Ludivine d’AulisaLudivine d’Aulisa
Romain ToulemondeRomain Toulemonde
Jens JohnenJens Johnen
Toni LaitilaToni Laitila
Global Global SupplySupply Management Management
Globalization of World Trade:Globalization of World Trade:
International agreements foster free tradeInternational agreements foster free trade
- OECD, GATT- OECD, GATT Formation of European Union, NAFTAFormation of European Union, NAFTA World Trade OrganizationWorld Trade Organization 130 member countries, accounts for more than 90% 130 member countries, accounts for more than 90%
of world tradeof world trade
Importance of Global Importance of Global Purchasing:Purchasing: Global trade has increased significantly – total trade Global trade has increased significantly – total trade
in 1997 was 14 times the level of 1950in 1997 was 14 times the level of 1950 Internet is accelerating the trendInternet is accelerating the trend
US ImportsUS Imports Leading sources of imported goods were Canada, Leading sources of imported goods were Canada,
China, Mexico, Japan, GermanyChina, Mexico, Japan, Germany Aggregate US Trade deficit reached a record level Aggregate US Trade deficit reached a record level
of $617.7 billion in the 2004,of $617.7 billion in the 2004, a 24% increase since a 24% increase since 2003 (includes goods and services)2003 (includes goods and services)
Growth in deficit reflects surging imports and Growth in deficit reflects surging imports and continued, rapid decline in competitiveness of U.S. continued, rapid decline in competitiveness of U.S. manufacturing industriesmanufacturing industries
China’s trade surplus with US was $162 billion in China’s trade surplus with US was $162 billion in 2004, a 30.6% increase since 2003 and the US’s 2004, a 30.6% increase since 2003 and the US’s largest bilateral deficit.largest bilateral deficit.
2004 US Imports (Goods)2004 US Imports (Goods)Top 15 Countries (76.5% of Total)Top 15 Countries (76.5% of Total)
Canada24%
China18%
Mexico14%
Japan11%
Germany7%
UK4%
South Korea4%
Taiwan3%
France3%
Malaysia2%
Italy2%
Ireland2%
Brazil2%
Saudi Arabia2%
Venezuela2%
Canada
China
Mexico
Japan
Germany
UK
South Korea
Taiwan
France
Malaysia
Italy
Ireland
Venezuela
Brazil
Saudi Arabia
CHINACHINA
China sets the global benchmark for prices (“the China sets the global benchmark for prices (“the China price” = lowest price possible)China price” = lowest price possible)
GM: clause in supplier contracts that gives suppliers GM: clause in supplier contracts that gives suppliers 30 days to meet China price or risk immediate 30 days to meet China price or risk immediate termination.termination.
Walmart: more than 80% of the 6000 factories in Walmart: more than 80% of the 6000 factories in their worldwide database of suppliers are in China. their worldwide database of suppliers are in China.
- 560 purchasing people on ground in the - 560 purchasing people on ground in the countrycountry
If Walmart were a nation, they would rank as If Walmart were a nation, they would rank as China’s 5China’s 5thth largest export market, ahead of largest export market, ahead of Germany and Great BritainGermany and Great Britain
Reasons For Global PurchasingReasons For Global Purchasing
Lower overall cost key reason to buy internationallyLower overall cost key reason to buy internationally Reasons for Lower costs:Reasons for Lower costs:
lower labour costslower labour costs exchange rate may favour buying offshoreexchange rate may favour buying offshore Equipment and processes may be more efficientEquipment and processes may be more efficient supplier pricing very low to gain volumesupplier pricing very low to gain volume
Government Pressures – US and Canadian Firms Government Pressures – US and Canadian Firms have pressure to purchase from the companies they have pressure to purchase from the companies they export to. (a condition of sale or as a social export to. (a condition of sale or as a social responsibility)responsibility)
More consistent quality (on some products)More consistent quality (on some products) Unavailability of items domestically (ie. certain raw Unavailability of items domestically (ie. certain raw
materials or electronic equipment)materials or electronic equipment)
Reasons For Global PurchasingReasons For Global Purchasing
Faster Delivery (in some cases)Faster Delivery (in some cases) Better Technical Service – Superior Distribution Better Technical Service – Superior Distribution
NetworkNetwork Technology – international suppliers may be more Technology – international suppliers may be more
advancedadvanced Tie-in with Offshore Subsidiaries: Support for the Tie-in with Offshore Subsidiaries: Support for the
Local EconomyLocal Economy Competitive Clout: international competition Competitive Clout: international competition
pressures the domestic supplier to become more pressures the domestic supplier to become more efficientefficient
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Potential Problems:
Source Location and Evaluation
Lead/Delivery Time
Expediting
Political and Labor Problems
Hidden Costs
Currency Fluctuations
Payment methods
Quality
Warranties and Claims
Tariffs and Duties
Paperwork costs
Potential Problems:
Potential Problems:
Legal problems
Logistics and Transportation
Incoterms:- departure- main carriage unpaid- main carriage paid by seller- arrival
Potential Problems:
Language
Communications
Cultural and Social Customs
Ethics
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Where to find information about Where to find information about suppliers ?suppliers ?
US Department of commerceUS Department of commerce Chambers of commerceChambers of commerce International chamber of commerceInternational chamber of commerce EmbassiesEmbassies Purchasing professionalsPurchasing professionals SuppliersSuppliers Importers and brokersImporters and brokers BanksBanks Supplier directoriesSupplier directories AssociationsAssociations Web sitesWeb sites
Capabilities evaluation:Capabilities evaluation:
Other purchasing people experiencesOther purchasing people experiences
Suppliers visitSuppliers visit List of present and past customersList of present and past customers Payment procedures requiredPayment procedures required Banking referenceBanking reference Facilities listFacilities list Numberships in qualityNumberships in quality Basic business informatrionBasic business informatrion
Global sourcing organizationsGlobal sourcing organizations3 approaches for centralized 3 approaches for centralized organizations:organizations:
regional purchasing officesregional purchasing offices
global commodity management organizationsglobal commodity management organizations
International purchasing offices (IPOs)International purchasing offices (IPOs)
IntermediariesIntermediaries
Import brokers and agentsImport brokers and agents Import merchantImport merchant Seller’s subsidiarySeller’s subsidiary Sales representativesSales representatives Trading companyTrading company
5-stage Global Sourcing Process5-stage Global Sourcing Process
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CountertradeCountertrade
Barter/SwapsBarter/Swaps Offset arrangementsOffset arrangements CounterpurchaseCounterpurchase Buyback/CompensationBuyback/Compensation Switch tradeSwitch trade American Coutertrade associationAmerican Coutertrade association
Foreign trade zonesForeign trade zones
ManufacturingManufacturing TransshipmentTransshipment StorageStorage ManipulationManipulation Refunding of dutiesRefunding of duties Exhibition and displayExhibition and display
North American Free Trade North American Free Trade AgreementAgreement
NAFTA eliminates or reduces tariffs among member NAFTA eliminates or reduces tariffs among member countries.countries.
Rules of originRules of origin Possibility of a free trade Area of the AmericasPossibility of a free trade Area of the Americas
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Case 14-2Case 14-2Marathon Oil Comapny InternationalMarathon Oil Comapny International
Summary:Summary:- - International company (UK, Ireland, Egypt, Indonesia, International company (UK, Ireland, Egypt, Indonesia,
Tunisia)Tunisia)
- Sakhalin Island (Russia) = hidden treasure- Sakhalin Island (Russia) = hidden treasure
- A consortium of 5 companies: Marathon from Houston, - A consortium of 5 companies: Marathon from Houston, Shell from Shell from Holland, McDermott from Houston, Mitsui and Holland, McDermott from Houston, Mitsui and Mitsubishi from Japan Mitsubishi from Japan want to develop 2 worldclass oil fields want to develop 2 worldclass oil fields offshoreoffshore
- 3 locations possible for IPO: London, Houston, Tokyo- 3 locations possible for IPO: London, Houston, Tokyo
What factors are important in this decision and where should What factors are important in this decision and where should they plan to locate the IPO?they plan to locate the IPO?
Map of Sakhalin Island RegionMap of Sakhalin Island Region
Where do you think they Where do you think they should locate?should locate?
London, Houston or TokyoLondon, Houston or Tokyo
ProsPros– No language barrier for the members of No language barrier for the members of
the consortiumsthe consortiums– 3 of the 5 members of the consortium 3 of the 5 members of the consortium
already have offices in Londonalready have offices in London– The IPO of Marathon oil company is in The IPO of Marathon oil company is in
Scotland - easier to communicate and Scotland - easier to communicate and recruit staffrecruit staff
Alternative 1: Locate IPO in Alternative 1: Locate IPO in LondonLondon
Alternative 1: Locate IPO in Alternative 1: Locate IPO in LondonLondon
ConsCons– Far away from the operations in Sakhalin Far away from the operations in Sakhalin
islandisland
Alternative 2: Locate IPO in Alternative 2: Locate IPO in HoustonHouston
ProsPros– Location of head office of Marathon oil Location of head office of Marathon oil
companycompany– No language barrier for the members of No language barrier for the members of
the consortiumsthe consortiums– 35% of all buys for the regions were 35% of all buys for the regions were
controlled from corporate purchasing in controlled from corporate purchasing in HoustonHouston
Alternative 2: Locate IPO in Alternative 2: Locate IPO in HoustonHouston
ConsCons– Far away from the operations in Sakhalin Far away from the operations in Sakhalin
islandisland
Alternative 3: Locate IPO in Alternative 3: Locate IPO in TokyoTokyo
ProsPros– Near the operations locationNear the operations location– Two companies of the consortium are Two companies of the consortium are
major entities from Japanmajor entities from Japan
Alternative 3: Locate IPO in Alternative 3: Locate IPO in TokyoTokyo
ConsCons– Major political concernsMajor political concerns– Language barrier for the majority of the Language barrier for the majority of the
consortiumconsortium
RecommendationRecommendation
The recommended solution is to The recommended solution is to locate the IPO in LONDON.locate the IPO in LONDON.
MERCIMERCI
DANKE SCHOENDANKE SCHOEN
XIE XIEXIE XIE
KIITOSKIITOS
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