When Politics Make the Supply Chain Risky

We all know that political and country stability are part of the standard supply chain risk profile. We read about it, we talk about it, but what does it really look like? Let's consider some of the high-profile stories in the news recently.

A top headline maker in news media outlets across the globe is Russia. Regardless of what your personal political views may be, events such as the invasion and annexation Crimea and the military activity in eastern Ukraine are prime examples of political and country risk coming to life. In this case, the actions being taken by these governments — both US and Russian — are having a direct impact on supply chains in the technology sector and beyond.

One significant impact is increasing scrutiny on import and export procedures. For years, businesses have had the responsibility of assuring that they do not sell or ship certain “controlled goods” to companies or individuals that are deemed “denied parties” by the US government. Now, unrest in the region has prompted the establishment of even more strict customs and border controls. Each new step in the process and every additional page of paperwork slows the supply chain down, or, worst case, stops it completely. Russia may not be considered a “hot bed” of electronics manufacturing, but it is a link in the electronics supply chain. Any delays or commercial embargoes that the current political environment may provoke will definitely have a ripple effect through the electronics supply chain.

The US government has also recently made an appeal to companies to reconsider plans to attend the St. Petersburg International Economic Forum hosted by Vladimir Putin from May 22 to May 24, saying their involvement “would send an inappropriate message, given Russia's behaviour” in the Ukraine, according to an article in the Financial Times, May 1, 2014. This places global tech companies like Boeing, Siemens, and Caterpillar (yes, there is a lot of tech even in a bulldozer!) in a difficult position, not only in terms of their attendance at this high-profile economic conference, but also in terms of the long-term effects of the changing political landscape. To date, several CEOs, including those from Alcoa Inc. and PepsiCo Inc. have announced their intent to forgo the conference in response to the government's recommendation.

In China, too, there are a number of instances that exemplify political risk. For example, workers at Yue Yuen Industrial, which supplies the likes of Asics, Puma, Nike and New Balance, have been on strike for some time in the industrial city Dongguan, located in the Pearl River Delta. The workers claim that the company has not been paying the legal level of pension contributions. This is not a small group with picket signs. This strike includes some 40,000 workers and it is unprecedented. How is this a political risk? Well, it has been reported across many major media outlets during the past two weeks that the issue has arisen as a result of the local government's loosely enforced social insurance tax. What can we learn from this? When a government enforces regulations in an inconsistent manner, unrest ensues and sooner or later, the supply chain feels the impact.

As I stated in last month's “Tunnel Vision” blog, the bottom line is that we supply chain professionals must pay close attention to the world around us. Whether it's economic embargoes borne of political strife or scenarios that start with a drought in California and end in unexpected bursts of demand for high-tech mil/aero devices, supply chain disruptions are a part of the business and we need to do everything we can to stay a step ahead.

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