Supplier Development and Linkage programmes as methods of Technology Transfer

1. Supplier Development and Linkage programmes as methods of Technology Transfer John Varney Nottingham Business School john.varney1@ntu.ac.uk Istanbul Spring 2005

2. 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 Istanbul Spring 2005

3. 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. Istanbul Spring 2005

4. 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 Source OECD 2001 Istanbul Spring 2005

5. INNOVATION It 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. Istanbul Spring 2005

6. Part Two The Nature of the problem Istanbul Spring 2005

7. Multi Nationals First tier Second tier Third tier Nature of relationship Close family Partner Inter dependency High trust Relationship based Nature of relationship Cousin Provider Dependency Medium trust Specification based Nature of relationship No ties Servant dominated No trust Price based Some characteristics of supply chain relationships Istanbul Spring 2005

8. How can movement be achieved in this linear system ? Collaboration: Innovation: Istanbul Spring 2005

9. 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 Istanbul Spring 2005

10. KEY ROLE FOR GOVERNMENT AGENCIES BRINGING THE PARTIES TOGETHER INVESTORS SMEs EXISTING MAJOR COMPANIES GOVERNMENT AGENCIES Istanbul Spring 2005

11. 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. Istanbul Spring 2005

12. Avoid the delta effect of over complexity of support. Grants Invisible impact Istanbul Spring 2005

13. No silver bullets Part three The importance of pre intervention analysis Istanbul Spring 2005

14. Variables Sector 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 Istanbul Spring 2005

15. 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 Istanbul Spring 2005

16. 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. Istanbul Spring 2005

17. Istanbul Spring 2005 Base: All respondents who answered (N=150)

18. High Size of circle represents relative resource (not financial) implications Contribution to cost Govt. Agency SME Universities MNCs Low Low High Importance to programme Istanbul Spring 2005

19. Govt. Agency Universities MNCs High Size of circle represents relative resource implications Contribution to cost SME Low Low High Importance to programme Pilot Istanbul Spring 2005

20. 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. Istanbul Spring 2005

21. 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. Istanbul Spring 2005

22. 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. Istanbul Spring 2005

23. 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. Istanbul Spring 2005

24. Case Study 4: AGIP KCO Large 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. Istanbul Spring 2005

25. 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. Istanbul Spring 2005