Greening the Supply Chain in Emerging Markets: Some Lessons From the Field

The second in our GreenBiz Reports series, this study by Terry Yosie of the World Environment Center looks at successful strategies for improving the performance of supply chains throughout the developing world.

Global investment in developing and transitional economies rose to $379 billion — the highest level ever — according to the 2006 report on foreign direct investment by the United Nations Conference on Trade and Development. Such large investments of capital, and the greater distribution of wealth creation opportunities generated around the world, respond to a variety of factors. These include: liberalization of financial markets;privatization of state enterprises; outsourcing of product development functions across global companies; lower operating costs in developing nation markets; rising levels of education; the emergence, in selected markets, of a middle class and evolution of a consumer culture.

Parallel to this large and growing transfer of wealth and opportunity is the rising level of public concern, among citizens and governments in both developed and developing nations, over natural resource consumption, public health and environmental quality and the transparency and effectiveness of decision making by business and government.

Global corporations are at center stage of this debate because of the growing environmental and social footprint of their supply chains in emerging markets. Whereas the supply chain components of such companies (e.g., raw material extraction, factories, storage facilities, distribution systems, retail stores, waste disposal and recycling units) are subject to extensive regulation in most developed markets, such requirements are far less developed and applied in major emerging markets. Nor is the infrastructure of scientific and technical talent, institutional development or consistent enforcement of regulations as evolved in such markets. As a result, global companies face increasing scrutiny and pressure to narrow the gap in the governance and performance of their operations, and that of their suppliers, across the global marketplace.

One of the lesser understood factors in the governance of global companies, especially with respect to management of their supply chains, is the limited number of their own employees that are located on-the-ground in developing market nations. Greening the Supply Chain (GSC) initiatives have emerged as one means to compensate for this limitation; they also aim to assist companies to achieve greater economic efficiencies and alignment of sustainability objectives across their operations while working with hundreds and, at times,thousands of independent supplier firms with differing objectives and capabilities.

This report examines the definition and scope of Greening the Supply Chain initiatives,discusses the value they contribute to business, identifies selected key factors to success, presents an approach for managing successful GSC projects and reviews what remains to be done through business management, government policy making and financial management partnerships.

Definition and Scope of “Greening the Supply Chain” Initiatives

The term“Greening the Supply Chain” has emerged to describe a wide variety of actions that a growing number of companies (chiefly western companies) are presently conducting to install greater rigor and operational control over their extended supply chains.

Greening the Supply Chain initiatives are part of a process for implementing a sustainable development plan as part of a corporate business strategy aimed at achieving improved environmental, health and safety performance; increasing efficiencies in the use of energy, water or other natural resources or raw materials; reducing the environmental and societal impact of business operations upon local communities and the global biosphere; and expanding economic and quality of life enhancing opportunities that result from the company’s business activities.

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