Christmas in March
Managing Global Value Chains
GROUP BB, Group Assessment
Submitted by Group BB
Qianqian Jiang #530626231
Sizuo Liu #530651624
Marcelo Bussacarini #540867358
Erica Wijaya #540404739
Qingyun Liu #540041224
Xin Jin #540094390
Annie Huang #540306581
Zhirong Chen #540148349
MIBS6001
GLOBAL BUSINESS ENVIRONMENT
Professor Dr. Michael Murphree
2024_S1C_MIBS6001_NE - Monday
Class Commencement Time: 6:00 PM AEST
Date Assignment Due: 15-04-2024
MODULE 8
Problems:
Problem 1: Supplier Dominance and Concentration Risk
Supplier Power: Suppliers hold significant influence due to their collective control over 84% of the global value chain (GVC), presenting a risk of holdup and power imbalances.
Limited Alternative Production Hubs: No other region matches the scale provided by current hubs, exacerbated by U.S.-China tariffs on imports, including tariffs specifically targeting waste imports. There are no feasible alternatives to accommodate the large-scale production and seasonal demands that China currently supports.
Problem 2: Aging Workforce and Succession Challenges
Retirement of Key Manufacturers: Many suppliers are family-owned businesses facing succession issues, with current leaders (often in their 70s) planning to retire (a phenomenon sometimes referred to as the "Great Retirement").
Lack of Succession Planning: There is a noticeable trend where the next generation is less interested in traditional manufacturing roles, preferring more lucrative or prestigious positions higher up the supply chain. This creates a significant gap in the availability of experienced, motivated leadership within the manufacturing sector.
Problem 3: Escalating Production Costs
Rising Labor Costs: Wages in manufacturing hubs, especially in China, are increasing, which directly affects production costs.
Transportation and Tariff Costs: The ongoing trade war has led to increased tariffs, inflating the cost of goods and materials. Additionally, the cost of shipping and transportation has risen, partly due to logistic inefficiencies and increased fuel prices.
Impact of COVID-19: The pandemic has exacerbated costs across the supply chain, from production delays to increased logistics spending due to disruptions and health-related measures.
Problem 4: Inefficiencies in Container Logistics
Container Imbalance: A significant number of sea containers are not returning to China, leading to a shortage that necessitates the production of new containers. This shortage has been a persistent issue, further complicated by the idling of old containers in parts of the U.S.
Solutions:
Walmart Manufacturing Innovation Hub Program
Objective: To support Chinese suppliers in establishing offshore manufacturing plants and invest in generational transitions. The program would facilitate mergers and acquisitions, assist in the selling of businesses, and help in identifying new entrepreneurs keen to continue in these ventures.
- Helps Chinese suppliers by trying to move around the U.S.-China trade war (regulations & policies) → Supplier risk diversification
- Opens a new market for the Chinese suppliers (get orders from other global brands)
- Has existing expertise and capabilities (esp in production)
- Government of China would also still benefit – foreign income (supporting local companies)
Method: Establish accelerators and collaborate with banks to provide financial assistance and expertise, ensuring a smooth transition and operational start-up for new or relocated plants. Walmart would offer guaranteed contracts to ensure a stable order volume (and potentially increasing volume if requirements are met) for suppliers transitioning or expanding offshore.
Benefits for Walmart: Supplier Risk Diversification & Market Expansion
Benefits for Suppliers: Support for Transition, Continued Operations and Growth & Government Support
Walmart Key Suppliers Strategic Alliance - for global expansion Program
Objective: Select key chinese suppliers to form strategic alliances and expand their production capabilities into new countries such as Vietnam and Thailand.
Method: Offer incentives such as non-exclusive exclusivity contracts, allowing suppliers to also serve other clients. This strategy motivates suppliers to increase capacity and diversify their product offerings.
Benefits for Walmart: Increased Leverage and Dependence, Risk Diversification and Mitigation of Trade War Impacts
- increases our power (dependence on us in other countries to survive)
- Diversifies risks (esp. hold-ups)
- Reduce reliance on China and improve the mechanisms to reduce the risk on US and China trade war.
- Works around ever increasing taxes between the two countries
Benefits for Suppliers: Capacity Expansion and Market Access, Product Diversification and Enhanced Stability