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The biggest SCM challenge in emerging markets might not be what you think it is

by Dave Hannon

August 2, 2013

By Dave Hannon
@Daveatwispubs 

There's a big opportunity for business today in the emerging markets. The potential upside of bringing your brand or products to India, China, or even Africa in the next decade or so could be almost limitless. And many companies and industries have known this for a long time and have focused on how to get their products to these markets -- literally, in that their focus was on the logistics challenges. And while many companies made progress in these areas, there is another major hurdle that supply chain organizations in particular might have been overlooking that is now coming to light -- regulations.

A recent Gartner survey points this out:

"A survey of 35 of the 100 companies listed by Gartner as among the top global supply chains found the most-cited supply chain challenge in emerging markets is dealing with changing rules, including regulatory or tax requirements ... Political and regulatory instability impact market access and make long-term supply chain investment and partnering strategies a risky task."

Regulation's relationship with business and supply chain in particular is always a thorny issue. It is often seen as a hindrance to business but in other cases can improve business. For example, recently, in the wake of the tragic factory collapse in India, the chairman of Parliament’s standing committee on industry in that country recommended the creation of a regulatory organization to oversee the retail industry in that country. The decision has been met with a rash of pushback out of fear that regulation could push out the smaller, more localized businesses and allow only the large, foreign firms to thrive in India. At least in theory, you can see both sides of that argument.

And there are cases where businesses are lobbying for increased regulation within the supply chain. Don't believe me? Here's an example. With some banks now owning aluminum supply warehouses that directly impact aluminum prices on exchanges, brewer MillerCoors recently called for increased regulation in the United States and Britain to oversee commodities exchanges that create the "economic anomaly" in metals markets, wherein prices are pushed prices higher, even as supplies have grown. It's case where regulation impacts supply chain operations (procurement, inventory) directly.

And in more and more cases, complying with some regulations can only be accomplished through the knowledge in the supply chain organization. For example, a new rule here in the US requires companies to disclose whether they use minerals in their products that originated in the Democratic Republic of the Congo or an adjoining country -- the so called "conflict minerals." It's a rule with the best intentions -- reducing violence and slave labor in Africa -- but many companies may not have visibility three or four tiers down into their supply chains to know where the raw minerals used in the electronic components they buy come from. And it's the supply chain organization that's going to have to find out.

And in China where tainted food is an increasing concern, a pilot program is underway to track food shipments from the slaughterhouse to the grocery store to ensure only licensed companies are in that chain. It's another example of regulation meeting supply chain in an emerging market.

So if you're in supply chain and you still think your biggest challenge in the phsyical delivery of your products into emerging markets, think again. Because keeping up on and complying with the latest regulations in the emerging markets may be what makes the industry giants of tomorrow. And the supply chain organization's role will be a critical component of that equation.

See also: Take the Detective Work Out of Supply Chain Troubleshooting

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