Preface
“To India!” With over a billion people consuming goods and services, India has represented a potential bonanza for many global companies since the end of the 20th century. The former British colony, independent since 1947, has vast natural resources and a large English-speaking population and is currently the world’s fourth-largest economy. However, for many potential market entrants, India remains an uncharted and mysterious opportunity. Though ripe with potential, it brings a vast array of unfamiliar challenges for outsiders. With 28 state governments, over 1,500 native languages, and a primarily Hindu population, India’s cultural and demographic differences yield a unique and somewhat incomprehensible frontier for foreign business to penetrate. Western companies often admit that they know they “need to be there” but are unsure exactly how to enter the market and how their offerings would be received there. Above all, they struggle to understand who the Indian customer really is, given the heterogeneity of India’s multiple and diverse subcultures.
Most companies seeking to enter the Indian marketplace are also poorly prepared to do business there from a logistical standpoint. The Indian transportation system is quite challenged in many respects, primarily due to the relative lack of infrastructure and ensuing traffic congestion. The country’s road network is primitive by modern standards, with many underdeveloped roads, and less than 3% of the road network consisting of passable highways. Indian seaports serve as logistical chokepoints, where as many as 30 container ships can be backed up at any given time, waiting to offload their cargo. It is not uncommon for delivery lead times from U.S. producers to Indian consumers to range from 20 to 30 days.1 In addition, the country suffers from serious basic commodity shortages and imbalances that inhibit economic development, the most pressing of which is the lack of freshwater delivery systems and wastewater treatment facilities. As an illustration, the city of Delhi has the capacity to treat only 40% of its own wastewater supply, and it is in constant conflict with neighboring regions that refuse to supply it with more fresh supply. The local groundwater is unfit for consumption due to metals pollution, and a local river in the Delhi area has essentially been turned into an above-ground sewage system.2 As these issues illustrate, India is a forum of extremes for doing business. The massive marketplace is most certainly enticing for outsiders, but securing and transporting supplies, manufacturing products, and executing final delivery can present enormous challenges.
In spite of India’s logistical complexities, the Coca-Cola Company has a long history of doing business there. From 1970 to 2000, Coke established itself as a leading Indian brand. In attempting to secure a permanent foothold, by 2005 it had established over 70 India-based bottling plants, and the country had been designated its largest growth market.3 Often recognized as the most valuable brand in the world, Coke is no newcomer to global expansion. It has long displayed great expertise at entering foreign markets. (It has often been remarked that Coke contains more nations in its portfolio than the United Nations.)4 However, in 1998, a Coke subsidiary opened a new soft drink plant in the village of Plachimada that remains a monumental headache for the company almost 15 years later.5 Plachimada is in the state of Kerala, in southwestern India. Though the region receives a large amount of monsoon rain each year, it has been suffering from freshwater scarcity since at least the 1980s due to deforestation, high population density, fast runoff of rains to the ocean, and water mismanagement issues.6 Water scarcity thus has emerged as an existential threat to the Indian economy and public health, given that nearly 90% of new water extraction goes to agricultural purposes.7 For Coke, access to potable water for its bottling production plants is a critical market success factor. By some estimates, it uses over 294.5 billion liters of water annually, with 2.26 liters required to produce 1 liter of cola.8 In some locations, this would prove to be a great challenge in the Indian marketplace.
When making network design decisions and determining where to locate plants, warehouses, and other facilities, a company may not always consider factors such as water scarcity. Since transporting water from wells and streams to factories has never been considered economically viable, bottling facilities are often located near large populations. Or bottled products are first delivered as concentrates to demand locations, where water is added as a final processing step before sale (as with orange juice). The extent to which Coke considered the potential for water scarcity in its Kerala market analysis prior to building the Plachimada plant remains unknown. Regardless, the company decided to locate the bottler where the stability of the water supply needed to make its products represented a significant supply chain risk.
The outcomes were unfortunate, but predictable. Within two years of the Plachimada plant’s establishment, local farmers and villagers were accusing the Coke plant of lowering the local water table and polluting both surface and groundwater near and around the plant site. Farmers complained of decreased crop yields as a result of the shortages, and many nearby wells ran dry or were contaminated, plausibly due to Coke’s overuse and alleged misuse of the local water supply.9 Local protestors began picketing the plant in April 2002 and continued throughout 2003. Finally, following a Kerala court ruling in March 2004, the $16 million Plachimada Coca-Cola plant was shut down.10 Throughout the protests and hearings, Coke continually denied that it was in any way contaminating or polluting the Kerala water system. It claimed that many of the tests conducted in the area were unscientific and that officials could not substantiate that the plant was the cause of the water issues. In fact, Kerala’s courts later rejected similar claims against Coke when, in April 2005, the wells continued to dry up after the Coke plant in Plachimada had stopped operating. The judges believed that the more significant inhibitor of water quality and supply was lack of rainfall in the area.11 Nonetheless, the damage was done, and the company was forced to permanently close the Plachimada plant due to political and legal pressure. In fairness to Coke, its chief rival, Pepsi, has also suffered from allegations of water misuse in India,12-13 while Coke has made great strides in the last several years to more wisely manage water use and resource scarcity in its supply chains.14
What can managers of other enterprises, large and small, global and domestic, take from this story? Why did Coke’s new plant in southern India fail? Was this just a simple mistake made during a plant location decision, for just one of Coke’s 70 Indian plants? On its face, it could simply appear that Coke, in India, has found itself seeking growth while a critical input (water) was unavailable, and thereby created risk to its brand, reputation, and profits. But taking a broader perspective, the example also shows that the world we live in is changing, and is doing so in some ways that undermine the basic assumptions many of us have long held about business. Global companies can no longer afford to assume that they will have unlimited access to a natural resource, either when establishing new market ventures or perpetuating old successes. Social and physical scientists alike point to numerous exogenous factors that are intertwined and rapidly evolving and that have great potential for disrupting business conducted in the old familiar ways. In this book we call these global phenomena macrotrends. Based on our research, we believe they have the potential to substantially impact—and disrupt—modern business practices, leading to great frustration for modern supply chains and the managers who administer them. These new and disruptive macroeconomic factors include the following:
• Continued population growth and migration. Although some countries in the world are seeing declining population growth rates, other areas such as many in Africa and Southeast Asia continue to see population growth. World population levels of 9 to 10 billion people are expected in the decades ahead.
• Rising economies and buying power. The economies in nations such as Brazil, Russia, India, and China are continuing to escalate. Their populations are gaining increasing levels of buying power and associated quality of life and consumption desires.
• Global connectivity. Communications and computer system advances, as implemented through the pervasiveness of the Internet around the world, make it easy for global markets to find and demand modern products and services from global companies.
• Increased geopolitical activity. The governments around the world seek to ensure access to scarce natural resources. In addition, they intervene in the marketplace activities of global businesses when the safety or security of their nation’s interests seems threatened.
• Environmental and climate change. The Earth’s climatological environment is in flux. Issues such as changing ocean temperatures, global warming, and the movement of the jet stream have resulted in climate changes around the planet.
The question we attempt to provoke in our readers is, “What is your company doing to identify and manage the impacts of a transforming world on your supply chain?” In other words, are you looking to adapt and make changes to your supply chains today that will ensure a sustainable future for your company? It is in supply chain execution that business strategy becomes a reality. Supply chain management involves far-reaching implications for your organization’s success, such as determining the following:
• Which goods and services to offer the market
• How to design product and service bundles that meet the market’s needs and the company’s financial expectations
• Which customers and suppliers to work with closely
• When to walk away from business and when to proceed
• How to structure activity within the company and with supply chain members for concerted action
We believe that the challenges presented to future supply chains and supply chain managers will continue to increase in frequency and severity over the next three decades (and longer). We also believe these will have serious implications for business and operations. Managers must prepare. As Coca-Cola discovered, the macrotrends that characterize our transforming world will require proactive solution seeking. Therefore, we not only explore the threats brought about by change to the global commercial environment, but also provide general directions for how to prepare for these challenges and turn them into opportunities that can be exploited compared to competitors’ efforts. The sustainable long-term success of your company may depend on it, just as the strength of the future global economy will depend on the thought leadership and innovation of today’s supply chain leaders.