Monday, April 07, 2008

Global Value Chains and global decision making - problem solved

Late last week I was working with a post doc from Cambridge University who's research area is Global Value Chains or supply chain management. At the end of the session she mentioned that she was having problems getting a job, which surprised me a bit. She then rattled off a list of interviews she had attended and given presentations at and not been picked. So we sat down for a couple of hours to 'solve the problem'. What came out of this amazed both of us.
The first thing we had to do was to workout what the problem was. So she gave me the presentation she roles out for such occasions and it was impressive research. However we soon discovered that it was (like a lot of doctoral research) so specialist that only a handful of people in the world could engage at any meaningful level with the subject, and I wasn't one of them!
We quickly did a profiling job on her audiences and discovered the same was largely true of them. They were supply chain experts in their own right but not to the level required to really get to grips with her research. As she said, "It's so specialised that it's not important".

So using the principles of solving ambiguous problems we set about getting to grips with this one. Quite quickly she was designing a full page advert for the New Scientist to attract money so that she could continue with her research. This process brought about some key realisations about Global Value Chains and the issues facing developing countries as a result of the activities of globalised companies.

The issues we realised were these:
In manufacturing global companies like source the components from many countries. The decisions about where to get or manufacture the components from are based on a matrix of factors. Some of the factors in the decision matrix include cost, quality, ease of access, stability of the country, labour force and production unit, skills, inducements like tax breaks, transport and proximity to the line of the chain (So if every thing else is sourced from the Asiatic countries sourcing a small component from Europe might not make sense unless there is a good reason for it) etc.
Once the global supply chain is established, countries find that they have a relationship with other countries in the chain through the company. They have close relationships with those links on either side of the chain and more distant but equally reliant relationships with other countries further down or further up the chain. Each country in the chain is in a symbiotic relationship with the others and the company and yet they as a country are in competition with each other and want as big an amount of the pie is possible.
Once these supply chains have been established (Decisions made) they do not remain static. Many things can change or even remove one or a number of the links (Countries) in the chain. The thing to bear in mind here is that many of the links are developing countries. So a large global company setting up in a developing country helps economically. However that country does not have control of this production capability and it can move away as quickly as it arrives, especially in times of market slowdown or when another country offers a better deal.

The issue is that just about all of then decisions make are about what is best for the company. It doesn't take much imagination to work out what happens to a country that has attracted a number of of these links in a number of global value chains, when it is no longer seen as not the place to be, for whatever reason, somewhere cheaper, closer etc. It is very possible to imagine a scenario where a developing country is on the receiving end of a decision to pull out, or reallocate the chain elsewhere. If the country has a number of these chains and they all pull out, the economy of some countries would be dire straights, with the potential for civil or even international conflict.

The problem is that all of the decisions being made are fragmented and based on the health of the company not global stability. This has already happened with the global credit markets. Leaders making moneymaking decisions have created the current credit crunch. It is the lack of systems thinking outside of their own company system that has created a problem that is harming them now.

One of the things mode 4 leaders are really good at is seeing and understanding wider systems. They tend to act with this bigger picture in mind. Unfortunately from our research only about 1.2% of the leadership population are mode 4 leaders.

As for the post doc she (and I)now sees and understands the wider context that her work vitally contributes to. Her research concentrates on the relationships between emerging market countries who are part of global value chains. Her next interview is tomorrow. I'll let you know what happens.

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