Sourcing in emerging countries: How to manage supply chain risks? The case of Brazil

Details

Supervisors

Blome, Constantin

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

Global sourcing can represent a source of competitive advantages (Van Weele, 2010; Narasimhan & Talluri, 2009). Advantages coming from successful global sourcing are numerous but can quickly become a burden, increasing uncertainties related to global supply chains (Narasimhan & Talluri, 2009; Manuj & Mentzer, 2008). Consequently, companies choosing that strategy face increasing risks, incurring several types of losses (Manuj & Mentzer, 2008; Harland et al., 2003). Due to the fact that disruptions cost and occurrence are at their highest recorded level, the topic of supply chain risk management (hereafter SCRM) has become crucial (Aydin et al., 2009; Chen et al., 2013). However, literature linking SCRM and specificities of emerging countries is scarce and this exploratory thesis aims at identifying how European/North American companies deal with risk with suppliers coming from Brazil. In order to achieve that goal, a thorough literature review on previous SCRM frameworks has been conducted in order to enhance validity (Yin, 2003). To get some insights on how European/North American firms manage their supply chain risks in emerging countries, a multiple case study approach has been developed. Propositions are based on triangulation of two major sources of information: interviews with managers of the selected firms and external documentation, enhancing internal validity (Yin, 2003). Several propositions have been generated, contributing to the scientific knowledge on SCRM: First of all, it has been demonstrated that the commonly accepted notion of quality gaps between developed and emerging countries cannot always be highlighted, especially when sourcing natural products. In that case, the focus of the procurement team will mainly be pointed toward technical capacities. Visits of suppliers’ facility seem to be the most objective measure to assess those criteria. For companies sourcing non-natural products, quality gaps remain problematic, even though they tend to reduce. To ensure high quality inputs, the implementation of quality teams performing regular inspection at suppliers’ sites and of quality path in case of single sourcing are commonly used techniques. It has been demonstrated that sustainability standards differential was a major threat when sourcing in Brazil and more generally in emerging countries. Consequently, firms have implemented measures at different levels of their SCRM process. It also highlights the primacy of the supplier selection phase. Producing more efforts to find a supplier that meets the firms’ expectations is essential to eliminate subsequent major risks, particularly adverse selection, reputational and supply/inventory disruption risks. The case study revealed that self-assessment and supplier site audits were commonly used techniques to assess supplier capacities. The analysis has also revealed that the strict regulation faced by European firms helps to reduce the risk of adverse selection, companies performing a higher degree of due diligence. In terms of risk management techniques, the commonly developed pillars are strategic and formal. As such, firms always protect their tangible and intangible assets through contractual clauses, through the implementation of CSR policies and safety stocks. Collaboration is not developed beyond business and legal obligations. This phenomenon is mainly due to the Brazilian business environment, as corruption and IP protection influence SCRM approaches and measures. Finally, a compilation of best techniques found from the cases have been highlighted in order to guide managers in their sourcing decisions in Brazil and generally in emerging markets.