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And the list continues to grow …

January 8, 2015

protectionismYesterday I was involved with a briefing call for the IACCM Advisory Council. We discussed a number of emerging trends – including those which I outlined in my blog ‘A new year makes no difference’.

Several additional items arose during the conversation, illustrating the tremendous diversity of challenges facing the commercial community.

1. In a number of industries, some large suppliers exhibit almost monopolistic or oligopolistic behaviors, evident in their ‘take it or leave it’ terms and conditions and some of their business practices. I find this interesting and I suspect many on the supply side, rather than sympathizing with customers, would say ‘it serves them right’. Years of aggressive procurement practices, forcing ever lower prices and ever greater risk onto their suppliers, has certainly not created a sympathetic environment. It has also forced industry consolidation and driven competition out of the market. The ‘oligopolistic behavior’ is in part also a result of more frequent teaming between a small group of large suppliers. Yet even now, customer organizations seem slow to learn that they need to alter their approach to the supply base. In most cases, procurement has not altered its unrelenting focus on lower prices and a heavy burden of risk.

2. There is growing protectionism and this distorts markets. It is certainly true that demanding economic conditions and broader social unrest are leading to market distortions. These include preference to local suppliers or more onerous demands for counter-trade and local content. Rather than protest, I think commercial teams need to adjust to these realities. Politicians will respond to the concerns and pressures within their jurisdiction. Suppliers must become smarter at anticipating and enabling these needs. Commercial managers need to establish proactive capabilities in raising local content or developing local skills and make this a key part of their value offering.

3. We need to invest more in supplier development. The issue here is the lack of availability of skills. Despite high levels of unemployment, many countries lack the skilled labor needed by today’s business. This ties to the point on protectionism, where free flows of labor are also now being constrained. However, the answer may also be the same: smart suppliers (and buyers) need to look at how they build competitive advantage through programs and offerings that alleviate skill shortages. This is a commercial challenge to be fixed, not an insoluble problem.

4. It is getting harder to get paid. I found this an interesting comment and not one I have heard elsewhere. Certainly payment terms have lengthened – I have written on that topic several times in the last year. And the volume of debt written off is truly remarkable. But this comment was made especially in the context of Europe and the fact that companies there are lengthening payment periods and then often failing to pay even when due. I would be interested to know if others are experiencing this challenge. I certainly know that factoring is growing fast in Europe and perhaps that will provide a solution.

Interesting topics and just more evidence of the scope of the challenges facing commercial professionals. Perhaps a key point is that individually and on a deal-by-deal basis we cannot find answers. The real value of commercial management can be realized only when the community starts to combine and develop campaigns or design solutions that address these issues more holistically.

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