1. The Changing Role of Supplier Development initiatives from the attraction of inward investment to capacity building John Varney

2. Simply getting Foreign Direct Investment is only one part of the benefit. Supplier Development has been seen as both an attraction for inward investment, and an aid to embedding existing investment. In the next few minutes I want to discuss some other dimensions of supplier development which offer benefits additional to those given by FDI and may in fact not be targeted specifically at FDI.

3. Four issues which should be considered from the FDI perspective: Will the investment bring Technology transfer ? As a result of the investment will there be Knowledge transfer? Is there potential for Capacity improvements in the private and public sectors? Are there policies in the recipient country supporting Linkages? From the economic development perspective we might add: Will supplier development improve capacity without FDI? Can business improvement amongst indigenous firms be achieved? Are there situations where knowledge transfer will facilitate greater added vale from indigenous businesses?

4. The answers to all of these questions will be found by examining the context of a proposed initiative. A first step then is to examine the context. Here I will try to demonstrate how this works by reference to two recent but very different supplier development initiatives. One in the Czech Republic the second in Serbia. Czech Well developed manufacturing sector. Good reputation in engineering Serbia Agriculture largest part of the economy. Manufacturing not so well developed

5. From the FDI perspective It is worth pointing out at this stage that technology and knowledge transfer from TNCs to suppliers seems only to take place where there is an existing relationship. The supplier development programme should help to foster and support relationships between TNCs and local firms. “ when we build a new plant we try to become part of the community. Our business is long term. The use of local suppliers brings financial benefits to us, and establishes us as part of the community….as we grow we develop the capabilities of our suppliers….problems arise when we cannot find suitable local suppliers…to be considered they must have reached a standard for quality which allows them to compete with global suppliers” Francois Himmelspach Director Baxter BioScience

6. 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.

7. Multi Nationals First tierSecond tierThird 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 Relationships in conventional supply chains

8. Incentives for the various stakeholders and increases capacity For TNCs Shorter supply chains More flexible suppliers Cost reduction Potential for product development partnerships For SMEs Access to customers Information about markets Technology and knowledge transfer Becoming international SMEs Better lines of credit for expansion cont.,

9. Incentives for the various stakeholders and increases capacity The Government Higher competence in government agencies Increased economic impact of inward investment Job creation Tax take General There should be increased capacity through the development of indigenous business consultancy. The use of Universities to support SME growth and development through applied research.

10. Serbia is the worlds largest producer of raspberries It exports the fruit and imports back expensive concentrates, syrups etc., Supplier development programmes can be used to rectify this situation and not be just a service to Inward Investors

11. How supplier development works (in brief) Accept companies into the programme Visit and carry out in company assessment using a model based on the EFQM Business Excellence and TNC supplier audits. Self assessment carried out by the firms on same aspects of the business as are in the external assessment. Jointly create a business improvement plan. After six to eight months second assessment to find the most improved companies. Most improved companies provided with individual international consultant support. Introductions to potential customers, partners, and sources of technical and financial support.

12. Time scales Dec.JanFebMarApl.MayJuneJulyAug.Sept.Oct.Dec.Jan.Feb.Mar.Apl.MayJuneJulyAug. First Business Reviews Workshops Self Improvement2nd Business Reviews Expert support 20 Companies selected Specialized workshops

13. Companies’ view Consultants’ view Areas for improvement

14. Czech Approach Programme administered by CzechInvest with EU management support. Assessment done by KPMG Consultants. Strong links with Investors. High reliance on foreign consultants. Links to local universities not fully exploited. $46million from 17 of the companies involved. Serbian Approach Programme administered by SIEPA with MIGA (World Bank) management support. Assessment SIEPA staff after full EFQM training. Strong links with Investors. Strong links to export agencies. Development plan for Serbian consultants. Development of technical ability in SIEPA. Links to local universities and Science Parks will be fully exploited.

15. Consultants Suppliers Universities GovernmentAgency Transnational Corporations The Actors

16. The Roles Suppliers Give resources to the programme. Have commitment to self improvement. TNCs To support the programme. Give advice and guidance Place orders with companies in the programme Universities Faculties of Engineering, Business & Economics Provide expertise not normally available to smaller SMEs Consultants Provide on going support to companies and help identify expert assistance required from Universities Government Agency Coordinates & facilitates

17. The key challenges for modern Supplier Development programmes are: To create a legacy system that will continue to function without external support. To develop a policy framework that ensures that FDI is encouraged and supported. To increase capacity within the economy through a strong SME base, with supportive research work from Universities. SME population must be supported to work with the Universities, equally Universities must understand that their role is not optional. To ensure that linkage building is a continual feature of economic activity

18. FDI is important but not always practicable. This should not be a reason to fail to use Supplier Development as a means of improving local capacity, competence, and capability. These are activities which will of themselves create greater competitive ability and lead to higher value adding activities within the economy. Assistance should be given to firms to create greater added value through processing of base products. KEY MESSAGE

19. Thank you for listening. I will be pleased to take question now or later. DETAILED INFORMATION ON THE PRACTICAL ASPECTS ARE AVAILABLE. PLEASE CONTACT ME DIRECTLY DURING THE CONFEENCE OR John.Varney@northumbria.ac.uk NBS Etc.