SME – a cog in the wheel of global supply chain

Small and medium enterprises (SMEs) participate in global supply chains within realms of the business giants. This participation is often imposed by the large enterprises (LE) that the SMEs act as an ancillary suppliers or subcontracted firms. Yet, SMEs in most countries are the true backbone of the economy. Example, in 2015, SMEs represented 98% of the total establishments of Malaysia. About the same time, Japanese SMEs accounted for 99% of all businesses and employed approximately 69 % of the private sector labor force. Usually, low cost strategy has caused offshore outsourcing by large retailers to partner manufacturers in low-wage countries. There are also non-cost reasons of offshore outsourcing such as quality & availability of product/service, and entry into new foreign markets.

Supply chain governance

Since all partners are in the “same boat”, strong inter-firm links between suppliers and distributors are critical to the competitiveness of the entire supply network. Example, a cross-national distribution system and its management are an integration of business processes from the final user to the supplier, where supplier provides products, services and information creating added value to the client. And there may be multiple tiers of user-customers and suppliers within a single global chain.

This requires supply chain governance mechanisms with formal and informal rules and agreements to control and direct the behaviours of partners. Formal agreement mechanisms include goal congruence, coordination structure, collaborative agreement, and incentive alignment, whereas informal agreement mechanisms include commitment and trust. It is debatable whether trust can better sustain a supply chain relationship than a legal agreement.

Global competition is about cost, efficiency and more

Competition is multi-faceted. Each facet requires careful attention. Example, last week Toyota the world’s biggest automaker by sales reported its global production rebounded by 30 percent in the second quarter (by September). Despite higher oversea sales induced by cheaper yen, the outputs are constrained by higher input costs and shortage of chips.

Size does matter

Since larger firms have bigger resource pool, it is argued that the smaller firm size of SMEs does act as an underlying influence. Example, SMEs may want sustainability practices, but they are likely to fear cost increases. In comparison with large MNCs, SMESs possess far less knowledge (intrinsic and extrinsic) about wider markets beyond their localities. SMEs in less-developed countries may have less crucial capabilities and more barriers such as technological, physical, and cultural distances, and infrastructural deficiencies.

What’s in it for SMEs

With fewer resources than larger firms, SMEs may rely on resources obtained through their global supply chains from collaborative efforts. These resources include access to wider markets, technology transfer, and sustainability practices.?

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