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

THANK YOUTHANK YOU