supplier
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The Changing Role of Supplier Development initiatives from the attraction of inward
investment to capacity building
John Varney
Simply getting Foreign Direct Investment is only one part of the benefit.
Supplier Development has been seen as both an attraction for inward investment, and an aid to embedding existing investment.
In the next few minutes I want to discuss some other dimensions of supplier development which offer benefits additional to those given by FDI and may in fact not be targeted specifically at FDI.
Four issues which should be considered from the FDI perspective:
Will the investment bring Technology transfer ?
As a result of the investment will there be Knowledge transfer?
Is there potential for Capacity improvements in the private and public sectors?
Are there policies in the recipient country supporting Linkages?
From the economic development perspective we might add:
Will supplier development improve capacity without FDI?
Can business improvement amongst indigenous firms be achieved?
Are there situations where knowledge transfer will facilitate greater added vale from indigenous businesses?
The answers to all of these questions will be found by examining the context of a proposed initiative.
A first step then is to examine the context.
Here I will try to demonstrate how this works by reference to two recent but very different supplier development initiatives. One in the Czech Republic the second in Serbia.
Czech
Well developed manufacturing sector. Good reputation in engineering
Serbia
Agriculture largest part of the economy.
Manufacturing not so well developed
From the FDI perspective
It is worth pointing out at this stage that technology and knowledge transfer from TNCs to suppliers seems only to take place where there is an existing relationship. The supplier development programme should help to foster and support relationships between TNCs and local firms.
“ when we build a new plant we try to become part of the community. Our business is long term. The use of local suppliers brings financial benefits to us, and establishes us as part of the community….as we grow we develop the capabilities of our suppliers….problems arise when we cannot find suitable local suppliers…to be considered they must have reached a standard for quality which allows them to compete with global suppliers”
Francois Himmelspach
Director Baxter BioScience
In addition to the trading benefits there are others. Most importantly the willingness of major companies to take over supplier development once the state intervention has started the development process.
Multi Nationals
First tier Second tier Third tier
Nature of relationship
Close family
Partner
Inter dependency
High trust
Relationship based
Nature of relationship
Cousin
Provider
Dependency
Medium trust
Specification based
Nature of relationship
No ties
Servant
dominated
No trust
Price based
Relationships in conventional supply chains
Incentives for the various stakeholders and increases capacity
For TNCs
Shorter supply chains
More flexible suppliers
Cost reduction
Potential for product development partnerships
For SMEs
Access to customers
Information about markets
Technology and knowledge transfer
Becoming international SMEs
Better lines of credit for expansion cont.,
Incentives for the various stakeholders and increases capacity
The Government
Higher competence in government agencies
Increased economic impact of inward investment
Job creation
Tax take
General
There should be increased capacity through the development
of indigenous business consultancy.
The use of Universities to support SME growth and development
through applied research.
Serbia is the worlds largest producer of raspberries
It exports the fruit and imports back expensive concentrates, syrups etc.,
Supplier development programmes can be used to rectify this situation and not be just a service to Inward Investors
How supplier development works (in brief)
Accept companies into the programme
Visit and carry out in company assessment using a model based on the EFQM Business Excellence and TNC supplier audits.
Self assessment carried out by the firms on same aspects of the business as are in the external assessment.
Jointly create a business improvement plan.
After six to eight months second assessment to find the most improved companies.
Most improved companies provided with individual international consultant support.
Introductions to potential customers, partners, and sources of technical and financial support.
Time scales
Dec. Jan Feb Mar Apl. May June July Aug. Sept.
Oct. Dec. Jan. Feb. Mar. Apl. May June July Aug.
First Business Reviews
Workshops Workshops
Self Improvement 2nd Business Reviews
Expert support
20 Companies selected
Specialized workshops
Specialized workshops
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%
Strategic Planning
Marketing
Manufacturing processes
Export advice
Quality Management
Motivation
Customer Contacts
Inventory Management
Feasibility/Capital
Human resources
Finance and MIS
Market Research
Employment Law
Tax Planning
Grant aid
Study Visits
IS /IT
Auto industry expert
Technology exploitation
Companies’ view
Consultants’ view
Areas for improvement
Czech Approach
Programme administered by CzechInvest with EU management support.
Assessment done by KPMG Consultants.
Strong links with Investors.
High reliance on foreign consultants.
Links to local universities not fully exploited.
$46million from 17 of the companies involved.
Serbian Approach
Programme administered by SIEPA with MIGA (World Bank) management support.
Assessment SIEPA staff after full EFQM training.
Strong links with Investors.
Strong links to export agencies.
Development plan for Serbian consultants. Development of technical ability in SIEPA.
Links to local universities and Science Parks will be fully exploited.
ConsultantsConsultants
SuppliersSuppliers
UniversitiesUniversities GovernmentGovernment
AgencyAgency
Transnational Transnational CorporationsCorporations
The ActorsThe Actors
The RolesThe RolesSuppliers
Give resources to the programme. Have
commitment to self improvement.
TNCs
To support the programme. Give
advice and guidance Place orders with companies in the
programme
Universities
Faculties of Engineering, Business
& Economics
Provide expertise not normally available to
smaller SMEs
Consultants
Provide on going support to companies
and help identify expert assistance
required from Universities
GovernmenGovernment Agency t Agency
CoordinateCoordinates & s &
facilitatesfacilitates
The key challenges for modern Supplier
Development programmes are:
To create a legacy system that will continue to function without external support.
To develop a policy framework that ensures that FDI is encouraged and supported.
To increase capacity within the economy through a strong SME base, with supportive research work from Universities. SME population must be supported to work with the Universities, equally Universities must understand that their role is not optional.
To ensure that linkage building is a continual feature of economic activity
FDI is important but not always practicable. This should not be a reason to fail to use Supplier Development as a means of improving local capacity, competence, and capability. These are activities which will of themselves create greater competitive ability and lead to higher value adding activities within the economy. Assistance should be given to firms to create greater added value through processing of base products.
KEY MESSAGE
Thank you for listening. I will be pleased to take question now or later.
DETAILED INFORMATION ON THE PRACTICAL ASPECTS ARE AVAILABLE.
PLEASE CONTACT ME DIRECTLY DURING THE CONFEENCE OR
NBS
Etc.