The Impact of Globalization on Retail Supply Chains

The effects of globalization are inescapable, even for retailers targeting only local or national consumers. To capture the opportunities in global sourcing, manufacturing, procurement and logistics, supply chains need to be increasingly flexible. And new, cash-rich, emerging market competitors are entering the turf of established players.

There are three major challenges for retail supply chains brought about by the multi-polar world:

Complexity—Regardless of whether a retailer is setting up shop in disparate global locations, increasingly interdependent economies magnify complexity. Even if global operations are limited to "just purchasing," operating in sprawling geographies brings with it a raft of issues. Among them: unique national cultures, different languages, extremes of economic development, regulatory diversity and new and likely hard-to-decipher customers.

Stretching—Retailers need to expand the reach of their supply chains to leverage gains from low-cost country sourcing, and they need to extend the functional capabilities. By that we mean evolve from "maker" to "mover" to "integrator." Integrator entails gaining capabilities in network optimization, channel control and customer care. Retailers need to stretch both dimensions of geographical presence and functional reach simultaneously to meet the demands of the multi-polar world.

Adaptation—Everything is changing at speed: consumer tastes, prices, technologies, workforce skills, services, input costs, infrastructure and regulations. Adaptation will also be critical for responding to new non-traditional, but cash-rich, competitors that will not only introduce new competitive threats (and opportunities), but will likely change competitive rules—raising the bar on products and services.

At times, the challenges of the multi-polar world seem to outweigh the opportunities. Complexity, the need to stretch capabilities and adaptation issues are daunting. But retailers that can overcome these hurdles will be those that outperform competitors and achieve high performance.