companies but supply chains that will compete. To succeed in the global market, businesses must meticulously choose and monitor global supply chains, prioritizing logistics and operations. This involves identifying viable suppliers, host countries, markets, and vendor partners across the globe.
Afterwards, they proceeded to create contracts and put the new vendor relationships into action. However, they soon faced the challenges of running a worldwide business, leaving businesses eager to comprehend what went awry. In my opinion, part of the problem lies in businesses overlooking the broader perspective. They become excessively fixated on financial performance – reducing expenses and swiftly delivering products to customers – and overlook other factors that could directly affect their operations.
Risk management strategies nowadays need to encompass plans for addressing various emerging threats and concerns, such as terrorism, cyber crime, piracy, potential political and economic instability worldwide, ethnic, religious and cultural differences, compatibility and interoperability of technological systems, as well as global communications and transportation. Additionally, there are worries about financial viability, sustainability, compliance with national and international laws, and information security. Below is a contextual model that outlines these aspects. Culture, being fundamental to human civilization, communication, and trade, serves as the starting point for this discourse.
CONTEXTUAL MODEL
Logistics and distribution are frequently the primary factors examined by multinational enterprises when expanding their international supply chains. However, other contextual factors that can enhance organizations’ understanding of potential vendors and aid in selecting reliable partners are often overlooked. By considering these additional factors, businesses can minimize issues related to vendors.
I consider culture (external and internal), corporate governance, politics and law, and technology to be essential for effective supply chain and risk management. Although many international business decisions are driven by logistical and distribution concerns and infrastructure issues, organizations should also take into account these broader contextual factors.
CULTURE
The significance of culture in the international business environment is vital for the success and longevity of multinational organizations in the global marketplace. In this paper, culture is defined as the unique knowledge, beliefs, art, law, morals, customs, and other capabilities that distinguish one group from another (Whiteley and England, 2004, p. 439-453).
Every aspect of a successful international business, from strategic formulation to organizational design, human resource management, leadership, marketing, accounting, mergers and alliances, and supply chain management is influenced by the home culture and host country’s culture. As working internationally presents many opportunities and challenges, caution is necessary when establishing outsourcing agreements with global partners and suppliers.
It is essential to comprehend and adjust to cultural variances in order to establish a fruitful business connection with global suppliers. With the capacity to communicate instantly on a global scale and the promise of economic benefits, certain experts argue that increased interactions between individuals and organizations will ultimately reduce cultural differences, thereby streamlining transactions (Naipaul, 1990, p. 20) (Friedman, 2000).
However, recent terrorist events and others suggest that greater interactions can result in heightened conflicts. S. Huntington, a renowned political scientist from Harvard, argues that this escalating conflict is to be expected, especially since individuals from diverse cultures tend to perceive the world as an “us” versus “them” scenario (Huntington, 1996, p. 144). Studies have shown that the primary reason for failures in international business relationships is a lack of comprehension and inability to adjust to foreign modes of thinking and behavior (Ferraro, 1998).
According to Friedman (2002), individuals often notice “unresolvable” disparities, which frequently result in the deterioration of relationships despite potential economic advantages. Consequently, the prosperity and sustainability of global supplier partnerships rely on organizations being able to adopt a more comprehensive outlook that encompasses the notion of a larger collective. In general, organizations typically enter the worldwide market motivated by economic reasons.
Many multinational corporations are able to increase their return on investment by realizing various benefits. These benefits include lower costs, a larger consumer market, greater tax relief or benefits, access to large and cheaper labor pools, improved access to resources, and higher productivity. Ultimately, these benefits lead to higher revenues, market shares, and sales. With the volume of international business conducted today, it is evident that numerous organizations have successfully tackled significant challenges.
In just a year, from 1999 to 2000, global merchandise exports grew rapidly and reached a staggering $6.2 trillion, showcasing a remarkable 12.5% increase from the previous year. Additionally, global exports of commercial services experienced significant growth as well, reaching $1.4 trillion with a rise of over 6% (WTO, 2001). The selection process for international vendors typically revolves around important factors such as logistics, distribution, energy, telecommunications, transportation, utilities, the availability of skilled labor, and the presence of suitable infrastructures.
The globalization infrastructure encompasses a range of elements, such as products and services, legal systems, banking system stability, property rights, and protection. It plays a vital role in facilitating fair and transparent transactions. The quality of an economy’s infrastructure often affects the extent to which it benefits from globalization, regardless of its wealth or poverty.
CULTURAL COMPATIBILITY
The concept of cultural compatibility relates to the extent to which individuals from diverse cultures comprehend and are willing to accept cultural variances, thereby minimizing the probability of conflicts.
The process of accommodation involves accepting or developing an understanding for the values and cultural assumptions expressed in another culture. In every society, values serve as the criteria by which behavior is evaluated. Kluckhom Strodbeck (1961) introduced a widely used framework for comprehending “value orientations,” which was later adapted by Hofstede (1980) for cross-cultural contexts. This framework is founded on the belief that people worldwide encounter a universal set of challenges that can only be resolved through a limited range of solutions.
The approach to problem-solving varies across various dimensions, which include representing individuals or collectives, measuring time accurately or with less precision, prioritizing the future or the past, emphasizing action or reflection, utilizing nature or coexisting with it, valuing youth or respecting elders, engaging in formal or informal interactions, competing or collaborating, being assertive and task-oriented or nurturing and attentive to interpersonal relationships. Additionally, it involves accepting the status quo to a greater extent.
LANGUAGE AND RELIGION
Although not addressed in this paper, culture correlates can encompass both language and religion. It is crucial to recognize that acquiring a language involves more than just becoming proficient; it also entails comprehending how its grammatical structure influences behavior. For instance, when Americans learn Chinese, they must cultivate patience because the central point of a conversation in Chinese often emerges towards the end, unlike Western English where it typically occurs at the start.
In order to enhance the chances of successful international relationships, it is important to comprehend nonverbal cues and the distinctive sentence structure of a language (Collett, 1972). Familiarity with nonverbal cues in different cultures can lead to greater acceptance among individuals. Moreover, organizations can effectively prepare for engaging in foreign cultures and establishing successful relationships by having knowledge about a country’s religious practices, values, and norms (Blij and Muller, 2002).
POLITICS AND LAW
Addressing the difficulties of politics and law can be challenging. In certain countries, economic trade may face disruptions due to internal strife, political corruption, civil war, and uncontrolled bribery. Unstable political systems can create serious pitfalls and obstacles for businesses and hinder their ability to manage global supply chains. Additionally, differing value systems, local labor markets, and local practices may compel multinational corporations to engage in conduct and transactions that may be perceived as unethical or potentially illegal (Sternberg, 2000).
In a society where corruption is widespread and law enforcement is inconsistent, it becomes challenging for an organization to carry out its operations. Additionally, dealing with suppliers in countries that have conflicting interests with our government poses another difficulty. However, resourceful businesses can adopt different approaches and strategies to effectively manage and minimize the risks associated with conducting business in hostile or volatile societies.
POLITICAL COMPATIBILITY
When multinational enterprises seek international vendor relationships, they must consider the cultural and political-legal environments in both their home country and abroad. The political processes, such as government incentives, subsidies, and tariff reductions, can either inhibit or promote the formation of partnerships (Mallor, et. al., 2004). The globalization of markets is a result of advancements in international laws and agreements, driven by the necessity to compete more efficiently in a global economy.
Political disputes, instabilities, and hostilities pose a threat to both national economies and the global economy. The United Nations and various international organizations have exerted considerable efforts to tackle international trade challenges and create platforms for resolving political and legal disagreements. They have formulated international laws and set standards for governing international commerce and trade with the aim of promoting global business.
INTERNATIONAL TRADE AGREEMENTS NAFTA
The development of Free Trade Agreements, Import/Export laws, and European Union policies has led to the establishment of a global network of suppliers, vendors, and partnering institutions across different countries and continents. As a result, companies are adapting their business practices and focusing on integration activities such as integrating information resources and financial systems (i.e., ERP solutions), integrating suppliers and vendors, and implementing integrated communication systems. The findings of the 2004 IW/MPI Census highlight these trends.
According to a survey by Industry Week, it was found that 87% of companies that have made significant progress towards achieving world-class operations implement supplier integration strategies. This percentage is higher compared to the overall response rate of 70% and the rate of 60% among those who have not made any progress towards becoming world class (Hartman, 2005). Additionally, among the winners of the Industry Week Best Plants award, a clear majority stated that their suppliers have agreed to yearly cost reductions through contractual agreements, have become resident suppliers, and offer just-in-time delivery. Furthermore, 84% of these plants share their cost savings with their suppliers (Jack, 2001).
GLOBAL COMPETITION
By outsourcing, companies can take advantage of reduced expenses in multiple areas including labor, energy, land, and capital. This ultimately helps them decrease their overall cost structure while enhancing profit margins and elevating product quality, reliability, and distribution. Consequently, companies are able to effectively compete in the market.
As American companies expand globally and supply chains become more intricate across different countries, the distinction between products from specific countries like the United States or Japan has become less clear. According to Robert Reich, former secretary of Labor in the Clinton Administration, outsourcing is advantageous as it promotes the creation of global products and services (Maskus and Reichman, 2004).
GOVERNANCE
Corporate governance is important in shaping an organization’s decisions, strategies, and policies. When entering foreign markets, cultural differences, political influences, and trade laws often require the redesign and customization of market strategies, organizational infrastructure, and business practices to adapt effectively. As companies try to address various activities in this complex landscape, governance becomes crucial. A significant question arises: How can governance and risk management be implemented effectively across expanding global business operations?
OPERATIONAL MODELS
The value chain of a firm is a combination of different activities that create value, as described by Braithwaite and Drahos (2000). These activities can be categorized into primary activities such as production, marketing and sales, research and development, and services. There are also support activities like organizational infrastructure, vendor management, human resources, and information resources. To successfully execute a competitive global business strategy, a firm must establish efficient management structures that can oversee and coordinate the various activities and vendors involved.
In the past, most supply chain management decisions were made at the corporate level, ensuring efficiency and adherence to overall corporate goals. However, in large, complex organizations with many manufacturing plants, vendors and suppliers, a centralized approach may sometimes overwhelm corporate management, leading to reduced efficiency, gaps in service or quality, and ultimately higher company costs. Yet, decentralized solutions may cause large gaps between corporate strategies and goals and local processes and practices. What works best? Companies are scrambling to identify effective governance models. A few are listed below.
The Open Standards and Benchmarking Framework proposed by OCEG emphasizes the importance of an integrated approach to governance, compliance, risk management, and ethics. This framework, which is based on open standards, measures performance in various key areas such as supply chain, financial management, information technology, customer service, and marketing. It provides an industry-neutral enterprise model that enables organizations to gain a cross-industry perspective on their activities, compare their performance with organizations worldwide, and adopt best practices (Hill, 2005). A prime example of an organization that follows this framework is Dell Computers. Another model that follows a similar approach is the Advantaged Supply Network (ASN) (Drickhammer, 2004).
Buyers aim to collaborate closely with suppliers in order to eliminate inefficiencies, duplication, and waste in the supply chain. This collaboration also involves coordinating business strategies and managing resources together for a competitive advantage. It is essential for buyers, vendors, and corporate directors to communicate regularly and work collaboratively. Toyota provides a prime example of how this can be achieved through its effective implementation of ASN. Additionally, the concept of Smart Customization combines value creation strategies and delivery alignment. According to a study conducted by Booz Allen Hamilton, companies that practice smart customization outperform their industry peers in terms of revenue growth, boasting a ratio of two-to-one, and also have profit margins that are 5% to 10% higher than their competitors (Panchak, 2004).
The Booz Allen study was carried out for six months and included companies like Unilever, Campbell Soup, Rohm & Haas, BP Castrol, Sprint, Ericsson, Time Warner, Hearst Magazines, Fleet, and SunTrust banks. The study found that successful companies all prioritize three best practices: Smart Customizers.
- Understand the sources of value that customization provides their customers
- Find the “virtuous variety”—the point at which customization adds value to both company and clientele alike
- Tailor their business streams—product development, demand generation, production and scheduling, supply chain, customer care, etc. —and align them to the sources of demand, to provide customer value at least cost (Reich, 1991).
Smart Customization leads to enterprise resilience. Enterprise resilience combines risk assessment, information reporting, and governance processes with strategic and business planning to create a comprehensive early warning capability embedded in the company’s operations (Hill, 2005, p. 236). Another model is represented by LLPs, which stands for Lead Logistic Provider. An LLP is a technologically advanced service provider that manages the entire supply chain and logistics processes, rather than just individual functions and activities (Brown Book, 2004).
Chris Newton, an analyst with AMR Research Inc. in Boston, explains that LLPs provide a range of services including integrated supply-chain-management software, business process reengineering, systems implementation and integration, and value-added, information-based services such as order, inventory, and vendor management.
Alliances between corporate headquarters, a primary logistic provider, and third-party vendors result in improved performance overall. There are various emerging approaches and models that corporate CEOs can consider when determining the most suitable one for their company and cultural environment. While many of these models adopt a singular focus or approach, the challenge lies in developing adaptable, responsive, and collaborative governance models. These models will enable companies to effectively manage vendors amidst an ever-changing world.
CURRENT TRENDS AND PRACTICES
The international community is urging international businesses and their local suppliers to show that they are responsible global citizens and not just focused on making money (Jackson and Winkler, 2004). Along with concerns about risk management and efficient global supply chains, multinational corporations and non-governmental organizations are required by international laws and policies to display corporate social responsibility (CSR), such as being environmentally conscious, protecting human rights, improving living and working conditions for local workers, and practicing fair labor.
What measures are currently being taken by organizations to manage or sustain global supply chains? How are businesses dealing with the contextual factors such as culture, politics, governance, law, and technology? There is a wide range of trends and practices in global supply chain management. However, through analysis, eight main themes and practices have been identified. These include:
- Profiling – Develop detailed profiles of all vendors (i. e. , company name, management, location, staffing, annual revenues, product quality, pricing, company culture, etc. ).
- Mapping – Map the supply chain network and process. Look for areas of overlap as well as points of potential coordination and collaboration.
- Creating regional Hubs – Identify potential lead organizations (may be major vendors, local partners, or company plants) to coordinate specific vendors and suppliers.
- Collaborating in governance – Establish joint governance committees comprised of corporate and Hub/Vendor representatives to encourage input, feedback and collaboration on a regular basis.
- Communicating – Open multiple lines of communication with Hubs, vendors and suppliers (i. e. , Internet, telephone, fax, regular meetings, videoconferencing, etc. ).
- Seamlessly Networking – Establish consistent, robust ERP solutions for managing information, finances, and capital.
- Training – Provide continuous training and quality assurance for all aspects of the network.
- Aligning – Encourage alignment of activities with corporate strategic plan (Moeller, Egol, and Martin, 2004, p. 1).
TECHNOLOGY
Technology has greatly impacted society in various ways, with global trade and commerce being the most significant and extensive area of influence. The world has been interconnected like never before, thanks to advancements such as desktop computers, advanced robotics, television, and satellite communications. However, along with these technological advancements, we have encountered various issues.
As companies rely more on computer networks for managing databases, finances, inventories, etc., they also become more susceptible to attacks from hackers, saboteurs, and international crime rings. E-commerce organizations that operate globally through the Internet are particularly at risk of becoming victims of cybercrime. Protecting sensitive information such as products, services, trade secrets, customer base, and personnel has become increasingly challenging for many companies. Therefore, it is not surprising that information security is experiencing rapid growth in the current economy (Moeller, Egol, and Martin, 2004, p. 1).
TECHNOLOGICAL COMPATIBILITY
The communication between an organization and its suppliers is affected by issues of compatibility, interoperability, and connectedness. This problem is worsened by the fact that differences in technology across companies or regions can make it difficult to ensure effective communication between suppliers and organizations, which in turn can negatively impact customer satisfaction. Furthermore, disparities in standards and quality control may arise from the age, obsolescence, or condition of technology used by suppliers in less developed areas of the world. Language barriers can complicate communication, and technological practices and standards can vary based on cultural, political, or religious factors. Additionally, the lack of technological skills among local workforces can have a detrimental effect on the final product’s quality.
The United States is recognizing the significance of utilizing technology in strategic outsourcing to efficiently manage global supply chains and ensure consistent adherence to organizational standards. This approach is crucial for establishing strong company branding, fostering consumer confidence, and capturing a larger market share. The methodology of strategic outsourcing is an emerging field in the US, emphasizing the need for effective communication with suppliers and continuous monitoring of their compliance.
COMMUNICATION
Advances in technology, such as the Internet, World Wide Web, satellite communications, Electronic Data Interchange, cellular phones, wireless technologies, and inventory tracking systems have allowed businesses to broaden their partnerships, supply chains, and markets across different parts of the world. In 1990, less than one million users were connected to the Internet. However, it is projected that by 2005, more than 1.12 billion users will be connected, representing over 18% of the global population (Booz, Gotshal, and Manges, 2004). This growing reliance on technology for communication brings numerous advantages for international supplier selection. The real-time nature of technology enables quick and advantageous gathering of information on supplier and market variables.
This results in improved methods for selecting outsourcing suppliers, as reducing costs, increasing productivity, and managing expenses are crucial for success. Technology serves as an essential communication tool in achieving these goals effectively and efficiently.
E-COMMERCE
Technology is playing an increasingly crucial role in the development and maintenance of international business. Organizations now have the ability to enter into contracts with international suppliers who can handle various aspects such as delivery, warehousing, banking, and customer interactions. These suppliers can effectively manage all the necessary tasks from one central point.
Customers receive a single bill for the combined services, which includes a Web-based control center for monitoring operations (Duffy, 2003). The rapidly evolving e-commerce landscape emphasizes the need for organizations to prioritize speed and reliability to remain competitive. In 1998, U.S. businesses generated $43 billion through online channels, a figure that skyrocketed to over $1.3 trillion by 2003 (Duffy, 2004). As this number continues to rise, it becomes crucial to consider all available options for aligning strategic sourcing with organizational strategies of effectiveness and efficiency.
TRENDS IN ALIGNMENT
In order to effectively utilize outsourcing suppliers and technology, it is important for organizations to balance strategies and align business processes. According to Ball (2005), there are three emerging trends that highlight the importance of defining a business model for technology-based projects.
The continuous evolution of technology drives the evolution of business. This recognition makes international suppliers of technological services very appealing for innovating businesses. Additionally, formal hierarchies are being dismantled, leading companies to create strategies and models with functional teams. These teams evaluate and suggest new, innovative approaches to outsourcing. (Information for competing institutions).
The contractual portion of this equation outlines the specific procedures and processes necessary for overseeing the outsourcing relationship. Organizations are also aware of the importance of monitoring the financial condition and operations, evaluating the quality of service and support, as well as overseeing contractual requirements. The level of oversight required may vary depending on the nature of the outsourced services. Several multinational organizations have stated that they take into consideration whether the service provider conducts similar oversight activities for their important supporting agents (such as subcontractors, support vendors, and other parties) and the possible need for the company to oversee the service provider’s significant supporting agents (Hoque, 2002, p. 107-109).
Engardio, Einhorn and Kripilani (2005) suggest that procurement organizations need to be flexible and form strategic alliances in order to maximize the use of resources and cope with increasing competition and higher performance expectations on a global scale (p. 84).
The importance of continuous progress and adaptability will grow significantly over time. The visibility and complexity of global relationships will increase due to strategic partnerships and adjustments in the supply chain to facilitate vital business functions.
TRENDS IN MANAGEMENT AND CONTROL
When selecting a service provider, organizations take into account the supplier’s expertise, financial condition, and ability to deliver goods or services. They also evaluate the service provider’s process for significant supporting agents such as subcontractors, support vendors, and other parties. Depending on the outsourced services and in-house expertise, organizations decide whether to hire or consult qualified independent sources such as consultants, user groups, and trade associations familiar with third-party products and services.
Ultimately, the level of due diligence required depends on the scope and importance of the outsourced services and the risk to the organizations. Evaluating the service provider’s experience and ability to meet current and future needs, as well as their experience in the expected operating environment, is crucial for managing the relationship effectively.
TRENDS IN CONTRACTUAL ISSUES
Organizations typically prioritize contractual matters including scope of service, performance standards, security and confidentiality, controls/audits/reports, sub-contracting, dispute resolution, and indemnification.
Contracts vary in the level of detail and importance of provisions, depending on the scope and risks of outsourced services. These contracts outline the rights and responsibilities of parties involved, with particular emphasis on timeframes, implementation activities, and assignment of responsibility. Additionally, the outsourcing provider may perform other services such as support and maintenance, employee training, or customer service. The contract also includes a set of goals and objectives to guide future management. As suppliers’ roles evolve and expand, careful selection of supply chain partners becomes increasingly crucial (Frook and Karpinski, 1999).
As relationships become more integrated and organizations aim for seamlessness, strategic purchasing competency centers prioritize suppliers’ contributions throughout the supply chain. It is vital to choose outsourcing partners who can provide the required goods or services and actively foster a partnership environment. Effective management involves transparently communicating expectations from the beginning and involving all performance-related aspects.
TRENDS IN ASSESSMENT
In contracts, organizations typically incorporate performance standards that establish the minimum service level requirements and specify the consequences for failing to meet these standards.
Organizations regularly assess their overall performance standards to maintain alignment with goals and objectives. Additionally, contracts stipulate the service provider’s obligation to ensure security and confidentiality of the institution’s resources.
Agreements usually forbid the service provider and its representatives from using or revealing the institution’s information, except when necessary or compatible with providing the contracted services and safeguarding against unauthorized use (e.g., disclosing information to institution competitors). The contractual
