Thursday, January 23, 2014

Governmental policies on supply chain and trade

I looked at a synopsis* of 'Enabling Trade: From Valuation to Action', a report released recently by the World Economic Forum (WEF). This report discusses avoidable inefficiencies in supply chain management on a global scale. It particularly addresses governmental policies that can be enacted or to the contrary, dismantled, in order to lower supply chain costs, thereby reducing waste (lowering product prices for the consumer) and freeing up companies' capital for increased product innovation.

It is notable that the article cites obstacles such as "strict product standards" and "poor business climates".The article would likely agree that agreements such as NAFTA are an example of pro-business policy that lowers production and supply costs, benefits consumers, and drives growth. I would like to consider complications of this pro-business, free trade perspective.

Although lowering product standards might reduce product production and development costs, allow greater flexibility in transportation, and so forth, the results can be mixed. Consumers in a nation with lax product standard regulations might enjoy cheap and abundant goods, but at a lower quality. Even more importantly, aggressively pro-business, lax product regulations encourage the persistence and introduction of consumer goods that pose health risks. As a policy-maker who deals with economic regulation that affects production and supply costs for manufacturers, one should keep in mind that lowering regulation changes certain industries in a lasting manner.

For instance, to survive in the food industry, many players have to produce food in the cheapest legal manner prevalent among their competitors.This means that the use of antibiotics and hormones, for instance, is widespread. This example means to show that enacting trade policy is a complicated task; the free market, with the highest possible efficiency, isn't always the right answer. Although a country's population may benefit from some market deregulation (enjoying lower consumer product prices, novel product introduction, and greater variety), the overall costs to the nation (for instance with regards to health, or rising unemployment due to free trade agreements) might be higher.

Question: What are the pro's and con's of free trade agreements with regards to supply chain operations and their social impact?


Note: Submitted late due to lack of access to the blog

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