Platt Perspective on Business and Technology

Reexamining business school fundamentals (reconsidered) 7: supply chains and value chains as drivers of sustaining value

Posted in reexamining the fundamentals by Timothy Platt on February 25, 2017

This is my seventh installment to a series of brief, single issue sketches in which I reconsider each of a set of core issues that I first addressed in this format in a 2010 series. See Section II of my directory: Reexamining the Fundamentals for that earlier related series, and in particular see my earlier same-name counterpart posting to this one as included there: Reexamining Business School Fundamentals – supply chains and value chains as drivers of sustaining value.

I focused in Part 6 of this series on the issues, and I add imperatives of effective communications and inclusive involvement – that in a more strictly business and marketplace context are more usually referred to as effective marketing and customer relations management (CRM) – at least when they are carried out in an interactive customer-including context and with listening as well as speaking. And I turn here to more directly consider the business and marketplace ecosystems that this takes place in – and once again when this activity is carried out in a business and business-related context.

To perhaps intentionally belabor the obvious, and certainly given the six installments to this series that I have offered up to now in it, I write all of this at a time of great uncertainty and change, and in a period when global flattening and the breaking down of international barriers is coming under fire – and particularly in more developed nations. I wrote my 2010 counterpart to this posting, as identified above, at a time of hope and promise for increased global connectedness and interconnectedness in general and for increased development and inclusiveness of free trade agreements and free trade zones. I write this posting at a time when the nations that are most pivotally essential to make wide-ranging international free trade agreements work, are questioning and challenging them and even threatening to pull out of them, at least if they cannot be modified to build selective barriers and filters into them.

My goal for this posting is to address today’s context, in light of 2010’s, for how this retraction from openness is impacting upon supply chain systems and in terms of two very specific issues: the uncertainty that I couched the above opening paragraphs in terms of and a basic underlying assumption that I slipped into the immediately preceding paragraph here. And I will start the main narrative of this posting there, with that fundamentally presumed assumption and by more fully identifying it and by challenging it.

I wrote my assumptions-biased paragraph of note here, using two phrases that I at least strongly implied to be synonymous with each other: “more developed nations” and “the nations that are most pivotally essential to make wide-ranging international free trade agreements work.” This presumed linkage and even equivalence could be taken as an all but axiomatic assumption, at essentially any point in time prior to the emergence of our current systems of ubiquitous communications and information sharing – with the inherent capabilities that larger developed nations have traditionally held, and in trade and alliance as much as anything else. Big and powerful single nations, with their internally organized resources and strengths held a level and type of power, and globally, that smaller nations could not match and either individually or collectively.

“Collectively,” in that earlier and now fundamentally bygone era was essentially by definition “loosely collaboratively” at best. And efforts to so organize and even around single tightly focused points of crucially shared interest could be pried apart by the actions of larger and more powerful national interests – and certainly if those smaller nation organizing efforts came to be seen as challenging to those larger nations in any significant way.

An obvious example here is provided by the Organization of the Petroleum Exporting Countries (OPEC). This is an organized group of oil producers and exporters that originally came together to collectively negotiate the prices they could demand and receive for their export products, in 1960. Initially at least OPEC had only 5 member nations in it. It currently has 13 member nations that as of this writing account for some 40% of all oil production globally, and that can claim ownership of some 70% of all proven oil reserves.

OPEC had its start pre-internet and before the start of the wave of global flattening that we are now experiencing the ups and downs of. Before OPEC, its member nations were constantly being played off against each other by their larger nation petroleum importing customers and forced to take whatever payment rates that those importing nations and their corporations were willing to pay. After OPEC, net oil exporting nations could collectively bargain to achieve price points for their offerings that they had much more of a say in setting.

What is wrong with this picture? Plenty, and I will at least briefly touch upon a few of the high points to that, for use as starting points for outlining how next generation agreements between smaller nations can offer more robust value to them. First of all, any influence that the OPEC nations might have over their industry, and for holding oil resources, for exploring and proving such resources, or for tapping into them for production of sellable commodity products is at least somewhat illusory. The more that the OPEC nations demand for their oil, the more incentive they create in their customer nations – and particularly in their larger more developed customer nations, to find and develop competing petrochemical resources of their own, and alternatives to even needing petrochemicals from oil, and certainly at the levels that they have had to import up to now. The United States as a case in point has developed its resources in this to a point where they could readily become a net exporter nation for these commodities too – and certainly if the American public, and the American government and their environmental regulatory laws were to shift towards favoring that.

Even when a group of smaller nations organizes around a single tightly focused area of collectively shared interest, and in ways that would offer meaningful and even essential value to them all – they have to assume their hold over their area of shared opportunity and its markets will be porous at best – and even self-limiting.

And secondly, even if they can find such an area of shared focused opportunity, as OPEC was developed around – oil isn’t everything and neither is any single commodity, however difficult or restricted its sourcing. Any single commodity or product-type organization such as OPEC is going to face divisive pressures as its nation members have to work with and accommodate the rest of their world, and their client nations in it and on multiple issues – including ones where they are the consumer and importer. And I include their own national defense and other core requirements there as they require outside resources and support for that, as much as I do their maintaining open sources of commodities and finished goods that they would import through global marketplaces – where their prices asked for and demanded in what they sell would impact on what they in turn have to pay, for what they buy too.

I have not been using the terms supply chain or value chain in this posting’s text the way I do in its title, but that is what I am writing about here, in a larger enabling or restricting global context. The 1973-1974 OPEC oil embargo marked the high point for OPEC’s overall organized strength – and it was their one highest high point precisely because of the long-term incentives that it created for every single nation in the world that OPEC nations were exporting oil to, to find alternatives to them.

OPEC is still important and significant in what it decides and does, but when it actually pulled its one “nuclear option” trigger on its one real gun, it took a step that forced the world to respond. And every business and every supply chain and value chain system of them since then and globally, that depends upon oil for its functioning, has been looking for alternative sources and alternatives to oil itself where possible as an essential risk management requirement. And the nations that these business systems are based in and distributed through, have followed suit in efforts to safeguard their entire economies from anything like a renewed oil (or other critical needs) embargo.

And this brings me to today and to this posting, and to the unstated assumption that I made note of before turning to consider my OPEC case in point historical example:

• Can smaller nations make free trade, or in the case of OPEC otherwise managed trade zones or similar international agreements work, without full and wholehearted buy-in from larger developed nation partners?

I would argue that the answer to that is yes, and certainly if the signatory members of these agreements can effectively work with their developed nation trade and agreement partners on specific issues when they cannot do so through open-ended trade agreements. And I would argue that the answer to that question is yes, if those cooperating nations can learn their necessary lessons from the problems and challenges that OPEC created, and I add the ones that the European Union (EU) has faced, with their challenges overtly exploding when Europe first became enmeshed in the Great Recession, and with that continuing as the EU begins to unravel – first overtly with Brexit and the United Kingdom wanting out and now with France and other nation members actively considering such a move too.

I am going to leave off this discussion at that admittedly unsatisfactory point for now – I have suggest there is a possible Version 2 approach that smaller, less developed nations might take here, without actually saying anything as to how, or what this means. I will, however, come back to this set of issues later in this series when I turn to reconsider my 2010 series postings on economics and on law and negotiations. Meanwhile, I am going to turn in my next installment to this, to reconsider Business Ethics and Communications in a Multicultural Context.

And meanwhile, you can find this and other related postings and series at Reexamining the Fundamentals, with this series offered as a new Section VII in that directory.


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