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Dimensions to Effective Global Supply Chains (Doc)

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IDENTIFIABLE DIMENSIONS TO EFFECTIVE GLOBAL SUPPLYCHAINS: THE ROLE OF CULTURESUSAN A HORNIBROOK & PAMELA M YEOWKent Business SchoolUniversity of KentParkwood RoadCanterbury, Kent CT2 7PEUnited KingdomTelephone: (44) (0)1227 827731, (44) (0)1227 823991Fax: (44) (0)1227 IN PROGRESS (3)Paper prepared for the 28th International Congress of Psychology (ICP2004) inBeijing, China, 8-13 August 2004.1
1.IntroductionThe continuing globalisation of food manufacturing, together with the more recentmoves towards internationalisation of major food retailers such as Tesco, Metro,Carrefour and Wal-Mart, poses a number of significant challenges to all firms alongthe supply chain.In Europe, and particularly the UK, own brand products are a key component ofcompetitive strategy, and in order to guarantee food quality and safety, retailer-leddomestic vertically co-ordinated supply chains have emerged (Hornibrook and Fearne2001). As European retailers seek growth through international expansion in order tocombat market saturation and low growth in domestic markets, the strategicimportance of own brand products and economies of scale associated with globalsourcing will become increasingly significant. In addition to food quality and safety,a number of other critical supply chain issues including ethical and environmentalconcerns are also driving closer relationships between food retailers and their first andsecond tier suppliers. Given the increasing globalisation of both trade and markets forfood, and the need for closer relationships and management of the supply chain, theimpact of culture on relationships between firms in geographically and culturallydiverse supply chains becomes particularly significant.Researchers from various academic disciplines have adopted a number of differenteconomic and management theoretical perspectives in order to examine supply chainmanagement, in particular transaction cost economics, systems theory, game theoryand channel management. This paper seeks to build on previous work that considersvertically co-ordinated supply chains as strategic responses to perceived risk(Hornibrook and Fearne, 2001, 2003) by examining the role of culture (Hofstede,1980, 1994; Schein, 1985, 1990; Trompennars., 1993; Yeow, 2000, 2002; Erez andGati, 2004). By adopting a cross-disciplinary behavioural perspective and including apsychological dimension, the authors seek to add to the supply chain management andorganisational behaviour literature by developing a framework for the examination ofcross cultural supply chain relationships. Given the emerging significance of Chinaas a potential market and source of supply for western food firms, and the differentperspectives on personal and business relationships between Asia and the West (Liuand Wang, 1999), the paper develops a number of propositions within the framework3
to identify and discuss the impact of culture on perceptions of risk, using the exampleof Tesco’s recent expansion into China as a case study. Additionally, the paper willidentify areas suitable for further research regarding the consequences of culture andperceived risk on global supply chains.This paper contributes to the supply chain literature in two ways. It adopts aninterdisciplinary approach to supply chain management and presents a theoreticalframework for the examination of the role of culture on effective supply chainmanagement. The paper is presented in four parts. The first section sets the scene bydiscussing the globalisation of the food industry, supply chain management andimplications for firms. The second section critically discusses the application ofPerceived Risk Theory to supply chains, in particular the failure of the framework toaccount for the effect of culture on behaviour. Other theoretical perspectives that dotake account of cultural differences are introduced in the third section, and theproposed theoretical framework is introduced in the fourth section. Next, theframework is tested using the example of the UK food retailer, Tesco, and their recentexpansion into China. The final part draws some conclusions and presentsrecommendations for further research.2.Supply Chain Management2.1Globalisation and the Food IndustryPaton and McCalman (2000:7-8) identified a number of major external changes thatall organisations are currently addressing or will have to come to terms with in the 21stCentury. These include the development of enhanced technologies and increasedcompetition due to world-wide historical, political and economic changes; worldwiderecognition of the increasing importance of finite resources and the environmentas aninfluential variable; health consciousness as a permanent trend across all age groupsand a growing awareness and concern associated with food production andconsumption throughout the developed world; changes in lifestyle trends affecting theway people view work, purchases, leisure time and society; changes in the workplacecreating a need for non-traditional employees; and the crucial role of knowledge andpeople to the competitive well being of organisations.4
In addition to the above general changes, the food industry has been subject to anumber of specific environmental changes that have affected and driven internationaland global activity. Drivers of the increase of cross border trade in agricultural andfood products include the reduction of national tariffs and non-tariff barriers (WTO,2003), standardisation of food safety and quality standards (WHO, 2003), consumerdemand, and firm strategic behaviour (Fearneet al, 2001). As a result, the foodindustry has become interdependent and global, instead of simply international(Varzakas and Jukes, 1997). Globalisation is not just limited to the range of a firm’sactivities across geographical markets, but also the extent of contractual co-operationwith other firms (Mattsson, 2003). As a consequence, actions, events and decisionstaken in one part of the world will have a significant impact on individuals andcommunities in other, more distant, parts of the earth (McGrew, 1992). Globalisationtherefore, has implications for those firms such as multinational food manufacturersand more recently European retailers, whose commercial reputation and successdepends upon branded products sourced and produced by suppliers who may operateunder different environmental conditions.The drive for more consistent eating quality has become a competitive strategyamongst UK food retailers to gain market share through improved margins andcustomer loyalty (IGD 2003), and has led to various attempts at marketingdifferentiated retail branded products sourced through retailer-led co-ordinated supplychains. Own brands, as defined by Davis (1992) are positioned as niche, high qualityproducts sold at a premium price, supported by strong technical and quality controlinvolvement from the retailer. UK retailers do not produce own brand products butdelegate the task of production to a small number of large suppliers, with whom theydevelop close relationships. Such businesses that participate in co-ordinatedrelationships remain distinct in the legal sense, but in other respects, extend theirinfluence beyond their organisational boundaries. The structure of the UK retailingsector is such that market power is a feature, with multiple retailers able to imposetheir requirements very effectively on the supply chain (Northern, 2000). However,the economic benefits resulting from the success of own brands are offset by anincrease in the level of risk for those retailers who invest in own brand products. Themore detailed their requirements and instructions to their upstream suppliers, the more5
they are held responsible for the safety and quality of the end product by bothregulators and consumers. By delegating the task to upstream suppliers, the need forcontrol, communication and information is paramount in order to protect the retailers’reputation and market share.Supply chain management is therefore seen as crucial by UK retailers, particularly inrelation to maintaining food quality and safety. In the UK, consumers have becomeincreasingly concerned about food safety and quality issues, particularly those risksthat have potentially severe consequences, and are little understood, such as nvCJD.However, other emerging and high profile issues that may impact upon brand imageand reputation are beginning to attract interest by supply chain researchers andpractitioners. These areas include environmental issues such as pollution, resourcedepletion and waste management, as well as ethical issues (New, 2004b) relating tolabour and human rights, employment practices, bribery and corruption, and corporategovernance. In today’s challenging global markets, the management of relationshipsare viewed as a key element of successful supply chains (Christopher, 2004).2.2Theoretical Roots and ApproachesThe concept of Supply Chain Management (SCM) has developed over time fromhaving an intra-organisational focus on logistics to becoming focused on wider inter-organisational issues. Although practitioners and academics use the term widely, thereis no universally agreed definition (Duboiset al, 2004). The main tensions arisebetween those who adopt a functional perspective and view SCM as an overall termfor logistics - managing the flow of materials and products from source to user - withthe focus on operational issues. Others view SCM as a management philosophyconcerned with the management of supply and demand across traditional boundaries –functional, organisational and relational – and recognises that by doing so,organisations will gain commercial benefits (New, 1996). This research recognises thelatter approach, in which the scope of SCM is defined as wider than that of logistics,is driven by the need to develop competitive advantage for all firms in the supplychain, and involves collaboration across functional, organisational and individualboundaries. The emphasis is on key supply chain-wide business processes across thewhole supply chain, including customers and consumers (customer relationshipmanagement, demand management, order fulfilment, manufacturing flow6
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