Abstract
Supply chain management in Latin America as a whole is a major emerging market for many companies looking to expand their services. Overall companies are taking a greater interest in Latin America due to the high potential and return in investment. However, to be successful in the long run, companies will face some difficult challenges. Some of the major challenges they will face include the challenge of grand scale, challenge of high cost, and challenge across borders. I will also look at some other areas that can have a huge impact on companies, such as supply chain strategies, significant local footprint, appropriate organization split, and pragmatic agile execution. The idea is to take an in depth look at every one of these challenges to fully understand Latin America and its supply management system. By doing this, a more suitable plan can be established in the immersion into such a complex part of the world. The purpose of this research paper is to establish the difficult challenges the region will encounter and how companies can overcome these challenges in the pursuit of a better supply chain management model.
Supply Chain Management in Latin America
When talking about supply chain and Latin America will be looking at some challenges that included challenges on a grand scale, the challenge of high cost, and the challenge across borders. Will also be looking at the significant local footprint, the appropriate organizational split, and pragmatic and agile execution as all of these topics are playing an important role in unlocking the great potential that is Latin America. Various challenges companies will face in the process of establishing a supply chain process in Latin America will be the different time zones, differences in cultures and politics, different languages, geographical barriers, and the various free trade agreements in place between countries of the region. One of the challenges companies can face when conducting business in Latin America is due to the “great distances and poor transportation infrastructure”, which usually result in the region's high costs (Branco, Cabral, Kraiseburd, Silva, & Witty, 2014). On average companies will spend around 18% more when shipping within Latin America due to the lack of roads and infrastructures and at the same time they also have a longer gap between major cities compare to the rest of the world. Looking, at the infrastructure side and comparing it to other economic cooperation and development member countries we can see that Latin America as a whole lack in the areas such as roads, railroads, air transport, ports, and electric supply (Figure 1).
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Another challenge that companies face when conducting business in Latin America is higher cost from areas that included transportation cost, management cost, and labor cost. As previously mention the lack of infrastructures in Latin America usually forces for a higher cost in transpiration cost due to the lack of implementation. On average Latin America countries have a high percentage of transportation done by road for example “Brazil has 60%, Colombia has 77%, and Mexico has 90%” and when comparing this to the rest of world we see that “United States has 36% and China has 21%” (Branco, Cabral, Kraiseburd, Silva, & Witty, 2014). When comparing these numbers to the infrastructures found in figure 1 we can see how Latin America has a higher cost giving that develop countries tend to ship via railroad, which offers a lower cost in transportation of goods. When it comes to labor and management cost salaries tend to be on par with other areas of develop countries. Even, though much of Latin America is compose by emerging countries salaries have being on the risen in recent years and in some cases labor cost are higher than in countries like China. Even though unemployment is high in the region this doesn’t normally translate to a high level of train personal but rather that countries in the region haven’t really develop their workforce. This will force for a higher cost in labor due to the reason that companies will usually have underdeveloped workforce that will translate to companies being force to invest in job training in order to develop employees (Harrington, 2012) .
Another challenge that companies will come up against when conducting business in Latin America is the idea that each country has its laws and regulations that have being establish in each country. In all Latin America is compose of 17 countries that all carry different laws and regulations and in many instance they carry tough regulations in a way that will protect their local economy. An example we can see is in taxation of goods and services even though companies could be developing the same product they will see taxation to be different depending on the country/ region they are producing such product resulting in higher cost of goods.
Supply chain strategies
Latin America is one region that is potential to achieve significant growth in economy given the wealth, stable economy and consistent growth. These primary factors attract large investors and companies to the region. However, the potential investors would only be able to make significant income from these countries given that there is poor transportation for goods, there is large distance between cities, which hinders fast business activities in the region. Most companies consider Latin America a destination for business opportunities given that it has a total of $5.5 trillion (Ruiz-Torres, Mahmoodi, & Ayala-Cruz, 2012, January). This is a significant point that makes investors believe the region is such a good place to invest. It is therefore very important to note that the regions wealth seems to grow despite its huge GDP unlike other developed nations such as the US. In Latin America, the GDP is consistently on its growth levels due to the potential contributors for its growth levels that make it keep advancing (Jensen, & Hammervoll, 2012). In addition to the attractive GDP of the region, it is also noted that the region has high level of per capita income among its people. Based on the projections on the region’s growth level, it is anticipated to have a growth of 4% in its economy in the next years.
It is also noted that Brazil for instance has a GDP per capita income of 45%, which is much higher than for countries such as china and India. With these figures in mind, it I clear that the country has a significant growth in its economy hence attracting more investors into the region (Attaran, & Attaran, 2007). Such factors make daring investors to consider improving their input in the region so that they can gain from the growing economy. With regard to the ever-changing economic situations in the region, businesses have adopted measures that facilitate consistency in their business operations. For instance, when there are unfavorable border barriers that affect business operations, companies that own more companies in different countries adjust their production levels to meet the significant challenges.
Some of the challenges encountered in this aspect include political instabilities, which may force closure of borders or even limit the movement of goods within the regions. Business operations are significantly challenges based on these factors (Bookbinder, & Mant, 2013). It is therefore critical that any business operation that would wish to undertake its activities in the region considers how the economic operations may influence business operations.
Companies that operate in the region have adopted strategies to support their survival in the challenging environment. These businesses have adopted the Latin American approach in support of the operations. The Latin American approach has been an important factor that has facilitated the supply chain methods adopted for the successful operations of the businesses in the region (Langley, 2008). Notably the businesses have incorporated their policies in the supply chain that would enable them realize significant operational success in the industry. Additionally tax policies have come in handy in promoting successful policies regarding the supply chain management. An example is an electronic company established in Rio Grande an extremely cold place. It is located 3500kms South of Buenos Aires. Despite the distance from the closest city, the investors preferred the region due to the associated benefits once proper supply chain strategies are implemented.
Significant local footprint
Most of the Latin American supply chains make a considerable factor based on the local footprint. The countries in the Latin America have considerable input into their market demands through the local productions that have been increased (Bookbinder, & Mant, 2013). The mobile phones are produced mostly in Argentina for instance. The local production meets up to 80% of the demand for mobile phones. In this case, the country avoids the import duty levies that would be applied on imported goods. The increased local production has made it important factor that has boosted the local market and the region’s economy in general. Some international companies, which have larger market in the Latin American region have moved to the local production as a way to counter the significant costs, associated with the supply of the products from foreign regions. It is noted that these companies increased their earnings when located in the Latin American countries. The factor contributing to the lowering of costs when the company relocates to the region is that the costs associated with transportation are avoided, costs related to the importation and on the other side increase the customer satisfaction. It is also evident that business located within the Latin American countries enjoy favorable tax levies. These businesses are able to come up with locally designed products that would meet the needs of the customers.
Local producers have also polished their production and design skills to meet those of the competing firms. In the 1980s for instance the German manufacturer Volkswagen, came up with a new model ‘Gol’ fit to the needs of the locals of Brazil. The vehicle gained fame leading to large sales recorded by the company. Given that, the German carmaker established a local company in brazil specifically to produce ‘Gol’ which are the favorite for the Brazilians. This is an example of a competitive advantage gained with the production of localized cars in the Latin American car manufacturing (Ruiz-Torres, Mahmoodi, & Ayala-Cruz, 2012). Furthermore, the Brazilian based companies that belong to the German Volkswagen have been used to manufacture more vehicles to be exported to other countries of the world given the cost effect in the production. The manufacturer has chosen Brazil as a base for production of low cost city cars to be exported to other nations.
The apparel, which is also another company, focused on the production of locally designed outfits. This has based its production in the needs of the local people of Brazil. It has since achieved its business objectives given that it has improved the designs and production adjustments to fit the local production (Attaran, & Attaran, 2007). The leading player in this industry Zara makes design adjustments for the Brazilians, which is not done in other countries. Brazil is also a country that has enabled fashion designers to base their designs that would be used in the producing what to export. The rich potential for business operations is a recipe for more investor to come into the country. With such business undertakings by the various companies in Brazil, there is considerable input into their operations towards economic improvements. The supply chain policies available in the Latin American countries are the primary factors that facilitate economic growth. Most business and companies have adopted it to facilitate growth and considerable earnings. Such business operations make it possible for the companies in the region to realize profitability and growth in their business operations.
Organizational split
The other aspect that will surely play a great role in the supply chain management in Latin America is on the area of appropriate organizational split. Organizational split first occur due to the effect of stakeholders disintegrating in an organization in a hostile disagreements with the rest of the group. Appropriate organizational split is relative a disintegration but one in which its resultant effect is for the benefit of an organization and serves the region at last (Asal& Dalton2012). In the Latin America, an appropriate organizational split is important in the essence that the region has different issues to be factored in. It is therefore important for companies to design a proper regional split, which not only optimizes the benefits of scale but also highlights the individual desires of a specified region. Appropriate organizational split in the region can as well be fragmented into two basic areas, the right supply chain cluster and the correct organization within each cluster. When we are talk about the right supply chain, it is it is important to note that the kind of the organizational split taken should be able to put in to consideration aspects such as the terrain. Most regions in the Latin America have a rugged terrain. We also consider distance, cultural differences such as language barriers within the countries, and the political differences in the region.
In the part of choosing the correct organization within the stipulated clusters, companies or organizations tend to enhance stimulus projects that will benefit them, this projects are done through researches, development and in the form of logistics. These supply chain management tools should be also done in correspondence with the country’s taxation policy and in a way that benefits the organization in terms of achieving its main objective. Basing on the organization’s products, this approach will help the company concentrate more in a place where there is a large market for their products. Ideally, the aim of adjustment in the organization’s form is to trigger a reaction within the stipulated coverage of the organization (Attaran & Attaran 2007).
Pragmatic, agile execution
Renowned organizations have a habit of twisting their supply chain undertaking strategies in order to march with the realities of operations in in Latin America. Successful organizations tend to opt for a high-risk high outcome approach. In order for this to be realized, a high standard of speed and flexibility, both for daily operations and into the foreseeable future trends is essential. This will only be achieved through a high competency of staff and proper investment in the supply chain will. The following operations within an organization can be undertaken in order to achieve a pragmatic and agile execution.
Tactical responsiveness, one of the most common approaches used by organizations to meet their daily operational challenges in the Latin America is the use of high-risk adjustment stocks; this approach is not commonly used in other regions. The purpose of it is to maintain the flow of supply when local logistics experience delays. The other approach is on strategic agility. Renown organizations have learned to react or rather improve on their ability to counter measure changing trends in two ways; by developing and memorizing on contingency plans to counter a wide range of likely scenarios, and by updating their ability to unanimously counter unstipulated events. These capabilities are essential in Latin America, a region where political and regulatory changes are unwarranted and the result of either way can have a huge impact on supply chain and efficiency (Boyer & Mili2011).
In a nutshell, several organizations operating within the Latin America require a stipulated approach to take care of the flaws in the supply chain. The already renowned organizations have tried to do this by incorporating actions like enabling the exchange of ideas and best practices from their subsidiary established supply chain organizations outside the Latin America region, putting more effort on capacity building and incorporating their local organizations to better suit the local requirements.
Agreements
In recent years a group of countries have come together, form, and sign an agreement by the name of Trans-Pacific Partnerships Agreement (TPP) in which we can see the involvement of countries that compose both Latin America and the Caribbean. An agreement of such magnitude usually lays the foundation for a higher involvement of trade between countries due to lesser tariff involvement in the transportation of goods and services. The TPP also includes topics such as trade barriers, environmental protection, good governance, human rights, intellectual property, and labor standards that went put together all play an integral part in supply chain management process (Estevadeordal, 2017) . Another agreement that is place in the region is Mercosur an agreement that has being in place since 1991 and has Argentina, Brazil, Paraguay, Uruguay, and Venezuela as full members although Venezuela is currently suspended. This agreement open the doors for the purpose of free trade and in the process offer fluid movement of goods, people, and currency which lead to higher movement between the countries that are fully pledged plus any of the countries that are associated with the Mercosur agreement.
Conclusion
Overall companies would need to understand that Latin America as a whole is a complex region and in which attention to detail is required to meet countries expectations and demands when it comes to supply chain management. In the process of developing a winning supply chain management process in Latin America companies will have to have perseverance, a strong relationship with both local relationships and in partnerships, and more than anything will required a high level of creativity to develop a winning process.
References
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