CHALLENGES OF THE PURCHASE FUNCTION IN EMERGING MARKETS

The world we live in has been presenting several changes and in such a fast way that sometimes it scares us with the evolution of events. The world economy, for example, is undergoing profound transformations and in a very dynamic way. The axis of economic power, which has always centered around the US and European countries, is shifting towards emerging countries.

There are many examples that we could use to present as evidence of this argument, but due to limited space in this text, three situations related to macroeconomic data will be discussed.

Let's see, for example, the behavior of world sales of passenger and light commercial vehicles when comparing the market share of emerging countries in 2007 and 2010. These countries went from a small share in June 2007 to almost half of sales worldwide for this product in September 2010.

Another interesting fact is the fact that emerging markets are considered the best markets for these countries. The participation of the emerging world, as a destination for exports from the emerging countries, increased from 37,7% in 2000 to 50,10% in 2009, demonstrating the mentioned preference and contributing to the understanding of the redirection of the axis of economic power.

Finally, Figure 1 provides a panoramic view of the growth of the Gross Domestic Product (GDP) of several countries in 2010 and contributes even more to consolidate the importance of developing countries.

Noteworthy is the fact that Brazil ranks third in terms of growth among the countries considered, behind China and India. The remaining countries, including the US, Japan and several Europeans, posted growth well below that of the top three performers mentioned.

This set of indicators points towards the importance of emerging countries in the global economic context, supporting initiatives to seek a better understanding of what has been happening in the regions of the countries in focus, mainly with regard to the management of the resources that are offered. Thus, the Institute of Logistics and Supply Chain - ILOS, in partnership with other international organizations, carried out research on the challenges and opportunities for buyers who purchase goods and services in emerging countries, which will be briefly presented in this article.

RESEARCH PARTNERS

The survey was coordinated by the German Logistics Association (BVL) and the Logistics Department of the Berlin University of Technology and involved collaborators and experts from different countries to collect data in their respective regions or other areas of interest. This plurality of researchers and studied fields conferred the international character of the environment where the research was carried out.

Brazil was represented by ILOS and had business schools from different universities and logistics associations in China, Russia, Turkey and the United States. These institutions investigated procurement activities in the following emerging countries and regions: Brazil, Turkey, Russia, China, Eastern Europe, Asian Tigers and ASEAN5 (Association of Southeast Asian Nations – Indonesia, Malaysia, Philippines, Thailand and Vietnam).

Figure 2 shows, on the left side, the group of countries where the purchasing companies were located, and the right side is represented by the supplier regions for companies in the countries on the left side.

The study involved the participation of 332 important industrial companies with a high annual amount of expenses incurred by the Purchasing departments. They shared with researchers their perceptions about sourcing objectives, the current and future challenges they are experiencing in defining their sourcing strategies, and also the volume of price reductions on purchases made in emerging markets.

The vast majority of companies interviewed (79%) had revenues above 50 million euros and 40% of the total sample had revenues above 500 million euros. The Purchasing executive held the position of vice-president in 14% of them, and occupied the position of director or executive manager in 78% of the companies, indicating the importance of this function, mainly from a strategic perspective.

The breadth of the surveyed sectors shows the diversity of companies that issued their opinions, collaborating with the generalization of the results found.
The segments investigated were: machines and engines;
electronics and information technology; automotive; food and drinks; consumer goods; chemical and pharmaceutical;
textile; and steelworks.

CHALLENGES OF BUYERS IN EMERGING MARKETS IN GENERAL

Companies located on the left side of Figure 2, which carry out their acquisitions in the emerging markets of the countries mentioned on the right side of the same figure, encounter several challenges associated with product quality, logistics infrastructure, processes, communication and others that will be discussed later. Some of these challenges are constantly being highlighted in the international media and little progress has been observed towards changing this situation in recent years.

Figure 3 presents a consolidation of the mentioned factors. The quality of the products was the most mentioned problem by the purchasing companies in the emerging markets (77%). The low quality can be explained by the low technological content, when compared to developed regions, by the little concern with the customer and by production and management problems.

One way to get around this problem is to use an outsourced service for early quality control. Some Brazilian companies that carry out parts of their international purchases in emerging countries try to adopt the practice of having an auditing company at the place where the material is obtained, to certify its quality before it is forwarded and avoid all the inconvenience of rejecting the material after your arrival in the country.

The logistics infrastructure was ranked second as the main bottleneck, with 74% of the votes among respondents. This point is recurrent in the conditions offered by emerging countries, which still do not have an adequate infrastructure for the movement of goods that they export or that they sell internally.

In the case of Brazil, it is already widely known how our logistical restrictions affect delivery times and the cost of purchases made in our country.

Some of our products, despite being produced or cultivated efficiently, lose international competitiveness due to the deficiency of the logistic structure that we face.

Of course, there are already projects from the Federal Government's Growth Acceleration Plan (PAC) to overcome some logistical bottlenecks, but these projects are being executed at such low speed that it will take a long time for us to live with the current logistical bottlenecks.

The communication problems mentioned in Figure 6 refer to the low exchange of information between buyer and supplier. Much of this information relates to the material handling operation, which needs to cover great distances to the destination point, when it comes to exchange between countries.

The lack of qualified suppliers was pointed out by 68% of the purchasing companies participating in the survey and means that they are finding it difficult to identify suitable suppliers due to issues associated with the production process of these suppliers located in emerging countries. Another difficulty, indicated by 67% of the companies and also very correlated to the previous one, was the lack of technological knowledge of the suppliers.

Apparently, suppliers have a structure and technological knowledge below that expected by most buyers, with reflections in meeting the needs of the demanders, who need suppliers to carry out their significant investments in the coming years, due to the economic growth that was outlined at the beginning of this text.

The international study that gave rise to this article also pointed out that there is a negotiation mentality among emerging countries that makes relationships difficult and that provides little flexibility in the interaction between the parties.
This occurrence was confirmed by 65% ​​of the interviewees.

Also curious is the fact that the local culture is pointed out by 63% of respondents as a barrier to doing business. It may be that the averages of the last two mentioned problems are influenced by the other emerging ones, because Brazil, due to its strong Latin cultural aspects, has always been characterized by being a country of excellent relationship with its interlocutors.

EMERGING CHALLENGES BY COUNTRY

Emerging countries have similar problems with regard to meeting their own needs and those of others seeking these markets.

Undoubtedly, the issue of lack of logistical infrastructure is the defining factor in all countries examined.
As depicted in Figure 4, logistics is a big problem when buying in China, a fact pointed out by 87% of the interviewed companies.

In Russia, this percentage drops to 85% of respondents. Difficulties are related to regulation, numerous bottlenecks, lack of qualified operators and poor performance of the supply chain in moving material as a whole.

China has initiated several government programs to change the current situation and has involved foreign logistics companies in its operations, in order to gain experience and be able to adapt it to the Chinese market.

Brazil presented a logistical difficulty index, pointed out by the purchasing companies, similar to those of China and Russia. Our infrastructure development projects are seen externally as being carried out at a slow pace, leading to the current situation of bottlenecks in the system to become more pronounced in the coming years.

Another point also mentioned by countries that buy in Brazil, whether Brazilian or foreign companies, is that the prices of our logistics services are very high, contributing to the formation of obstacles in the acquisition of goods in the country. The fact is that, in general, China, Russia, Brazil, Eastern Europe and Turkey had similar and high levels of logistical difficulty.

The second challenge, to be considered on an individual basis, is shown in Figure 5 and is associated with the difficulty of negotiating in emerging countries.

Problems of this nature are mainly due to cultural barriers existing in these markets. The interviewed companies indicated Russia with the highest rate of negotiation problems.

Turkey follows in second place and the problems there are related to free trade agreements, transport quotas, regulations and also arising from a unionized customs.

In Eastern Europe, there is a healthy practice of having an account manager in negotiations between partners, increasing the relationship of trust and ensuring accuracy in the information that is exchanged.

But even so, more than half of those interviewed (54%) pointed out difficulties in the field of negotiation in that region.
A fact revealed in the survey that draws attention was the fact that Brazil is appointed as the country with the lowest
negotiation difficulty index, a problem mentioned by only 38% of the companies that buy from the country. The other countries had much higher percentages than ours. Among the reasons that contribute to this low indicator, we could mention the flexible, temporizing and friendly way of Brazilians.

The lack of a qualified supplier, as noted earlier in this text, is one of the problems faced by emerging countries and is more felt in Eastern European countries, China and Brazil. The region with the highest incidence of this situation was Eastern Europe, with 75% of respondents drawing attention to this problem. China and Brazil appear next, with 72% of the opinions of buyers. Figure 6 brings the view of all countries surveyed in this regard.

Most emerging market suppliers attract buying companies due to their price advantages, as they rely on the low cost of labor in their countries. However, this low cost of labor seems to be associated with limitations in the workers' skills and learning capacity, reflecting on the qualification of suppliers.

This picture indicates that buyers will have to make efforts to promote the development of their suppliers in emerging countries. This development involves seeking to improve quality, delivery time, order cycle time, innovation capacity, technological capacity of products and processes, production capacity, environmental responsibility and financial viability, both for existing suppliers and prospecting for new ones. suppliers.

CONCLUSION

The economic transformation in countries considered emerging is causing a strong growth in domestic and foreign consumption in these countries, which turn to the market of other emerging countries to satisfy their needs.
It seems that sellers were not prepared for this significant increase in demand, causing deficiencies in the services provided, increased costs, problems with the quality of the material supplied and significant logistical bottlenecks due to the insufficient logistics infrastructure in these countries.

The reaction to the aforementioned problems has been slow and bureaucratic, with a direct impact on the response time for solving some of the difficulties that were discussed. The continuity of the bottlenecks mentioned for much longer, associated with the high demand from emerging countries over other emerging markets, could lead to a shortage of supply sources.
Thus, Purchasing and Supplies executives must be alert, because the scenario designed indicates that they will have difficulty in carrying out their companies' investment projects due to a possible lack of suppliers.
BIBLIOGRAPHIC REFERENCES

Braga, AR Market Intelligence Applied to Purchasing/Supplies.
Tecnologística Magazine, ed. January 2008.
BVL, Strategies International Procurement:
Challenges and Opportunities in Emerging Markets. Bremen, 2011.
ILOS, Supplier Development Survey, 2011.