Bain: Supply chain barriers cost 1.6 trillion globally

19 March 2013 3 min. read
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The existence of supply chain barriers across the globe leads to a massive value destruction. If every country improved just two key supply chain barriers – border administration and transport and communications infrastructure – even halfway to the world’s best practices, global exports could rise by 14.5%, equivalent to $1.6 trillion in value. Also this impulse could deliver between 23 and 110 million relatively well paid jobs to the world economy. This can be concluded from the report ‘Enabling Trade’ edited by Bain & Company  in cooperation with the World bank and the WEF.

The consultants differentiate between four major supply chain barriers that obstruct trading:

Bain - Supply Chain Barriers to Trade

These supply chain barriers have a detrimental impact on trading in 4 manners:
- A rise in costs, both higher operational costs and increased capital expenses
- Delay in decision making because decisions are less predictable and more analyses are needed
- Lowered volumes in trading activities
- Increased risk

In the report advisors come up with multiple examples. Because of all the administrative rigmarole, sometimes long lines arise at the border leading to the decay of agricultural trading products.  Also the chance of thievery increases when boarder completion is taking more time. In South-American countries boarder completion could even last ten times longer than it in the EU, this could result in higher costs. In some cases a combination of supply chain obstacles can become such a challenge leading foreign organizations unable to take up competition with rivals. If a company has to meet unrealistic demands (for instance environmental legislation or safety regulations) it simply becomes impossible for them to compete with local companies in executing certain assignments. More and more supply chain barriers are seen in the Far East or South-America. ‘In Argentina for example so many barriers are raised causing many companies not wanting to do business there anymore. They simply leave the country.’ Says Marco Kalleveen, partner at the strategy advisory firm.

Decreasing barriers more effective than abolishing fees

Bain & Company proclaims that countries should change their focus of attention when it comes to stimulating world trading. Up until now primarily ‘tariffs’ are negotiated. This includes import prizes and anti-subsidizing measures.  Calculations of the advisory firm show that dealing with supply chain barriers is up to 6x more effective than tariff lowering.

Bain - Supply Chain Barriers vs Tariffs

According to Bain, the chance for success is a lot higher when dealing with supply chain barriers. In the case of tariffs it usually comes down to a zero-sum game – one region makes a profit, while the other is losing at the same time.  By contrast, decreasing the supply chain barriers is a win-win situation. “For the reason that the advantages of a more efficient supply chain is divided more equally across countries, a lot more is to be expected  here” according the consultancy office.

Tackling trading barriers has been on the international political agenda for a long time now. Since the year 2001, in Doha, Qatar, 140 countries are negotiating on tackling trading barriers in promoting free international trading.