supplier development and linkage programmes as methods of technology transfer

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Istanbul Spring 2005 1

Supplier Development and Linkage programmes as methods of

Technology Transfer

John Varney

Nottingham Business School

[email protected]

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Conventions of supplier development:

A support activity aimed at attracting FDI or embedding existing FDI

Outcomes of conventional programmes:

Growth in local content as percentage of total purchases

Increase in value of locally supplied goods as a proportion of total value added.

How can this be achieved?

Adoption of world class standards in manufacture

Achievement of industry standards

Introduction of new technologies

Certification

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If these were the conventional aims of Supplier Development what might be the targets for developing economies?

The creation of a World class supplier base which remains viable and innovative even if FDI moves on.

Suppliers who serve customers world wide through export not simply national markets.

A large group of SMEs with high growth potential capable of competing and innovating in world markets.

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The importance of the SME

The European experience:

More than eighty percent of employment from SMEs ( excludes public sector)

Almost sixty percent of turnover comes from SMEs

0%

10%

20%

30%

40%

50%

60%

sme other

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

SME others

Source OECD 2001

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INNOVATIONIt is often forgotten that process innovation is a great a contributor to competitiveness as product innovation.

In manufacturing it will reduce cost improve quality and responsiveness to customer’s changing demands.

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Part Two

The Nature of the problem

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Multi Nationals

First tier Second tier Third tier

Nature of relationship

Close family

Partner

Inter dependency

High trust

Relationship based


Cousin

Provider

Dependency

Medium trust

Specification based


No ties

Servant

dominated

No trust

Price based

Some characteristics of supply chain relationships

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How can movement be achieved in this linear How can movement be achieved in this linear system ?system ?

CollaborationCollaboration: :

Innovation:Innovation:

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The main problem is that communication in these chains is from tier to tier.

A forum in which end users can talk to third tier suppliers will overcome many of the problems inherent in such systems.

As will be shown later some progressive companies recognise this and attempt to overcome it

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INVESTORS

EXISTING MAJOR

COMPANIES

GOVERNMENT

AGENCIES

SMEs

KEY ROLE FOR GOVERNMENT AGENCIES BRINGING THE PARTIES TOGETHER

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POLICY MAKERS KEY ROLES

Create Policies which encourage and enable Government Agencies to assist SME development.

Do not confuse soft loans with development.

Put money into creating indigenous expert business support.

Ensure that your policies take account of the nature of private sector relationships.

Avoid the delta effect of over-complexity of support.

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Avoid the delta effect of over complexity of support. Grants

Invisible impact

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No silver bullets

Part three

The importance of pre intervention analysis

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VariablesSector

Global Conditions

Industry structure

Existing in country expertise

Nature of the need

New Inward investment

Support for existing investors

Support for indigenous industry

Replacement of imports

Rapid technology updates

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Practical Considerations

To have any hope of success linkage programmes must ensure correct focus by involving target buyers at the outset.

Create a steering group of very senior people from the industry to guide your programme.

Make the programme open honest and transparent.

Ensure that staff from Government Agencies are well trained, capable and understand the problems of SMEs and Transnationals

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Why do it

In addition to the trading benefits there are others. Most importantly the willingness of major companies to take over supplier development once the state intervention has started the development process.

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83%

63%

45%

44%

7%

0% 20% 40% 60% 80% 100%

Latest developments on investment incentives

Latest developments on the Supplier DevelopmentProgramme

AfterCare Programme

Latest developments on sites

Other

Base: All respondents who answered (N=150)

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ContributioContribution to costn to cost Govt.

Agency

SME

Importance to programmeImportance to programme

Universities

MNCs

High

High

Low

Low

Size of circle represents relative

resource (not financial) implications

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ContributioContribution to costn to cost

Govt. Agency

SME

Importance to programmeImportance to programme

Universities

MNCs

High

High

Low

Low

Size of circle represents relative

resource implications

Pilot

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Final Points

Supplier development has many forms

Each potential initiative must be carefully planned

Interventions must aim at becoming self sustaining within three years

The development of in country expertise is essential

Policy makers must create an environment in which SMEs receive real support

Financial support for the development of consultancy services and business support

from Universities and other providers must be included in Industrial and economic policies.

Over the long term the Government Agency’s role will reduce.

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Case note: 1

Manufacturer of polymer mouldings. Made head restraint inserts for VAG and Renault.

A complete head restraint has 200 times the value of the polymer insert. Tanex did not have the technology to produce the whole unit. Supported with technology from their major customer they began to produce the complete unit.

By extension of this technology they created a range of new high value added products exporting world wide.

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Case study 2: Ispat Karmet

Established in 1960 Karaganda Metallurgical is one of the worlds largest integrated steel complexes.

Supplying itself with everything it needs from power and raw materials to stationery and packaging.

Here a supplier development programme will be used to de-integrate non-core aspects of the business. Local entrepreneurs will be assisted to form supplier businesses to feed into the steel plant.These newly formed suppliers will given guaranteed orders for three years.Consultants provided through the supplier development programme will support the new businesses until established and trading successfully.

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Case study 5: Honeywell Aerospace

Created an extension of the state supplier development programme. For their suppliers.

Employed their own staff to introduce Six Sigma techniques to their third tier suppliers.

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Case Study 4: AGIP KCOLarge investor wanting to make local purchases.

Lack of local suppliers and those that exist are not qualified to international certification standards.

Supplier development used to achieve industry standard certification.

Additionally clustering of tier one suppliers will be encouraged as these will bring with them technological advances.

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Case study 3

The Kastek company successfully participated in state funded supplier development programme. The Bosch company then took the company into their supplier development programme “the Bosch Way”.

In this programme Bosch introduced into Kastek lean manufacturing and other process innovations.

supplier development and linkage programmes as methods of technology transfer

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