The Stockholm Geopolitical Scenario and its effect on Production Systems: The Mosaic

Author: Lawrence Jongi

Risk 1 (Rigid Values Scare Aware Investors)

The risk of a Mosaic scenario is that as societies are driven by values, it means society might not be tolerant on certain sensitive or volatile issues that which will affect the business environment especially if the topical issue is in direct contradiction to the other society, for example, genetically modified foods. Therefore, in such case the Swedish Manufacturing Industry (SMI) will run the risk of cultural modification (adapting) when it is offshoring knowledge and technology of production systems. The organizational culture can be ignored but in contrary, the successful business process re-engineering should be supported by the organizational culture, (Hotlan Siagian, 2017). However, if successfully implement will produce an organization that is beautifully diverse. Locally the implication to SMI is that they will exist as silos with less stakeholder engagement, since they are liberally minded on their cultural values, which will reduce supply chain visibility and hence less likely to win on sustainability performance measurement, monitoring and reporting. On the same vain, when an organization is culturally aware, it becomes its core competency and competitive advantage. Because, the relation is not contractual, it means SMI is not obliged to have mitigation adoptive measures on losses and damages, which will result in poor governance. However, there is need to balance between philosophical and systems approach in cultural building, this makes culture building more complex, because it involves, culture, attitudes, resistance to change, politics and fear which will have a greater risk on SMI, because a culture modelling is an open system (Bellgran Monica, 2010) with many unknown output variables.

Opportunities 1 (Partnership)

Limited global trade means the company have more of a contractual partnership with other actors within the supply chain, since values are seldom aligned. It is more likely that growth of SMI is more aligned to domestic industry since they are more likely to have a fluid alignment.  This will give rise to customized products since SMI have an easy access to its customers and privileged knowledge of customers’ requirements, this will reduce supplier performance gap, although this demand a flexible production system and customer development program. Despite values difference, on a global scale the SMI has an opportunity to capitalize on the small relations they have to develop long-term partnership to grow in different global markets, although this is possible but this landscape requires highly competent organizations and personnel to mitigate the risks.

Strategies 1 (Reshoring and Offshoring)

This is in line with the general perception that labor costs in Sweden are high compared to other countries, and although the labor cost gap between countries is decreasing, it is not shrinking sufficiently fast for Swedish manufacturing to be cost competitive in the near term (Johansson, 2021). Hence, offshoring and reshoring strategy might be an option for most companies in this regard. However, it comes with many challenges such as International: Laws, Trading Blocks, Marketing, Politics, Economics and break these into regional, national and corporate partnership of interest, therefore, needs a multi-lenses approach. For international cooperation the firm needs to go through political, economic and private sector attaché, so that international jurisdiction and diplomacy is respected. The organization must employ principle and knowledge-based approach which is customer focused and employee focused, as these are critical in knowledge transfer in installation of new production systems in foreign land. The organization and personnel must be competent in transfer of X-Production Systems that define their culture, and look into the trade-off they are willing to compromise in order to align with the other organization either in domestic or international space.

Risk 2 (Financial Crisis)

The depth of the financial crisis, as policies failed to dispel uncertainty, caused asset values to fall sharply across advanced and emerging economies, decreasing household wealth and putting downward pressure on consumer demand (Page, 2009). In addition, uncertainty and widespread disruptions in credit markets caused households and businesses to postpone expenditures, reducing demand for consumer and capital goods (Page, 2009). Empires rise and fall (economically), that is the course of the universe, hence nations that are slow to adapt to this will drag everyone into the abyss of global wars, in a bid to dominate global finance systems. Global finance crisis will drive SMI into solvency, due to the hyper-inflation environment as the government shift its monetary policies to fight the liquidity crunch. Therefore, SMI will be able to make strategic plans, but difficulty to implement as the economic landscape is on a sinking sand. This will cause many manufacturing companies to close shop, we will witness little to no growth in companies and some even hostile takeovers will be witnessed, however, as big cooperates fall, SMEs will that to emerge because of their flexibility which will give them a competitive advantage over big firms.

Opportunities 2 (Business Models)

In the simplest form, technological progress arises as incremental process that improves the efficiency of resource deployment (Ingrid Ott, 2008) innovations are driven by economic crisis, as the SMI is demanded to produce more with limited resources. This will give rise to the generation of various production innovation outputs which can be protected and make the organization have more revenue from franchise, patents, copy rights and industrial designs. Although the firm is now generating more Intellectual Property (IP), this will make it more vulnerable to cooperate espionage, which will demand more financial resources to protect the resources, and in most cases some innovations are not worth the financial risks. Hence, sometimes just implementing the innovation and have financial rewards on immediate terms might provide advantages of being the first in market entry and present the opportunity to set standards.

Strategies 2 (Innovation, Diversification, and Growth)

In a financial crisis SMI will need to form oligopolies which will lead to monopolies and conglomerates, all these strategies will cause inflexibility, which is an evil in the ever-shortening product life cycle. The perspective on strategy in such an environment is diversification and on growth, because some industry in certain markets can only survive within acceptable level of growth. Some of the diversification strategies includes; i. product diversification within a given market; ii. Market diversification (geopolitical and customer group) using a given product line, iii. Process or vertical integration (increasing the span of the process) so as to gain more control over vendors and customers with a given mix of products and markets, iv. unrelated diversification in conglomerates, (Bellgran Monica, 2010). This strategy exposes the organization to technical economies of scope, financial economies of scope, marketing economies of scope, managerial economies of scope. Although, these strategies look attractive they demand, highest level of coordination, re-alignment of cultures, well-defined communication protocol, identifying individual plant competencies, robust resource allocation, knowing your customer (value creation), identification of partner or plant location, assessing impact on strategic capabilities, aggregate for enterprise solutions and testing likely risks and future scenarios. This makes it more complex, hence demanding competent, technologies, human resource and organizational infrastructures, which will demand financial resources, hence making a trade-off of the level of diversity and integration is critical.

Risk 3 (Localized Optimization)

Although the SDGs framework looks morally great on all aspects, however, the risk with many companies is localized optimization, not looking into the secondary impact, drivers and response to social, economic and environmental states, since globalization came to a halt. Without this systematic approach on an initiative this might cause a boomerang effect. Hence, continuing with the momentum requires extra research, for example the advent of digitalization looks attractive but little research is being done in its environmental and economic impact.  While rare earths can help societies transition away from fossil fuels to renewable energy and conserve energy, their extraction, processing, and use creates serious environmental and social effects around the world, (Abigail Martin, 2020). The claimed sustainability benefits of digitalization and renewable energies is questionable because of so many variations in the product Life-Cycle-Assessment. This might be a source of conflict between upstream and downstream supply chain networks as commutative justice (Forster, 2013) is lacking. This demands SMI to adhere to principle of cooperate rights and the principle of corporate effects, nevertheless, the community or consumers need also to understand the principle of fairness.

Opportunities 3 (Sustainable Business Models)

Businesses that genuinely pursue sustainability do so because it is the right and smart thing to do (Birkie, 2018). Sustainability domain comes with business models’ opportunities, which SMI should align to and utilize. Sustainability is morally and legally binding which will create trust within the community, this will improve SMI brand value. It is in this era that social and environmental impact investment has been made into a business model with various financial mechanisms, that spans from seed, angel and equity investors. This gives SMI flexible whether its initiatives’ flow of resources in investments is bi-directional or uni-direction. SMI has an opportunity to redress the effects of industrialization, whilst at the same time improving their economic growth, since sustainability strategies includes efficient resource utilization, use of renewable resources and waste management strategies. If SMI champions sustainability, it will have global allies in strange places in the not so distant future. For example, most relationship of African countries with China and Russia culminates from the help they got from the two countries to fight independence and now these two countries are enjoying open access to rare minerals and resources in Africa, although, this can be argued as exploitation and plausible. With the same model when SMI champions sustainability in developing countries, it will enjoy a long-term relation with developing countries, as the current generation will view SMI helped them in sustainable economic development.

Strategies 3 (Stakeholder Interaction, and Sustainable Value Creation)

SMI should integrate stakeholder interaction and sustainable value creation into the organizational strategies and become an integral part of the business model of the daily and long-term operation of various product lines and supply chain networks. Fobbe et al differentiated collaborative continuum among different relationships of organizations with their stakeholders; on the lowest end there is philanthropic stage, followed by transactional stage, followed by organization-stakeholder relationship stage and lastly the transformative stage. The last stage encompasses value creation with and for stakeholders and can lead to a merging of business models (Fobbe, 2021). It is critical for the organization to adopt flexibly all stages with respect to the kind of stakeholder. This also comes with diverse financial mechanisms that also fits the respective stakeholder interaction. When SMI becomes aggressive on stakeholder interaction it changes the behavior and market realities, known as stakeholder shaking (Forster, 2013). It takes skill and competencies both for the organization and personnel to integrate stakeholder interaction and sustainable business model.

Risk 4 (Business Cycle and Fiscal Policy)

Because the government is so large that its decision has a huge impact on the overall performance of businesses, ultimately affecting the community because of unemployment and inflation on basic commodities. When consumers are less confident in spending this will result in less investment spending by businesses, as firms respond to weakened demand for their products, (Sarwat Jahan, 2014). Post-Keynesian macroeconomic models treat production as linearly related to labor and intermediate good inputs (with variable utilization of fixed capital in some instances). Assume fixed proportions between inputs, constant or even falling marginal costs, however, diminishing marginal productivity and rising marginal cost are the exception rather than the rule for industrial companies (KEEN, 2013), this is called scale in overheads. Meaning, not always do we expect economies of scale to result in reduction of cost of production per unit, without proper introspect of all the input will result in production cost to rise. This coupled with expansionary policy (during recession), which the government can either increase spending or decrease taxes, causing more money to circulate to people, more production because of higher demand and more jobs (Amakom, 2021). In this fiscal policy SMI enjoys non-stop production and constant or increasing revenue and growth so that they contribute more above usual GDP. During this period the SMI will remain in the game, since cashflow is the lifeline of a business. However, during contractional fiscal policy (excessive inflation/period of expansion) the government can increase taxes and decrease spending, resulting in the following; less money in the economy, people have less money to spend, people have less demand, and resulting in less inflation (Amakom, 2021). It is in this period that SMI have the risk of being bankrupt, this in mind clearly shows that SMI is susceptible to macro and micro economic environment, of which the former they do not have control over. However, these two presents a paradox, in that, for a country it is unpopular to increase taxes (it will scare away investors, and global competent professionals), and at the same time if they cut on taxes the government has less money to spend it will easily go into debt, resulting in less money for government expenses, which can result in social unrest. When a nation goes into debt, it means it can be leveraged into making decisions that are contrary to their values. Therefore, a trade-off is needed to ensure economic stability and SMI should understand what it means if a particular fiscal policy has been enacted.

Opportunity 4 (Taxes Rebuts, and Green bonds)

It is critical for SMI to be competence in fiscal policy analysis, because government spending is usually targeted to growth on various sectors, these includes, heavy subsidies on companies being green, or championing renewable energy, green bonds and even loans in certain national priority areas which can be utilized by SMI. Such opportunities require the organization to align its culture and competitive success factors to align to national priorities, for it to get access to resources availed by the government and since the government is the one that ultimately determines aggregate demand. However, the organization might have a structurally or infrastructural innovative that it has high degree of confidence (it has closed the supplier performance gap (Nigel Slack, 2016)) that it has short time-to-money and high return on investment, it can weather away the fiscal policies and its challenges.

Strategies 4 (Lean and Agile (Leagile) Production Systems and Circular Economy)

The knowledge and competencies to fully understand change of a policy gives an FMI advantage to switch between managing efficient supply chain (lean networks and circularity) and those that emphases responsiveness and flexibility (agile supply chain networks). During expansionary fiscal policy SMI should utilize to innovative products in agile supply chain networks, because, of huge amount of money circulating within the system, people will have huge buying power and will result in consumerism, this will be characterized by products with short-life-cycle in the market. However, during contractional fiscal policy SMI should adopt a functional product with long product life cycle, products with less profit margins but high-volume output, with less demand volatility, because, there is less money circulating within the system and people have less buying power and they concentrate on essential products. When the government adopt a trade-off between the two policies, SMI should adopt lean-agile production systems, through sustainable sourcing by creating and developing a supplier network to enhance flexibility, security, robustness and resilience to economical shocks. In these uncertainty times SMI should concentrate on issues where they have strength and sub-contract competent service providers, i.e channel alignment in supply network (Nigel Slack, 2016) Vendor Managed Inventory presence many benefits to SMI during economic crisis. However, this might mean also less control on certain operations and this strategy might increase the risk of lock-in and a reduction in the firm’s bargaining power (Nigel Slack, 2016). Under economic crisis, SMI, should always have alternative materials, methods and practices, and suppliers’ options to remove high supplier risks and the overall cost of operations. Most of our products we use day to day use critical materials and as consumption increases, they are going to reach a ‘peak resource’ point, and price becomes un practically high. Thus, strategies such as circularity and waste management come into play, to return resources, hence, issues such as remanufacturing and reverse logistics, and providing attractive financial incentives to return suppliers.

Priority Exercise

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