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Business Diplomacy: Protection for Global Supply Chains

Author:Shaun RiordanArticle source:Wuhan University Center for Economic DiplomacyInput time:2015-07-15Page View:191次

 June 7,,﷽﷽﷽was publish    

 

Global supply chains are an increasingly important feature of modern economies. Even companies that claim not to be international are dependent on global supply chains more than they know, whether supplying components, raw materials, energy or finished products. In some senses the internet and world wide web are themselves supply chains. Many cannot function if their supply chains are disrupted. The disruption of multiple supply chains calls into question the ability of many modern economies to function, especially in the developed world. This dependency on, and vulnerability to, supply chains constitutes a key feature of the modern interdependent world system.

 

 

Because supply chains are global, stretching across the world, they are vulnerable to a series of traditional and non-traditional risks, often included under the moniker of “geopolitical risk” (I prefer the term “exogenous risk”). These include:

·Political Risk: political instability, changes of government, new legislation or regulation, nationalizations or even open expropriation can threaten supply within individual countries along the chain.

·Physical Risk: terrorists or criminals can attack the chain, especially transportation between different productive nodes. Piracy and wrecking will grow as threats as traffic through the global choke points increases.

·Reputation Risk: companies are increasingly aware of the risk to reputation of supply chains, as Walmart discovered in Bangladesh. But companies must distinguish between local NGOs operating at individual nodes across the chain, or transnational NGOs that operate across the whole chain. The two of course can cooperate in campaigns.

·Geopolitical Risk: in the purest form of the word, supply chains are vulnerable to international conflicts, trade embargoes or sanctions imposed by those responding to the conflicts and the increasing threat of transnational non-state actors (eg Islamic State) generated by those conflicts.

·Economic Risk: financial crises, volatility in factor prices (eg oil prices) and central bank decisions can all impact on individual nodes of the chain, or undermine the viability of the chain as a whole.

·Cyber Risk: in some sense, digital tools and social media are multipliers of the risks already listed. But control of supply chains is increasingly centralized and increasingly online. This opens them up to hackers, whether for political or criminal reasons, who want to reduce or distort the efficient operating of the supply chain.

·Natural Disasters: in as far as supply chains are about the physical movement of goods, and are spread world wide, they are vulnerable to natural disasters like hurricanes, earthquakes, tsunamis and volcanos.

 

 

Many companies have now realized the reputational dangers of supply chains, and the extent to which misbehaviour in any one of the supply chain’s nodes can impact on their bottom-line in their final markets. If they hadn’t got the message before, they did when the Rana Plaza textile factory collapsed in Bangladesh in 2013 killing 1,129, mainly female, workers. Companies like Benetton, Primark or the Corte Ingles, who all sourced clothing to the factory, had to move fast to rescue their reputations. Developing CSR strategies that were implemented throughout all the nodes of the supply chain became an urgent priority. Despite this, most companies remain relatively fatalistic about the other exogenous risks to their supply chains. Apart from expensive, and almost certainly ineffective, cybersecurity measures and building in expensive redundancy, they abandon the supply chains to their fate.

 

 

While no measures can offer perfect supply chain security (or perfect any kind of security), Business Diplomacy does offer different ways of thinking about the exogenous or geopolitical risks they confront, and ways of mitigating their impact or maximizing post-incident recovery. Business Diplomacy looks to adapt the techniques and mindset of the (good) diplomat to the needs of the company. Specifically it focuses on the strategic use of coalitions of state and non-state actors to mitigate the impact of exogenous risk on the operations of the company. The core methodology of Business Diplomacy is to identify not only the exogenous risks to a company’s operations but also the state and non-state actors who shape that risk. Contact networks of information and influence are developed among these “geopolitical stakeholders”. On the basis of these networks, coalitions based on shared interests can be constructed for dealing with specific problems the company faces. Such coalitions are likely to be highly heterogenous. They will, of course, include state actors, including the company’s own government and its diplomats, but, as companies cannot depend on their government alone to protect their interests abroad, they will also include NGOs, academics and other companies.

 

 

Refining Business Diplomacy for the protection of vulnerable supply chains, it serves as an insulation around the chains. Networks and coalitions of state and non state actors shape the exogenous threat environment to minimize the risk of disruption to the supply chain and to ensure rapid recovery if it is disrupted. More specifically, a Business Diplomacy strategy first identifies the different exogenous threats to the supply chain, and whether they apply within individual nodes, to the links between the nodes or the chain as a whole. In doing so it develops a diplomacy internal to the chain, whereby the different commercial actors who operate the different phases of the chain are brought on side (and share costs/responsibilities). It then identifies the different state and non-state actors who shape the risk environment and develops contact networks of information and influence among them. Finally, it uses these networks to construct coalitions of state and non-state actors which can help mitigate the risks to the supply chain or facilitate its rapid recovery after an incident. It may help to consider concrete examples.

 

 

Natural disasters should be the toughest case for Business Diplomacy, given that they are not controlled by human actors. They are by definition non-preventable, which is why they are called Acts of God (and it is difficult to develop a diplomatic strategy for God). Companies will develop continuity plans for dealing with natural disasters, but they rarely take advantage of the full range of Business Diplomacy tools available. There are a series of actors (politicians, officials, emergency workers, aid workers, journalists) who can provide information, mitigate the impact of the disaster on the supply chain, ensure the company receives preferential treatment or influence those who can offer these. The networks have to be in place before the disaster to allow the construction of the specific coalitions needed in the aftermath. In turn this requires the identification of possible natural disasters that could impact on the supply chain and the identification of the relevant state and non-state actors (including journalists and academics). Academics are particularly relevant. They can give an accurate appraisal of the scope of the natural disaster and how it might impact on the supply chain. They are also likely to be key members of the emergency response, able to ensure preferential treatment for the company after the disaster has struck. For example, a company whose supply chain has an essential node in an earthquake area, will want to develop networks among seismologists, local and international, emergency services, local and national government, humanitarian NGOs, possibly the local community (especially if they have production facilities) and the press. If they have a number of ex-patriate staff, the company may want to develop relationships with authorities able to offer evacuation flights (the US military have a global capacity and may be worth cultivating). Sponsoring conferences on the seismic threat and response in the country may be unrelated to the core business of the company, but may be a cost-effective way of developing the necessary relationships in a positive environment. Other public and digital diplomacy techniques could also be drawn on (perhaps sponsoring and participating, from headquarters, in online disaster simulations).

 

 

Business Diplomacy also offers ways to approach Cyber Risk. Supply chains are vulnerable to a broad range of cyber attacks, whether on navigation systems disrupting transportation, computerized systems managing the entire supply chain, automatized production systems or social media attacks on reputation relating to the different nodes in the supply chain. Companies spend enormous sums on technical cybersecurity solutions, but these are solutions that don’t solve. As seen most recently in the hack on the US government, hackers seem to be able to get in regardless of the cybersecurity measures put in place. At the very least cybersecurity measures need to be complemented by other measures. A Business Diplomacy approach would focus not on the cyber tools, but rather the state or non-state actors using them and the motivations for attacking a particular supply chain. Key questions would include whether they are specifically attacking the supply chain to damage the end-company, attacking supply chains in general to impact on the end-country’s economy or attacking a particular target within the supply chain without thinking about the chain as a whole. It is important to understand whether the would be attackers are state or non-state actors and whether their motivations are political, commercial or “ethical” (eg environmental NGOs). Once the possible belligerents and their motivations have been identified, the company needs to identify the other state and non-state actors which shape their risk environment. Developing networks of influence and information amongst these firstly facilitates improved advanced warning of the plans and targeting of belligerents. More importantly it allows the creation of strategic coalitions based on shared interests which:

·persuade potential attackers not to attack the supply chain, or attack a different chain.

·make potential attackers aware of the broader consequences of what may seem a localized event.

·isolate and marginalize those potential attackers that cannot be persuaded – undermine their effectiveness.

·undermine any social media campaigns against reputation, either by promoting a positive image of the company or undermining the credibility of the attacker.

·in the event of any disruption ensure a sympathetic public reaction and a rapid restoration of the chain.

 

 

Business Diplomacy strategies can similarly be developed for the other exogenous risks to supply chains identified above. It functions both inside the supply chain, developing the relationships between the different actors supplying the different elements of the chain (whether production, assembly or transportation), and externally weaving networks of relationships with state and non-state actors that function almost as a cocoon protecting the chain against exogenous shock. It is distinguished from public affairs or lobbying approaches by its holistic focus, analyzing and managing exogenous risk in all a company’s markets at the same time. This 4D strategic vision (across 3 dimensions of space and one of time) is particularly relevant to supply chains, where the impact of actions in one node on other nodes, or the connecting links, is crucial. Supply chains will grow more essential, not less, and more global as the 21st century progresses. But the geopolitical environment is more volatile and unpredictable. Protection of supply chains will become essential to economic sustainability, for firms and nations.

 


    This article was posted on http://www.shaunriordan.com, June 7, 2015


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