Global macrotrends and their impact on supply chain management

‘To India!’ With over a billion people consuming goods and services, India has represented a potential bonanza for many global companies since the end of the 20th century. Yet it brings many unfamiliar threats to outsider businesses.

 

The former British colony, independent since 1947, has vast natural resources and a large Englishspeaking population and is currently the world’s fourth largest economy. However, for many potential market entrants, India remains an uncharted and mysterious opportunity. Though ripe with potential, it brings a vast array of unfamiliar challenges for outsiders. With 28 state governments, over1 500 native languages, and a primarily Hindu population, India’s cultural and demographic differences yield a unique and somewhat incomprehensible frontier for foreign business to penetrate.

Western companies often admit that they know they ‘need to be there’ but are unsure exactly how to enter the market and how their offerings would be received there. Above all, they struggle to understand who the Indian customer really is, given the heterogeneity of India’s multiple and diverse subcultures. Most companies seeking to enter the Indian marketplace are also poorly prepared to do business there from a logistics standpoint.

The Indian transportation system is quite challenged in many respects, primarily due to the relative lack of infrastructure and ensuing traffic congestion. The country’s road network is primitive by modern standards, with many underdeveloped roads, and less than 3% of the road network consisting of passable highways.

Indian seaports serve as logistical chokepoints, where as many as 30 container ships can be backed up at any given time, waiting to offload their cargo. It is not uncommon for delivery times from US producers to Indian consumers to range from 20 to 30 days.

In addition, the country suffers from serious basic commodity shortages and imbalances that inhibit economic development, the most pressing of which is the lack of freshwater delivery systems and wastewater treatment facilities. In spite of India’s logistics complexities, the Coca-Cola company has a long history of doing business there. From 1970 to 2000, Coke established itself as a leading Indian brand. In attempting to secure a permanent foothold, by 2005 it had established over 20 Indian-based bottling plants, and the country had been designated its largest growth market.

However, water scarcity has emerged as an existential threat to the Indian economy and public health, given that nearly 90% of new water extraction goes to agricultural purposes. For Coke, access to potable water for its bottling production plants is a critical market success factor. By some estimates, it uses over 294,5-billion litres of water annually, with 2,26 litres required to produce 1 litre of cola.

When making network design decisions and determining where to locate plants, warehouses and other facilities, a company may not  always consider factors such as waterscarcity. However, global companies cannot afford to assume that they will have unlimited access to a natural resource, either when establishing new markets or perpetuating old successes.

The authors of this book call these global phenomena ‘macrotrends’. Based on research they have the potential to substantially impact or disrupt modern business practices, leading to great frustration for modern supply chains and the managers who administer them. These new disruptive macroeconomic factors include:

Continued population growth and migration. Although some countries are seeing declining population growth rates, other areas such as many in Africa and Southeast Asia continue to see population growth. World population levels of 9 to 10-billion people are expected in the decades ahead.

Rising economies and buying power. The economies in nations such as Brazil, Russia, India and China are continuing to escalate. Their populations are gaining increasing levels of buying power and associated quality of life and consumption desires.

Global connectivity. Communications and computer system advances, as implemented through the pervasiveness of the Internet around the world, make it easy for global markets to find and demand products and services from global companies.

Increased geopolitical activity. Governments around the world seek to ensure access to scarce natural resources. In addition, they intervene in the marketplace activities of global businesses when the safety or security of their nation’s interests seem threatened.

Environmental and climate change. The Earth’s climatological environment is in flux. Issues such as changing ocean temperatures, global warming and the movement of the jet stream have resulted in climate changes around the planet.

The question the authors attempt to provoke in the book is, ‘What is your company doing to identify and manage the impacts of a transforming world on your supply chain?’ In other words, are you looking to adapt and make changes to your supply chains today that will ensure a sustainable future for your company? It is in supply chain execution that business strategy becomes a reality. Supply chain management involves far-reaching implications for an organisation’s success, such as determining:

  • Which goods and services to offer the market
  • How to design product and service bundles that meet the market’s needs and the company’s financial expectations
  • Which customers and suppliers to work with closely
  • When to walk away from business and when to proceed
  • How to structure activity within the company and with supply chain members for concerted action.

The authors believe the challenges presented to future supply chains and supply chain managers will continue to increase in frequency and severity over the next three decades and longer. They also believe these will have serious implications for business and operations. Managers must prepare.

The authors not only explore the threats brought about by change to the global commercial environment, but also provide general directions for how to prepare for these challenges and turn them into opportunities that can be exploited compared to competitors’ efforts. The sustainable long-term success of a company may depend on it, just as the strength of the future global economy will depend on the thought leadership and innovation of today’s supply chain leaders.

Written by: Chad W Autry, Thomas J Goldsby, John E Bell Publisher: FT Press ISBN: 13-978-0-13-294418-2 Pages: 320

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