CHALLENGES OF GLOBAL SUPPLY CHAIN MANAGEMENT Introduction Rapid growth of globalisation has enabled the developed countries to gather the motivation for making investment in developing countries. The developed countries nowadays are investing in different sectors of developing countries. Acknowledging the increasing rate of investment of the developed, the entrepreneurs of the developing countries are setting up the necessary infrastructure and facilities to produce low-cost goods for retail and consumption in the developed countries which are usually European countries and North America.
Along with the rise of such trend a new concern has emerged within the core of globalisation and that is regarding the ethically responsive initiatives within the global supply network. This concern has emerged because the usual scenario observed is that, the ones with the power to influence takes advantage or exploits the ones who are weak in power or are highly dependant.
In the case of global supply chain management, the companies of well known brands tend to have large number of small suppliers from different developing countries to work for them; naturally the suppliers are in a position where they are facing immense competition in order to be a part of the supply chain of these powerful corporations for which they strive to offer the lowest possible price sacrificing minimum working standards.
For this very reason the big time corporations are facing criticisms from the media, consumers and pressure groups for taking advantage of the various initiations the suppliers take in order to save up on cost of production and thus provide low-cost goods and those initiations are executed in the form of poor wage payments, poor working conditions, poor environmental protection and poor health and safety standards in the supply chain.
It has become highly vital to discuss regarding this whole issue of the challenges being faced in global supply chain management. Along with the growth in the global supply chain it seems that the relevant ethical issues that needs to be highlighted and dealt with by the management has become questionable. The issues relating to global supply chain management has become a subject of debate in the business world because each party seems to have their own stance, view and argument.
The exploitation which is practised by the powerful corporations on the small suppliers is an issue which we cannot ignore. Moreover, the oppression which the workers go through as a result of this exploitation is simply inhumane. Hence, we really need to dig through this issue and find out the root cause of these problems in order to reach to a solution where all the parities can come to a ground of availing their fair share of gain. This essay will consist of the issues that will discuss regarding the challenges faced by the global supply chain.
Specifically there will be discussion on what kind of problem the workers go through, why the suppliers take initiations which deprive the workers, why and how the big corporations exploit the small suppliers, what the powerful corporations and the suppliers can do in order to improve the conditions. Main Body There are four types of challenges which globalisation faces. The first challenge is in different ways of doing business. In globalisation, we can see that different countries have their own ways or systems of doing business.
Such difference is based upon their differed values, morals and norms. For example, in some countries practising bribery in business can be a part of their culture while in other countries it is strictly prohibited. Other examples like tax evasion, adulteration of products, creation of artificial scarcity to increase commodity price, exploitation of employees and consumers can be common scenario in some countries specifically in developing countries.
As these issues are very normal in these countries though unethical, the big corporations in developed countries overlook these unethical acts in the context of relativism philosophy. According to Crane and Matten (2004) it is suggested that MNCs follow relativism considering they have no right o interfere with wage structure, working conditions and other unethical acts of a country and thus respecting their culture. This very attitude has given the rise to the challenges faced by globalisation. Second challenge is the impact on indigenous business.
MNCs are large in terms of size, power and political influence for which theyr are much more prone to enjoy the considerable cost and other advantages compared to local competitors in the developing country. For example, when an Indian MNC invests in Bangladesh, they will bring the influence of Indian of government in Bangladesh. The local competitors are affected. In this way, MNCs can create indirect trade barriers. Third challenge is the differing labour and environmental standards. In this challenge we find that the global supply chain is highly affected.
Due to the high demand of MNCs in lowering the price of the goods the suppliers in developing countries go through a ‘race to the bottom’ where all the suppliers struggle amongst each other to provide with the lowest price quotations to their buyers from the big corporations at the cost of providing the basic necessities to the labourers. Often the race of providing the lowest price is accompanied by ‘sweatshop’ a condition which is comprised of poorer labour conditions, less environmental protection and lower attention to health and safety. Fourth challenge is the extended chain of responsibility.
Along with the growth of globalisation the responsibility an MNC also grew on its stakeholders. According to the network model of the stakeholder theory (Rowley 1997) it is not enough for the corporations to look in to the needs of your immediate stake holders it has also become important to look in to the need of the stake holder’s stake holder. Hence, in the supply chain a retailer has the responsibility towards its sub-suppliers along with their immediate supplier (Crane and Matten 2004). There are different types of corporations and different corporations adopt either the policies of ethical sourcing or fair trade.
Ethical sourcing is a policy for big suppliers who are socially advantaged and fair trade is practiced to foster the protection and empowerment of growers or the suppliers who are socially disadvantaged. Under ethical sourcing, the companies play a dominant role in setting standards. Making sustainable business profit is their primary goal. Examples of such corporations practising ethical sourcing are Reebok, Nike etc. Under fair trade, the suppliers are the ones who set their own standards according to their needs. Community development is their primary goal by supporting the suppliers.
Profit making is their secondary goal and the profit is distributed in such a way that the suppliers are also benefitted. Examples of such corporations are Aarong, Ben & Jerry’s, The Body Shop etc. There are four types of strategies for ethical sourcing initiatives. The first type is ‘defensive-internal’ where the corporations practice minimum legal obligations like paying on time, avoiding media criticisms etc. They follow disengagement regulation with the suppliers where the standards are clearly set and it acts as a means for assessing compliance with those standards.
Failure to meet these standards in short-medium term will result in disengagement of the company. This strategy is usually followed small firms. This strategy is internal in the sense that it is exercised within the internal stakeholders such as the suppliers, supplier’s employees etc. The second is ‘defensive-external’ strategy where there is minimum legal obligation as well as disengagement but it is practiced by the large reputed companies such as Reebok, Nike, Disney, Wal-Mart, Nestle etc.
This strategy is external in the sense that it is exercised within the external stakeholders such as the supplier’s community, media, NGO etc. Both the first and the second strategies are defensive in nature which means that the firms take initiations when they are pressurized to do so just in order to avoid risks and not confront the pressure groups. Their initiations can be superficial and not by heart. Moreover they are more concerned with their reputation and in order to protect it they take the necessary measures.
The third is ‘proactive-internal’ strategy where the corporations practise supra legal minimum which means that they go beyond their obligation and it is an internal strategy. They follow engagement regulation where the firm likes to work with their suppliers to achieve improvements. Example of such corporation would be Rahim Afroz. The fourth is ‘proactive-external’ strategy which similar to the previous strategy except for it is practised amongst the external stake holders. Such corporations are The Body Shop, Sainsbury’s etc.
Both the third and the fourth strategies are proactive in nature which means that the corporations take initiations from their own self-less will in order to help the community. Foster and Harney (2005) argues that defensive initiative emphasizes the economic benefit whereas proactive initiative achieves social and environmental sustainability for business and community apart from economic benefits. Therefore companies following defensive initiative impose pressure on the suppliers regarding price reduction, deadlines and overtime.
According to the evidences it shows that companes which take proactive initiatives are more likely to be successful in achieving sustainability for the business. Companies such as Gap, Disney and Wal-Mart all have designed codes of conduct in order to defend against negative publicity but depending merely on the codes without proper implementation and monitoring is not enough for which the exploitation prevails in these companies’ supply chain which leads to ‘sweatshop’ activities (LBL 2003).
Bowie (1998) argued that the MNCs are guided by absolutist philosophy as it encourages no differentiation in terms if wages and working standards between host and home country but this will deprive the MNCs from availing the cost advantage which is their primary motive. For this, companies use relativist philosophy where they consider the host country’s context and comply with the local practises regarding wages and labour conditions. But again it has its setbacks as the philosophy of relativism endures the unethical acts of a country in the name of complying with local practices.
Most MNCs have set high standard code of conducts which is difficult for the suppliers from the third world countries to adhere to as they lack sufficient capital to implement these expensive standards. This is also one of the biggest obstacles for the labourers are deprived from proper wage payment and proper working conditions. Moreover it is quite unthinkable for the suppliers to adhere to the high standard codes as a single supplier has multiple buyers with different standard and requirements. It is very difficult for a supplier to comply with numbers of different contradictory standards which also increases the cost of production.
Recommendation A lot of these problems can be solved if the retailers can go for partnership programs with their suppliers and in this way there can be the practise of healthy business ethics management. In doing so, the suppliers we avail some assistance in the form of financial help or guidance. The corporations should look in to the circumstances and accordingly take actions. Relativism and absolutism are the two extremes and following either of the two solely will not bring much benefit as following pluralism would.
Pluralism is a moderate approach where one practises something in between absolutism and relativism and thus catering to the need of the circumstance which brings benefit to both the buyer and the supplier. As suggested before that the big corporations can assist the suppliers through getting in to a form of partnership, with the help of this partnership the big corporation can help shift the suppliers from cell 2 (rule-based externally driven, lowly guided) to cell 1 (rule-based externally driven, highly guided)- this can be applied especially on garments industries. In case of other industries lke