Changing dynamics of international business operations

In the context of globalisation, transnational enterprises (TNCs) and large companies are looking for outsourcing and supply opportunities worldwide, in almost all sectors of industry and related services, in a continuous search for increased competitiveness. In this environment, only the most efficient and productive businesses survive. Competitiveness enhancement though restructuring, upgrading, and continuous improvements are thus the foundations for success.

Over the last two decades the industrial system has shifted from model of production, based on highly vertically integrated firms implementing mass production and maintaining a limited role for suppliers, to a pattern of production based on flexible and interacting networks of firms and organizations. This new model of production emphasizes cost competitiveness and high quality levels to be achieved through growing cooperation with suppliers within the global value chain through deepened partnerships. Productivity growth for sustainable economic progress is now based on flexibility and specialization, with higher inter-firm interaction. At the same time, firms are becoming increasingly global and are establishing international networks of production. Within this scenario the development of international supply networks represents a critical issue for developing countries and, in particular, for Africa.

In short, several key trends of supply chain strategies of transnational corporations (TNCs) can be identified:

• Large TNCs increasingly seek to rationalize on suppliers in order to simplify their manufacturing and supply networks.

• TNCs increasingly require suppliers of an international scale that are able to manage demand requirements across national borders.

• TNCs are gradually shifting away from short-term transactional buying (requests for quotations (RFQs)) towards long-term contractual arrangements.

• TNCs and original equipment manufacturers (OEMs) lack knowledge of the upstream supply network structure in developing countries.

• As tier 1 and tier 2 suppliers develop their value chains they become increasingly adept at penetrating the traditional territory of OEMs.

• TNCs are continuing to globally outsource and off-shore their operations.