THE COUNTRY-SPECIFIC INFLUENCES ON SUPPLY CHAIN DIGITALISATION IN RUSSIA
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Introduction 7
1.1. Aim of Analysis & Research Objectives 9
2. Literature Review 13
2.1. Classification and Topical Boundaries 13
2.2 Previous Research on Supply Chain Digitalization 14
2.2.1 Supply chain structure 15
2.2.2 Visibility & agility 18
2.2.3 Automation 21
2.3 Previous Research on External Influences on Supply Chains 23
2.3.1 Social and cultural influences 23
2.3.2 Geographical influences 26
2.3.3 Economic factors 27
3. Methodology 30
3.1 Quantitative Stage 32
3.1.1 Benchmark country 34
3.1.2 Previous study «Logistikmarktstudie Schweiz» 36
3.2 Qualitative Stage 37
4. Description & Discussion of Results 39
4.1 Overview of Survey Results & Identification of Divergences 39
4.2 Case «International Logistics Company A» 42
4.3 Case «International Logistics Company B» 46
4.4 Influence Factors and Explanations 50
4.4.1 Overview of identified influence factors 55
5. Managerial Implications & Recommendations 58
6. Limitations & Suggestions for Further Research 60
7. Final Conclusion 61
List of References 63
Appendix 71
Survey Results & Benchmarking 71
Interview Transcripts 76
Online-Questionnaire
1.1. Aim of Analysis & Research Objectives 9
2. Literature Review 13
2.1. Classification and Topical Boundaries 13
2.2 Previous Research on Supply Chain Digitalization 14
2.2.1 Supply chain structure 15
2.2.2 Visibility & agility 18
2.2.3 Automation 21
2.3 Previous Research on External Influences on Supply Chains 23
2.3.1 Social and cultural influences 23
2.3.2 Geographical influences 26
2.3.3 Economic factors 27
3. Methodology 30
3.1 Quantitative Stage 32
3.1.1 Benchmark country 34
3.1.2 Previous study «Logistikmarktstudie Schweiz» 36
3.2 Qualitative Stage 37
4. Description & Discussion of Results 39
4.1 Overview of Survey Results & Identification of Divergences 39
4.2 Case «International Logistics Company A» 42
4.3 Case «International Logistics Company B» 46
4.4 Influence Factors and Explanations 50
4.4.1 Overview of identified influence factors 55
5. Managerial Implications & Recommendations 58
6. Limitations & Suggestions for Further Research 60
7. Final Conclusion 61
List of References 63
Appendix 71
Survey Results & Benchmarking 71
Interview Transcripts 76
Online-Questionnaire
Over the last few decades, it has become general understanding that firms are not all encompassing, isolated constructs. Rather, they are organizations embedded in a broad ecosystem of partners and stakeholders that rely on mutual collaboration. Firms need suppliers that help them to generate the value proposition demanded by the market, as well as partners that help them bring this value proposition actually to clients. Today, firms are connected to more partners than ever. Trends like globalization and outsourcing drive modern companies into collaboration with partners in every aspect. In most industries, vertical integration is a thing of the past. Reliance on external service providers and suppliers is common in all corners of a company, ranging from physical manufacturing processes to the servicing of the company-own cafeteria.
A contemporary key driver of this development is digitalization. Recent innovations and the rapid development of solutions for a myriad of purposes make it easier than ever to collaborate with partners across geographical distance, function and jurisdiction. The variety of new possibilities based on digital solutions seems to be unlimited. Digitalization disrupts every function within a company; production, sales, marketing, research & development - digitalization changes the way how processes within and between these departments as well as between entire companies function. The overall result of this digital revolution is a modern, digitalized supply chain that can be distinguished from traditional supply chains in manifold aspects. Digitalized supply chains are significantly different in terms of shape, multidimensional network structures are replacing rather simple linear structures (Hearnshaw & Wilson, 2013; Stevens, 2016). They offer entirely new levels of visibility and flexibility (Chengalur-Smith, Duchessi, & Gil-Garcia, 2012; Delen, Hardgrave, & Sharda, 2007) and increasingly rely on automated processes and activities (Wu, Yue, Jin, & Yen, 2016; Alicke, Rexhausen, & Seyfert, 2016).
All these developments obviously don not occur under sterile conditions and in empty space. Companies as well as the supply chain ecosystem they are part of are reacting to a broad variety of influences. This makes them to a certain degree dependent on external conditions, and it is reasonable to assume that these external conditions in turn shape the supply chain ecosystems to a certain extent. Influences from the social sphere, technological developments, the macroeconomic environment as well as the geographical situation significantly impact supply chains (Barry, 2004; Luo, Van Hoek, & Roos, 2001).
All these external influences that might shape a supply chain and were mentioned in previous literature have in some way interesting peculiarities in Russia. The geography, society and economy of Russia is expected to have manifold impacts on supply chains. As a result, historically, supply chains in Russia tend to be «highly fragmented and notoriously difficult to manage» (Roberts, 2005, p. 53). Thus, the dependency on the general environment seems to be particularly interesting and impactful in the case of Russia. Geography, regulatory framework, economy as well as culture provide an environment that appears to be significantly different from most other economies. All these peculiarities obviously might influence the impact of specific technologies in the context of supply chain digitalization. Some technologies might offer advantages that are particularly significant under the conditions that can be found in Russia, while other technologies might be of little use or face insurmountable barriers. No other nation has such vast land resources, with its population and domestic economic activity dispersed over two continents. Russia features with Moscow one of the world’s largest cities, and at the same time it has some of the least densely populated areas in the world. Both the challenges and the opportunities resulting to business are enormous. Managing a supply chain under these circumstances is a genuine key activity in basically any physical business, requiring a vast amount of attention in planning and implementation. The impact on the economic activity inside the country is evident. Companies that are active nationwide are, apart from certain specific industries, rather sparse. The result is a largely dispersed marked in most industries, with rather well-established and dominant local players that often fail to grow beyond their traditional key markets (Lorentz & Lounela, 2011). These challenges resulting from the mere geographical size of the market are meeting additional challenges based on demographics and culture. Especially the income situation of households is marked by large differences across the country with corresponding consequences for the purchasing power of certain regions. In most recent history, this general inequality was additionally hit by a rather strong economic crisis, coming along with high inflation rates and negative GDP growth.
Many industries, such as for example retail, feature in addition to the already difficult geographical situation a legal environment that makes efficient operations even more difficult. The sanctions enacted by the European Union and the countersanctions imposed by Russia limit the potential markets for sourcing products, thus limiting the availability of suppliers. Also in the domestic market, a myriad of rules and laws apply that require licensing and accurate quality control mechanisms in many industries.
Overall, it is undisputable that Russia is a very promising but difficult market to serve and place to operate. A broad variety of challenges and barriers stemming from the general environment and surroundings of supply chains seem to complicate strategic as well as operational business. Building and maintaining a solid supply chain under such conditions is not easy and requires adaptation. This paper sheds light on this need for adaptation in the context of supply chain digitalization and investigates the particular influence factors that can be observed in Russia. Through the identification of categorical differences in terms of progress and focus of supply chain digitalization between Russia and other industrial nations, the basis for a more profound insight on the reasons of divergence and differences is created. The paper thereby draws on both primary and secondary resources and uses quantitative as well as qualitative methods. The results come along with managerial implications that have high practical relevance and indicate some ideal practices for successful supply chain digitalization in Russia.
A contemporary key driver of this development is digitalization. Recent innovations and the rapid development of solutions for a myriad of purposes make it easier than ever to collaborate with partners across geographical distance, function and jurisdiction. The variety of new possibilities based on digital solutions seems to be unlimited. Digitalization disrupts every function within a company; production, sales, marketing, research & development - digitalization changes the way how processes within and between these departments as well as between entire companies function. The overall result of this digital revolution is a modern, digitalized supply chain that can be distinguished from traditional supply chains in manifold aspects. Digitalized supply chains are significantly different in terms of shape, multidimensional network structures are replacing rather simple linear structures (Hearnshaw & Wilson, 2013; Stevens, 2016). They offer entirely new levels of visibility and flexibility (Chengalur-Smith, Duchessi, & Gil-Garcia, 2012; Delen, Hardgrave, & Sharda, 2007) and increasingly rely on automated processes and activities (Wu, Yue, Jin, & Yen, 2016; Alicke, Rexhausen, & Seyfert, 2016).
All these developments obviously don not occur under sterile conditions and in empty space. Companies as well as the supply chain ecosystem they are part of are reacting to a broad variety of influences. This makes them to a certain degree dependent on external conditions, and it is reasonable to assume that these external conditions in turn shape the supply chain ecosystems to a certain extent. Influences from the social sphere, technological developments, the macroeconomic environment as well as the geographical situation significantly impact supply chains (Barry, 2004; Luo, Van Hoek, & Roos, 2001).
All these external influences that might shape a supply chain and were mentioned in previous literature have in some way interesting peculiarities in Russia. The geography, society and economy of Russia is expected to have manifold impacts on supply chains. As a result, historically, supply chains in Russia tend to be «highly fragmented and notoriously difficult to manage» (Roberts, 2005, p. 53). Thus, the dependency on the general environment seems to be particularly interesting and impactful in the case of Russia. Geography, regulatory framework, economy as well as culture provide an environment that appears to be significantly different from most other economies. All these peculiarities obviously might influence the impact of specific technologies in the context of supply chain digitalization. Some technologies might offer advantages that are particularly significant under the conditions that can be found in Russia, while other technologies might be of little use or face insurmountable barriers. No other nation has such vast land resources, with its population and domestic economic activity dispersed over two continents. Russia features with Moscow one of the world’s largest cities, and at the same time it has some of the least densely populated areas in the world. Both the challenges and the opportunities resulting to business are enormous. Managing a supply chain under these circumstances is a genuine key activity in basically any physical business, requiring a vast amount of attention in planning and implementation. The impact on the economic activity inside the country is evident. Companies that are active nationwide are, apart from certain specific industries, rather sparse. The result is a largely dispersed marked in most industries, with rather well-established and dominant local players that often fail to grow beyond their traditional key markets (Lorentz & Lounela, 2011). These challenges resulting from the mere geographical size of the market are meeting additional challenges based on demographics and culture. Especially the income situation of households is marked by large differences across the country with corresponding consequences for the purchasing power of certain regions. In most recent history, this general inequality was additionally hit by a rather strong economic crisis, coming along with high inflation rates and negative GDP growth.
Many industries, such as for example retail, feature in addition to the already difficult geographical situation a legal environment that makes efficient operations even more difficult. The sanctions enacted by the European Union and the countersanctions imposed by Russia limit the potential markets for sourcing products, thus limiting the availability of suppliers. Also in the domestic market, a myriad of rules and laws apply that require licensing and accurate quality control mechanisms in many industries.
Overall, it is undisputable that Russia is a very promising but difficult market to serve and place to operate. A broad variety of challenges and barriers stemming from the general environment and surroundings of supply chains seem to complicate strategic as well as operational business. Building and maintaining a solid supply chain under such conditions is not easy and requires adaptation. This paper sheds light on this need for adaptation in the context of supply chain digitalization and investigates the particular influence factors that can be observed in Russia. Through the identification of categorical differences in terms of progress and focus of supply chain digitalization between Russia and other industrial nations, the basis for a more profound insight on the reasons of divergence and differences is created. The paper thereby draws on both primary and secondary resources and uses quantitative as well as qualitative methods. The results come along with managerial implications that have high practical relevance and indicate some ideal practices for successful supply chain digitalization in Russia.
As previous research already has demonstrated in a myriad of vastly different and independent, diverse projects, both supply chain and digitalization activities are widely dependent on the external environment they are embedded in. Due to the vast size, unique location and peculiar economic history and culture, Russia provides a very distinct environment for supply chain operations. This environment is, as widely acknowledged in literature and confirmed by the corporate representatives that interviewed, challenging and thus can be seen as demanding and promising at the same time.
This challenging environment can have a positive effect as well as a negative effect on supply chain digitalization, as the results of this study show. Some technologies help companies to overcome the challenges they face in Russia and thus are widely spread and developed in Russian supply chains. To this category of technologies that benefit from the peculiar environment in Russia belong mostly technologies and applications that have an immediate positive impact, are fully scalable and often don’t require significant upfront investments. A very popular example are telematics-based track and trace solutions; they were used in some form by the majority of survey participants, and both companies that were investigated in the cases exploit the technology widely and successfully. Basic track and trace solutions, e.g. to locate trucks in real time, don’t require large investments but create a significant positive impact on efficiency by helping companies to become more reliable, punctual and as a result reduce safety margins and downtime. Such technologies are so beneficial that it makes sense even for smaller companies to make this step towards better visibility and higher agility.
Other technologies which are implemented and exploited successfully in Western Europe have become victims of the challenging environment found in Russia. External influence factors either delay or even make a large-scale breakthrough of these technologies impossible. Most of these technologies are concerning advanced IoT technologies, most of them related to automation. These applications that are less popular in Russia compared to the benchmark of Switzerland can be generally characterized by their large need for upfront investments and the resulting requirement of medium or even long-term commitment and economic stability. The study shows that only in very selected cases, companies commit themselves to such large automation and digitalization projects. Most companies favor the flexibility and low capital intensity of manual labor instead.
The survey showed that there are substantial differences between companies of different sizes and different heritage; these differences were also strongly confirmed in the expert interviews. For many international companies that are active in Russia, supply chain digitalization is a topic with a high priority that is enforced, incentivized and often steered by the company’s headquarters. As the expert interviews showed, subsidiaries in a MNC often stand in (constructive) internal competition with each other; proactive and progressive behavior is fostered and rewarded. Also, many MNC subsidiaries can draw on resources and solutions that were already developed and tested at a different subsidiary or office location. Russian companies, in contrast, do not only have no access to such resources, but they also have to cope with their company culture that often is still marked by Soviet legacy.
Overall, it can be concluded that supply chain digitalization is definitely a development that has arrived in Russia and generates value for firms in this country on a daily basis. In the sample that was investigated, only in a very limited number of aspects a backlog compared to the Swiss benchmark was recognizable. In contrast, especially general digital supply chain technologies are used even wider here in Russia. Companies in Russia are enthusiastic about the topic and believe in the benefits of supply chain digitalization. The fast paced technological development will sooner or later make also technologies that are so far not very popular in Russia more widely accessible.
This challenging environment can have a positive effect as well as a negative effect on supply chain digitalization, as the results of this study show. Some technologies help companies to overcome the challenges they face in Russia and thus are widely spread and developed in Russian supply chains. To this category of technologies that benefit from the peculiar environment in Russia belong mostly technologies and applications that have an immediate positive impact, are fully scalable and often don’t require significant upfront investments. A very popular example are telematics-based track and trace solutions; they were used in some form by the majority of survey participants, and both companies that were investigated in the cases exploit the technology widely and successfully. Basic track and trace solutions, e.g. to locate trucks in real time, don’t require large investments but create a significant positive impact on efficiency by helping companies to become more reliable, punctual and as a result reduce safety margins and downtime. Such technologies are so beneficial that it makes sense even for smaller companies to make this step towards better visibility and higher agility.
Other technologies which are implemented and exploited successfully in Western Europe have become victims of the challenging environment found in Russia. External influence factors either delay or even make a large-scale breakthrough of these technologies impossible. Most of these technologies are concerning advanced IoT technologies, most of them related to automation. These applications that are less popular in Russia compared to the benchmark of Switzerland can be generally characterized by their large need for upfront investments and the resulting requirement of medium or even long-term commitment and economic stability. The study shows that only in very selected cases, companies commit themselves to such large automation and digitalization projects. Most companies favor the flexibility and low capital intensity of manual labor instead.
The survey showed that there are substantial differences between companies of different sizes and different heritage; these differences were also strongly confirmed in the expert interviews. For many international companies that are active in Russia, supply chain digitalization is a topic with a high priority that is enforced, incentivized and often steered by the company’s headquarters. As the expert interviews showed, subsidiaries in a MNC often stand in (constructive) internal competition with each other; proactive and progressive behavior is fostered and rewarded. Also, many MNC subsidiaries can draw on resources and solutions that were already developed and tested at a different subsidiary or office location. Russian companies, in contrast, do not only have no access to such resources, but they also have to cope with their company culture that often is still marked by Soviet legacy.
Overall, it can be concluded that supply chain digitalization is definitely a development that has arrived in Russia and generates value for firms in this country on a daily basis. In the sample that was investigated, only in a very limited number of aspects a backlog compared to the Swiss benchmark was recognizable. In contrast, especially general digital supply chain technologies are used even wider here in Russia. Companies in Russia are enthusiastic about the topic and believe in the benefits of supply chain digitalization. The fast paced technological development will sooner or later make also technologies that are so far not very popular in Russia more widely accessible.