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Middle East Crisis - its impact on Procurement
Posted 23 February 2011 | 
| 1 Comments
The current political crisis taking place across North Africa and the Middle East has taken everyone by surprise, not least western governments who have looked flat footed when reacting to the breaking news. I believe that these events, like those in 1989 in Eastern Europe, will have far reaching consequences for Procurement and supply chains across the World, particularly in relation to the risks associated with political upheaval and regime change.
The seemingly unstoppable force of globalisation have encouraged buyers to become increasingly global in their sourcing strategies, to take advantage of lower labour costs in emerging markets. But with this change comes additional risk and the events in the Middle East demonstrate that political risk must be a key factor when buyers assess the strength of global supply chains. As we have seen, major supply lines can suddenly be halted and if buyers here in the UK haven't prepared a contingency plan (assuming this is feasible) then the results can be catastrophic.
We have to face up to the fact that many of the world's most economically dynamic countries and regions are not necessarily politically stable, and there are significant supply chain risks that need to be considered. There are also ethical considerations - the UK's defence industry has been selling ammunition and riot equipment to many of these autocratic countries in Africa and are now seeing this equipment being used against the innocent people caught up in the street fighting.
I sense that the world is becoming more politically stressed - the events in Libya, Egypt and Tunisia will have far reaching consequences not just for other autocratic regimes but also for seemingly stable democracies, as the people reassess the relationship they have with their governments. If buyers are not currently taking such political risks into account when making sourcing decisions, they really must wake up and take a reality check now without delay.
That doesn't mean that political change necessarily will result in more challenging supply chains (indeed one could argue that enabling democracies within strong legal frameworks will result in increased economic opportunity for all, and the positive development of supply chains), but even if the change is for the good, there will inevitably be uncertainty and risks preceeding this (democracies can take decades to stabilise from a standing start). Never has the phrase "Caveat emptor" (let the buyer beware) been so apt.
by M Roper | 23 February 2011
1 Comments
Tim Hamper
March 28th, 2011 at 21:15pm
M,
I think the reality check for buyers that you mention is not one of risk assessment, but of opportunity recognition. Risk and uncertainty is nothing new as it accompanies most business transactions.
The fact that populations in the Middle East are at last capable of overthrowing their governments means that decades (make that centuries) of reliance on the most basic extractive industries, with a smattering of low value agriculture, may now be at at an end. Years of chronic under investment and lack of education themselves present countries like Britain with opportunities to export capital, knowledge and professional services. More than this the potential for newly emerging Middle Eastern societies to actually develop new industries, into which we could extend supply chains, will be significant - given the low base from which they're starting. If the israelis can create world class knowledge-based industries in a semi-desert country why can't the Arab and other Middle Eastern societies?
I do argue that enabling democracies within strong legal frameworks will result in increased economic opportunity for all. I'm not sure about "caveat emptor" - I prefer "who dares wins".