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Subcontracting and Partnership Exchange (SPX) Centre in Kenya

Context

In the context of globalization, 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, 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 (req5ests 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

Strategy

A UNIDO Training Programme for the Establishment of a Subcontracting and Partnership Exchange (SPX) Centre in Kenya was held in Nairobi from December 2008 at the Kenya Industrial Research and Development Institute (KIRDI), Popo Rd. off Mombasa Rd, South C.

Impact/Outlook

The findings of the UNIDO Africa Foreign Investor Surveys show that there are many opportunities for increasing local procurement by TNCs, provided there is sufficient government support or support from private sector associations for strengthening domestic industry-TNC linkages. Private sector initiatives are already underway to deepen local supply chains of large international subsidiaries (Business Action for Africa/International Business Leaders Forum).  
The emergence of these initiatives demonstrates that it will be more efficient to allocate scarce resources for engaging with traditional TNCs that are already invested, instead of attracting new ones. Maximizing the positive impact of all existing investors through enhanced collaboration with local firms and suppliers is therefore central for mobilizing FDI for economic development.

UNIDO has established some 60 Subcontracting and Partnership Exchanges (SPXs) in more than 30 countries worldwide, creating a network that aims to help local enterprises successfully meet the challenge of globalization by becoming subcontractors to transnational companies. In this context, the main value-added of the SPX Centre is the help it can give to local suppliers and subcontractors in developing countries and economies in transition who want to gain access to value chains or production systems in local, regional and global markets. Depending on the institutional set up of each country, the SPX Centre is located either in a private sector association (Chamber of Commerce, Manufacturer’s Association, etc.) or a public sector institution (Investment Promotion Agency, SME Development Agency, etc.).

In the past, the SPX Centres centred efforts on the following tasks:

  • Collection of technical information on the manufacturing capabilities and capacities of their member enterprises in selected sectors, such as metal, plastics, rubber, electronics and industrial services
  • Establishment of comprehensive, computerized databases of enterprise-level information, using an established nomenclature system
  • Match-making services to link subcontractors with contracting enterprises seeking qualified and reliable partners to manufacture their products or provide them with services—in effect acting as a clearing house between those seeking and those providing industrial subcontracting, supplies and partnerships
  • Organization of international promotion events, such as partnership days, reverse fairs, where large outsourcing firms exhibit their products, and subcontracting fairs

When the UNIDO SPX programme was launched over two decades ago, it had the vision of setting up an international network of exchanges that could link contractors with potential partners. This initiative led to a better understanding of the global procurement and subcontracting strategies of transnational companies (TNCs) and of the need to develop strategies that could penetrate their production and distribution networks. In the particular case of Africa, it has however been recognized that additional links to direct enterprise upgrading are needed, based on product and service requirements of larger buyers/contractors. Local enterprises need assistance in formulating business strategies to upgrade their competitiveness and to connect with regional or global markets.

The new SPX Africa format will combine benchmarking with the traditional SPX data capture exercise. This benchmarking data will, at individual company level, help companies identify their strengths and weaknesses and help in the formulation of structured company-level development plans. The new SPX process will also move to add further structure to the buyer-supplier alignment process working closely with buyers to understand their needs and requirements.

The effective combination of the investor survey data and the specific data collected from the enterprises eligible for SPX will not only promote linkages but will generate business opportunities and facilitate access to finance. New financing mechanisms, e.g. through the African Venture Capital Association (AVCA) can help address the capital needs of local suppliers emerging from upgrading and modernization plans.

Training Experts:
Mr. Mustak Caglar – mustakcaglar@yahoo.com
Dr. Richard Keegan - richard.keegan@enterprise-ireland.com