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ARCHIVE: TRADE, INVESTMENT POLICY AND INTERNATIONAL COOPERATION

Big Gains With Small Partners: What Multinationals Need From Their Suppliers

Tim Krywulak, Senior Research Associate, Organizational Effectiveness and Learning
July 20, 2009

The “churn and burn” approach to supplier relationships once favoured by large multinational corporations is outdated. In an economy being transformed by global value chains, large multinational corporations depend on their smaller suppliers for everything from product development to customer service.

Missing Links

However, two-thirds of Canadian small and medium-sized enterprises (SMEs) are having difficulty connecting with multinational corporations (MNCs), according to a Conference Board online survey, part of a study for the International Trade and Investment Centre. The absence of such links is one reason why only 15 per cent of Canadian SMEs now participate in global value chains.1

Large multinational corporations depend on their smaller suppliers for everything from product development to customer service.

Supplier development is another challenge. Although 70 per cent of the SME suppliers reported that their MNC partners periodically reviewed their performance, only one-third found these evaluations helpful. What’s more, only 26 per cent of SME suppliers had participated in a supplier development program, the most common being information and technology sharing and visits to the facilities of the MNC.

Why Small Suppliers?

Corporate competitiveness today increasingly rests not only on multinationals’ own strengths, but also largely on their suppliers’ abilities to deliver quality products, product components, and services at the best possible price. Working with SME suppliers can provide big gains for large MNCs.2 Many SMEs offer new product ideas, low overhead costs, specialized knowledge, and other advantages that can help their MNCs partners to:

  • drive innovation;
  • increase productivity;
  • access new markets;
  • mitigate risks;
  • adapt to changing conditions; and
  • enhance their corporate reputation.

Growing Together: MNCs and Supplier Development

The auto industry provides an example of the benefits that multinationals and small suppliers gain from a comprehensive supplier development program. Honda dedicates 13 weeks to its supplier development program, compared with other automakers, which offer between one and seven days of supplier development. The results speak for themselves: following the introduction of Honda’s Best Practices Program, its suppliers improved their productivity by 50 per cent, improved quality by 30 per cent, and reduced costs by 7 per cent.3

The Collaborative Turn: A New Model of Supplier Relationships

In interviews and roundtable discussions with MNC procurement officers, the Conference Board found that many large firms see the case for maintaining good relationships with SME suppliers and committing to supplier development. John Chen, Purchasing Manager for Bantrel Co., a division of a multinational engineering, procurement and construction firm, explained the sentiment shared by his colleagues.

“We manage major, multi-billion-dollar projects where our customers cannot afford surprises, and SMEs are the mainstream of our suppliers. This means that we look for partners that provide reliable services, accurate market information, and consistent cost predictability.”

Bantrel “systematically measures its suppliers’ performance and seeks to build sustainable, long-term relationships” to ensure that the company gets what it needs, says Chen. “We want our suppliers to grow and succeed along with us, because we need good, reliable suppliers.” 4

1 Canadian Federation of Independent Business, Report on Trade (Willowdale: Author, 2004), p. 1.
2 For the purposes of this report, SME suppliers have been defined as companies that employ up to 499 people, while large MNCs have been defined as companies that employ more than 500 people and operate in more than one country.
3 Jeffery Liker and Thomas Y. Choi, “Building Deep Supplier Relationships,” Harvard Business Review (December 2004), p. 113.
4 The Conference Board of Canada, Leaders’ Roundtable on Global Value Chains, February 2009.


Tim Krywulak
Tim Krywulak
Senior Research Associate
Organizational Effectiveness and Learning
613-526-3090 ext. 458
Publication
Big Gains With Small Partners: What Multinational Corporations Look for in Their Small and Medium-Sized Suppliers

Related Research
Canadian SMEs and Globalization: Success Factors and Challenges

Related Executive Networks
International Trade and Investment Centre