Navigating International Expansion: Supply Chain Resilience & Organisational Issues

By Sabit Tapan, Partner, Global Key Account Development at Pedersen & Partners and Emin Birsel, Senior Executive and Board Member - International Markets.

Sabit Tapan in conversation with Emin Birsel - part IV

Sabit: Hello, Emin. In the previous 3 editions we’ve covered several topics. But when assessing current challenges, it’s clear that the supply chain, proven to be a vulnerable area, has emerged as a critical determinant of success. What are the main issues facing multi-country supply chain operations?

Emin: Even if a company operates in just one country, supply chain resilience has become a significant issue. It’s particularly important for international companies as they start to rely on increasingly complex global supply chains that span multiple countries and regions. The interconnected nature of these supply chains means that a disruption in one part of the world can easily impact another. We’ve seen this with the ship that blocked the Suez Canal some time ago and how it impacted global traffic in unexpected ways. We’ve also seen how COVID-19 has so suddenly affected the world and the supply chains. International companies are increasingly exposed to uncertainties such as geopolitical instability, natural disasters, trade disputes, and regulatory changes.

Creating a resilient supply chain is crucial to ensure business continuity and operational stability. This is something that companies are paying a lot more attention to these days. Then, questions arise about whether we should have multiple production locations, single production locations, etc. This issue is very real, and once a company steps into the international arena, it presents both great opportunities and risks.

Sabit: When you said that companies are paying more attention to the supply chain issue, I would say companies are investing much more money in qualified talent to manage their supply chains compared to what they have done in the past.

In recent years, supply chain management has become our number one function to fill across the world to help companies compete for talent, which can secure the supply chain. At the end of the day, you don’t have an AI to provide you with assurance. It’s the leadership in supply chain management that helps you with that.

Emin: I think you’re spot on. I’ve seen supply chain procurement and also energy sectors looking for some of the most competitive talents in the industry.

By nature, these areas are perhaps now leading the internationalisation of companies because you have to understand the international markets to understand your domestic market. And still, as you mentioned, there is no AI tool that would spit out the relationships, crisis management, etc. So, those areas, particularly international supply chain procurement, have seen a huge demand for talent globally.

Sabit: As you’ve mentioned multiple production sites, how should companies optimise the benefits of having multiple production sites?

Emin: Of course, a domestic company can have multiple production sites within a given country as well, and the benefits of that are well known. However, with the increasing risks and uncertainties of the world, and the need for business continuity, as well as the need for customers and consumers requiring faster deliveries and faster customisation, it’s a necessity to be closer and closer to the customers. This is not only done through your warehouses, but also being able to produce flexibly and continuously in a variety of markets and being able to produce at the same quality. I have seen that it is not only a capacity issue anymore, but it’s an issue of, just like we spoke about, a supply chain security and business continuity issue to have multiple production sites that can back each other up if necessary. However, that is also again an issue or an area to be very carefully managed without creating excess capacity and excess cost for the companies.

Sabit: Originally, the issue of supply chain and multiple production sites was primarily a logistics concern. However, in recent years, with the geopolitical situation, we’re seeing trade barriers create a pressing need for multiple sites.

So, it’s not necessarily about the supply chain. It’s about the requirement to be able to remain in those markets or serve those markets due to the trade barriers. Is this temporary? Have you seen such an increase in trade barriers during your career before?

Emin: The world trade has opened up tremendously and has become a very complex global market. Geopolitical developments, as well as natural developments like COVID, have taught us that there are limits to expansion and the optimistic notion that we can be in one global market and still secure our business continuity. Trade barriers are rising. But I also want to mention that it’s not only related to goods. It’s also related to services, and those services are sometimes related to developments in the regulatory environments, take GDPR in Europe for example. So, that requirement is shaping the location of data, the possession of data, the storage of data, and related services in certain geographies. So, there’s actually a whole plethora of factors that make supply chains for goods and services more challenging. But I do think that this may continue for a bit more, but where it ends, it’s difficult to predict.

Sabit: Given your sensitivity to these nuances, there are clear decisions to be made. For instance, ways to organise in a centralised or decentralised manner for decision-making, alignment, and motivation of success in international organisations. Do you have suggestions on which ones would work when companies start this journey?

Emin: I believe you’re touching on exactly the right point now, especially since we’ve discussed decision-making and merging of cultures. This is indeed a very challenging, and interesting topic. It’s also a source of strength for many companies.

Centralised decision-making and decentralisation are obviously two contrasting approaches to organisational management. I can’t think of an organisation where every decision is made either centrally or all decisions are made at the subsidiary level.

Successful international businesses often adopt a hybrid approach where certain strategic decisions, such as corporate strategy, brand positioning, product norms, etc., are centralised, while operational decisions and decisions requiring local expertise and responsiveness are decentralised. Striking the right balance is really an art and depends on the stage and maturity of both companies, but also the challenges that your organisation faces.

Clearly, centralised decision-making may lead to delays in addressing local markets, and many times you hear organisations complain or suffer from this. The rigidity in decision-making, usually at the central level, can hinder the organisation’s ability to respond quickly and also lead to employee dissatisfaction.

It’s very important for success that in centralised decision-making, the centre understands the markets well and the organisations that it operates.

On the other hand, while decentralisation has its positives, it can result in a lack of coordination among different business units and may lead to variations in processes and policies. The subsidiaries must understand and see that the companies must operate optimally.

Sabit: The centralised versus decentralised decision-making process isn’t only an issue for companies embarking on international expansion. Even the most active international companies go through cycles, perhaps every 5 to 7 or 10 years, oscillating between centralised and decentralised models. So, as you mentioned, it’s not necessarily a science but more of a hybrid art. There are times when it needs to shift from centralised to decentralised and vice versa.

Emin: I completely agree. This isn’t set in stone and could be even be considered swinging like a pendulum for some industries and companies.

Companies must respond to the demands of the times and be flexible to move in each direction.

Sabit: What are the final words to share for ensuring growth and success in international markets?

Emin: After our three interviews, I think I would like to emphasise a number of things that we didn’t cover in them. Continuous innovation is something that is very important for every company, especially for international ones. Fostering a culture of innovation, adapting quickly to the changing market dynamics and updating products and services regularly is critical. And maybe lastly, there’s a necessity to invest in technology, embracing technology to streamline operations, but also to understand consumers, as customers are even more critical for international companies.

Sabit: Wonderful. Maybe these would be food for thought for future sessions, Emin.

Emin: Agree and thank you too, Sabit.