Chapter 23 The International Supplier Conundrum – In Search for the Soul of International Business

CHAPTER 23

The International Supplier Conundrum

(With Valbona Zeneli and Gary Knight)

Terrorism exposes firms to high levels of uncertainty and risk. Growing threats produce higher costs and more disruptions for the international marketing organization. Terrorism highlights the vulnerabilities produced by global sourcing, international distribution, and reliance on independent agents abroad. Unfamiliar settings also complicate intelligence gathering and corporate governance. Yet, firms need a globalizing marketplace.

Our survey of 151 multinational manufacturing firms reveals the threat of disruptions in international supply chains. Increased costs require management to include terrorist contingencies in decision-making. Advanced planning and strategic action can provide the firm with greater resources and capabilities for managing external shocks and adverse events.

Terrorism has become an ongoing challenge and now is part of the “new normal” of international marketing. Enemy groups can access and employ asymmetrically destructive power. In addition to loss of life and property, the growing ferocity of attacks sows panic and triggers new frictions for global commerce. Thus, operational, process, and strategic innovations that shield the firm are an increasingly prudent investment.

Natural disasters and human-made ones can be mitigated by investments that help against their impact. Such spillovers need to be considered environmental scanning is a key step in the planning process.

Globalization exposes MNEs to the risk of interdependence and imposes unanticipated perils. However, superior intelligence gathering alerts the firm to vulnerable areas and assists in forecasting as to where and how terrorists will likely strike next.

In international marketing, due to their longevity and fixed locations, channels and supply chains are particularly vulnerable. Sourcing, just-in-time systems, lean production, decentralized planning, and supplier configurations, all need to be reevaluated. For firms that rely heavily on independent suppliers, management needs to emphasize increased coordination, more reliable and transparent partners, and steps to improve trust and commitment.

Enterprise resilience refers to a firm’s ability to operate in risky environments and overcome discontinuities. Resilience requires flexibility, familiarity, and redundancy. To the extent that disruptions result in long-term shortages of needed materials and supplies, firms may opt to produce essential inputs themselves. Alternatively, in spite of cost, theoretical preference for single-source supplies, inputs should be sourced from a wider range of suppliers to provide for contingencies and limit exposure to risk. Even the best systems can fail under circumstances of sudden stockouts without replacement planning.

Crisis management is effective when disasters are averted or when operations are rapidly sustained or resumed. As already suggested by strategist Sun Tzu, the most effective crisis management minimizes potential risk before an event. Planning for terrorism is akin to financial investors rebalancing portfolios periodically to optimize returns and reduce risks. Management might divest risky assets and increase holdings in other, geographically more safe locations or industries. Resources liberated in this way are then re-invested to optimize the firm’s risk level and absorption capacity.

Innovations give rise to new safeguards in global operations. Management needs to develop metrics that trade-off the costs and benefits of risk mitigation measures. For example, while the use of multiple suppliers is useful, it must be balanced against increased costs and the benefit of distribution circumvention. The task can be particularly complex when marketing internationally, because the foreign context introduces diverse contingencies that complicate analyses. But in a world that sometimes resembles a boiling cauldron of disruption and insecurity, such preparatory analysis is required for survival and prosperity.

So it needs to be done!