Empirical studies illustrate that globalisation of supply chains has changed economic patterns as well as production processes. The phenomenon has integrated trade activities and thus altered the manner in which global buyers and sellers interact with each other. It is not enough to study the extent of participation in global supply chains; one must look into how parties do so.
This must be done on a regional, national and organisational level. Such knowledge will equip players with the right strategies needed to survive in the global arena.
At the national level, a conceptual understanding of global supply chains assists in knowing how production and economies are affected. Traditional global supply chain theories assume that distribution networks as well as production processes are mostly confined to products that yield low returns.
If one takes on this approach, then it is evident that immense control of production by global buyers tends to create oligopolies in targeted countries. Such countries may experience barriers to entry as power lies in the hands of those who manage distribution networks; that is, global buyers.
In developing nations, global buyers may minimise developing country’s capabilities to nothing more than assemblers of imported material.
Because of the disadvantaged power relations that such countries have in the global supply chain, many of them remain susceptible to heightened international competition as well as fluctuations in returns. Global buyers thus coordinate distribution networks in different locations and minimise developing nations’ power positions.
Asymmetric power relationships between global buyers and their geographically-divergent suppliers cause the former to exercise power and control over their weaker partners. These supplies are dependent on one large multinational for business, so many of them will bend backwards to meet their needs.
Global brands demonstrate this leverage by enforcing codes of conduct amongst their suppliers. They maintain a firm grip over their supply chain partners by only outsourcing non essential, labour intensive aspects of production. However, many of them still perform high value activities like research and development, marketing, and human resources.
Such functions give multinationals power over their supply chain partners. A number of them even dictate the extent to which their suppliers can change production capacity or the commercial agreements that will govern their relationships. In essence, these groups have a dictatorial and uncompromising relationship with their global supply chain partners.
On an organisational level, power relationships in the global supply chain may also be understood through the value chain governance concept. In this school of thought, a firm’s position of power rests on the level of detail that firms specify during the production process. A firm has the option of specifying only limited aspects of production.
For instance, the buyer may simply define the problem to be designed and let the manufacturer decide on the technology as well as the design. In certain circumstances, the buyer may specify the design he or she wants while others may take it a step further and draw the details of the design. Some may even provide the parameters that govern production or set out the product standards.
These buyers normally assist manufacturers to instil processes that will assist in achieving those procedures. During such circumstances, the firm will be a lead entity within the global supply chain. It, therefore, possesses a lot of power and dominates the chain.
The above descriptions focus on buyers; in certain circumstances, suppliers may have an upper hand in the global supply chain. This depends on standardisation levels within the relationship. If a supplier only provides standard products with minimal interactions with buyers, then the company is a commodity supplier.
Such a firm normally has lot of power. Alternatively, a business may make non standardised commodities that come from customised equipment. These organisations are known as captive suppliers. Conversely, a company may make non standard commodities through specific machines that depend on the amalgamation of capacity for various clients. In this regard, the latter firm has a greater lead in power relations than the latter.
Subtle power still exists between suppliers and their global purchasers. In places like Asia, where several electronics and shoe suppliers are developing, several suppliers have come together to wield substantial power over other supply chain members. These organisations have developed regional capabilities in which they collaborate with similar entities to exert influence over global brands.
Additionally, in some industries, suppliers wield substantial power over their buyers because they do not just depend on global brands. A case in point is the global apparel supply chain. Most leading apparel manufacturers in developing nations tend to dedicate only a small fraction of factory capacity to global brands.
Therefore, the latter buyers have very little influence over their production processes. They may set standards and compliance expectations for their suppliers; however, few of them have the power to leave these factories if they fail to comply. Many global apparel buyers have too much to loose if they let their suppliers go. In essence, these manufacturers have greater power than their partners.
Consumers are still part of the global supply chain, and in certain circumstances, their power has increased substantially over the years. Many clients are fully furnished with information about their respective products. Consequently, they have a superior position in the global supply chain.
Consumers have forced global firms to cooperate in order to satisfy their needs. Manufacturers have had to work together with different members of the global supply chain in order to make the relationship work. Alternatively, others have had to increase their response rates and flexibility levels in order to meet client needs as they arise.
Some retailers also dominate their global supply chains substantially. A case in point is Wal-Mart, which is the largest global retail chain. Because of its size, this company has redefined its relationships with members of its supply chain. The firm operates under the principle of every day low prices. Owing to its large size, it is in a position to control its manufacturers by demanding certain prices.
Many suppliers in the west, like Canada, have been forced to lower their production costs by pushing efficiency. On the other hand, the retailer also obtains its supplies from Asian countries. A number of them can offer low prices because they operate in low wage economies. Additionally, this has strengthened manufacturing firms in Asian countries.
One may thus assert that a powerful retailer like Wal-Mart has redefined the relations of power in the North American and Asian regions. It has strengthened its power position in the global supply chain while at the same time empowered exporters in the Asian region. Conversely, Wal-Mart has diminished supplier power in its key markets. Power relationships between certain retailers are inclined towards the latter if the company is large.