Globalisation of

Supply Chain Operation

Dr. Dawei Lu

Topics Covered

• Major trends in globalisation

• Emerging Global Challenges
• How Global Supply Chains Responded
• Trends in global supply chain management
• IKEA case studies
• Transactional exposure and risk management
• Taxation issues in cross border supply chain

1
 W eliveinaglobalvillage

Im pactofGlobalisation
Global brands and companies now dominated most markets
taking advantages of global market convergence
Emerging Asia economic powers are playing increasingly
important role in global supply chains – “Global Geopolitical
Triads”
More accessible global markets due to deregulation give rise
to more business opportunities.
Increasingly sophisticated communication and
transportation technology facilitate global-wide supply chain
collaboration and partnership.
Strengthened roles of global organisations (WTO, IMF, WB,
OECD, GATT)

2
3
Historically,retailershavepursuedgrow ththroughasingle
channelandform atinonecountry
NUM B E R O F YE A RS O F
D A TE O F FIRS T O P E NING GRO W TH O F O RIGINA L
S A M P L E RE TA IL E RS O RIGINA L FO RM A T
(on the hom e m arket) FO RM A T
(in theirhom e m arket)

A pparelstores 1 969 1 7 years

D isc ou ntS tores 1 962 1 5 years

S u perm arkets 1 960 1 0 years

A pparelstores 1 97 5 1 3 years

H yperm arkets 1 963 6 years

H om e fu rnitu re stores 1 953 8 years

V ariety stores 1 930 45 years

S u perm arkets 1 955 1 8 years 7

Em ergingGlobalChallenges
─ At Macro Level
M arketDim ension– Much sever competition
compounded with much greater opportunities
R esourceDim ension– Impact of cheaper labour and
material; rising oil price; increased financial credit costs.
T echnologicalDim ension– Accelerated disruptive
technological development in all business sectors
redefines competition.
S trategicDim ension– Global competition has
suggested a new set of rules, leading to the challenges
in the strategic dimension.

4
W al-M artCaseIllustration
Video on Walmart
(https://www.youtube.co
m/watch?v=yZC4neLax5o)
Try to get a feel of its
global reach.
What would you think is its
dominant SC strategies?
What are the key success
factorsfor its global
success?
What are the challenges?

Emerging Global Challenges

─ At Micro Level
•Payment complexity •Import/export procedures

•Contact with suppliers •Protection against

difficult – time zones, Challenges in product liability
working week going abroad?
•Lead times
•Communication
•Documentation
methods

•Different Taxation •Dispute settlement

system •Legal matters

•Currency management •Quality management

•3rd party cost
•Transaction exposure
•Culture •Delays in transport

5
How GlobalS upply ChainsR esponded
They go global and join the MNE communities
They collaborate and partnering globally
They innovate and create “Blue Ocean Strategies”.
They divers, spread and expand their business
portfolios – managing risks
They outsource and vertically disintegrate
They develop global supply networks
They pursuit world class excellence
They attempt international divisionoflabour
They engineer global netw orkexternality

Global divisionoflabour

6
Globalized division oflabourm eansspecialisation and
coordinationinaglobalscale

GlobalN etw orkExternalities

Definition: The more participating member of the
global supply network, the more value of the
product or service becomes.

Up to this point we have assumed that

global market demand for a good are
independent of one another
In fact, a market demand may be
affected or greatly increased by the
number of participating member of a
global network

7
 Exam plesofglobalnetw ork
externalities
A brief history of personal computer industry
Externalities in Word-processing programmes
The superiority of English as a global language
Video format: VHS versus Betamax
Video game war (Xbox or PlayStation 2)
High definition optical disc (Blue-ray vs HD DVD)
Money! Which one will dominate the world
Discussandexploreotherexam plesofglobal
netw orkexternality… .

Currentstatusofglobalsupply chain
— W orldL ogisticsP erform anceIndex 2010;source:W orldBank

8
T rends1: S u pply C hain Volatility and Unc ertainty H ave
P erm anently Inc reas ed
(PRTM Management Consultants 2010)

M arkettrans parenc y and greaterprice s ens itivity have led to lowerc u s tom erloyalty.
P rod u c tc om m od itization red u c es tru e d ifferentiation in the c ons u m erand B 2 B
environm ents .

T rends2: S ec u ring Growth Req u ires Tru ly Global

C u s tom erand S u pplierN etworks

Fu tu re m arketgrowth d epend s on internationalc u s tom ers and c u s tom ized prod u c ts .

Inc reas ed s u pply c hain globalization and c om plexity need to be m anaged effec tively.
.

9
T rends3: M arketD ynam ics D em and Regional,
C os t-O ptim ized S u pply C hain C onfigu rations
C u s tom erreq u irem ents and c om petitors nec es s itate regionally tailored s u pply c hains
and prod u c tofferings . E nd -to-end s u pply c hain c os toptim ization willbe c ritical.

S hiftinValue-A dding

‘Value-added’ shifts from OEMs to suppliers (Binder and Clegg 2010)

10
T rends4: RiskM anagem entInvolves the
E nd -to-end S u pply C hain

Riskand opportu nity m anagem ents hou ld s pan the entire s u pply c hain— from d em and
planning to expans ion ofm anu fac tu ringc apac ity— and s hou ld inc lu d e the s u pply c hains of
key partners .

T rends5: E xisting S u pply C hain O rganizations A re N ot

Tru ly Integrated and E m powered

The s u pply c hain organization need s to be treated as a s ingle integrated organization.

In ord erto be effec tive, s ignific antim provem ents req u ire s u pportac ros s alls u pply
c hain fu nc tions .

11
 WMG 31

GroupExercise:
IKEA CaseS tudy

Read the IKE A c as e and d isc u s s the following:

1 . H ow to rec ognize and m eas u re IKE A s u pply c hain’ s
globald evelopm ent?
2 . W hatrole d os e IKE A play in m anaging its global
s u pply c hain?
3. W hatc om petitive ad vantages the globals u pply c hain
d evelopm enthas to offer?
4. W hatare the valu es thatIKE A c reated forthe end
c ons u m ers ac ros s the globe?

12
L eadingEdgeCom pany Case
─ GlobalHom eFurnishingChainIKEA
• Six decades continuing global development
and growth.
• Largest furniture retailer in the world
• Over 300 stores in 37 countries.
• 42 distribution centres worldwide
• Supply chain stretching over 50 countries
around the world.
• It achieved and sustains the global
leadership in the home furnishing industry

S upply ChainInnovationand Creativity

Unique Scandinavia Design

Highly creative and trendy
products
Unique costumer offering: flat-
pack, assemble components.
Unique store operations and
customer services
Represents an distinct
innovative approach towards
the global challenges

13
 S electingS uppliers

IKEA has mobilised its 1,400 suppliers

in more than 90 countries around
world
It must find the one that can offer
both low costs and good quality
It take enormous care to find and
evaluate potential supplier
30 buying offices around the world
Centralized design office at IKEA’s
headquarter in Almhult participating
the selection

W orkw ithS uppliers

Once part of the IKEA, you become
long-term supplier
Gain access to the global market
Receive technical assistance
Leased equipment
Advices on bringing quality to the world
standard
IKEA engineering units were created to
provide assistance to the suppliers
Its Vienna based business service
department runs a database to help
supplier to find raw materials and
second tier suppliers

14
 T ow ardsA S upply
Constellation

IKEA reinvents value and delivers it for an entire cast of economic

sector
Customers are also suppliers (of time, labour, information and
transport)
Suppliers are also customers (of IKEA’s business, and technical
services)
IKEA is not so much as a retailer but as the central star in a
constellation of services, goods, design, management, support and
even entertainment.

T ransactionExposure
– riskm anagem entinglobalsupply chain
Impact of settling outstanding obligations entered
into before change in exchange rates but to be
settled after change in exchange rate
The Life Span of a Transaction Exposure

t1 t2 t3 t4
Buyer places Seller ships Buyer settles with
Seller quotes a firm order with
price to buyer product and cash in amount of
seller at price bills buyer currency quoted
offered at t1 at time t1

Q u otation B ac klog B illing

exposu re exposu re exposu re

15
 Currency S w aps

C reation ofc u rrenc y s wapthrou gh a S wapD ealer

Japanese
Investor Japanese
Buyer
Pays Pays
yen yen
Japanese Swap U.S.
firm dealer firm
Pays Pays
dollar dollar
American
American
Investor
Buyer

T axationConcernsinGlobalS C
Taxation has always been a top concern
for global supply chain development.
The complexity of National Tax Jurisdiction
– World-wide approach
– Territorial approach
Tax Havens around the world
– Tax avoidance
– Tax evading
Re-invoicing centre
Price transfer in global supply chain

16
R einvoicingCentre

Physical Goods
Korean Japanese
manufacturing
Invoice Invoice buyer
affiliate
in won in yen

Reinvoicing
centre at
Singapore

17
T ax HavensA roundtheW orld

British Virgin Island Bahamas Dubai

Barbados
Cayman Island

Gibraltar Jersey Guernsey

18