Analysis of the article
Summary of the article
Supply chain ineptitudes and interruptions are common problems hindering the international competitiveness of developing and transitional markets. The article evaluates supply chain relationships in terms of supporters, determinants, and the role of support measures in stimulating investment by suppliers in developing and/or emerging economies. The author concentrates on 300 commercial dairy farms in Armenia who provide inordinate information about the factors that affect the supply chain and the effects that the effects have on the overall investment and productivity of the economy. Any factor that devastates the functioning of the supply chain overwhelmingly affects investment, as investors are alarmed by the losses that might accrue.
Contracts that are more explicit are required to improve the vertical acquisition and coordination of resources. The suppliers have inordinate power to dictate the operations of the supply chains since they own resources, and are, therefore, bound to control major constituent of the chain. Additionally, exchange relationships differ on the degree of their interaction hence businesses must ascertain the appropriate amount of interactions to avoid compromising the harmonious flow of business activities. The recent years have witnessed an improvement of the agricultural industry where credits grew by 35% per annum, a factor that the author attributes to the improved efficiencies of supply chains between 2005 and 2012.
The article indicates supply support measures are an important component in the success of dairy farmers, but buyers discriminate over who receives supply support and that when the measures are costly, only a few suppliers benefit. Support measures that include guaranteed prices, loans, and physical inputs are less likely to be offered in highly competitive environments. Interestingly, buyers are constrained in their ability to monitor use of the provided services in scenarios where many producers (farmers) are competing for the same supplier. Policy makers must improve the enforcement capability of companies in the agricultural industries to enable them overcome the aforementioned challenge and make apt use of the resources available to them. Although the article analyses data from a single country (Armenia), it establishes astounding facts that can be used to understand the nature of the relationship between suppliers’ investments and supply chain linkages.Critical analysis
In the article, the author uses captivating but technical language that enables learners to understand the concepts therein and possibly draw their own conclusion. Strong managerial, economics, and financial concepts are presented and candidly expounded in an amazing and comprehensive manner. Nevertheless, the author at times uses technical waffles that are unacceptable for a report of this nature. The transition was quite weak, factor that might impede researchers’ comprehension of the material and inhibits the ability of the research to be replicated in other studies. Apparently, the study ends up being suggestive rather than conclusive (Proctor, 2000).
The article indicates that the exchange relationships are a continuum from vertical ownership integration to spot markets. The author calculatedly assumes the other markets in between as they there are irrelevant. Although markets differ in terms of customers, activity, income and other important factors, all market is important to producers as well as suppliers. Ignoring some portions of the market can only be devastating since such markets will go unattended and the niches will exist at the expense of producer profits (Luning et al., 2002). Realization of the importance of even the small markets are of prominence to investors and/or producers since it will inform them on how to effective segment, improve their productivity, and broaden its customer base (McCormack et al., 2003). Additionally, the author defines spot markets as “governance mechanism that involves immediate market transactions with no prior or post purchase commitments beyond fulfilling the given exchange.” However, Barney 2001 notes that spot markets do not necessarily imply the absence of prior and/or post purchase obligations. Any default that might be realized after the transaction transpires can still be addressed to the buyer or seller. It is important to note that post purchase actions and behaviors must be addressed even in a spot market.
Additionally, according to the article, spot markets provide buyers with the flexibility but limit their aptitude and ability to control the quantity and quality of goods sold. It presupposes that the aforementioned challenge can be subdued through vertical integration of markets where two stages of the supply chain will be forced to fit a single firm (Cavusgil et al., 2012). The process of increasing control over the quality and lowering the procurement risks should be made perfectly to fit the firm. Apparently, this will devastate the management of the firm and the validity of the supply chain since Byuhan 2002 indicate that the intemperance of resources in perpendicular ownership amalgamation places a comparatively high demand on investment and may labor managerial incentives. Incentives are important in the existence of a firm and, therefore, any activity of decision that is likely to compromise incentives should be averted or dropped adeptly (Proctor, 2000). Prior to making any decision, a firm must ensure that its management team is made up of proficient individuals who can make productive decisions and enable the firm obtain a competitive advantage. Additionally, the gradation of vertical integration or coordination wavers and affects the degree of contracting relationships.
The article indicates that the vertical integration reduces market and/or business uncertainties, improves access to essential resources, and consequently improves businesses’ productivity. While that is certainly accurate, supplier performance should not be assessed chiefly on the market conduction. Various other factors affect producer-supplier relationships and the suppliers’ ability to create and implement programmes. The author ostensibly parodies the concept of vertical integration especially as it applies to the agricultural industry. Barney 2001 clearly define vertical integration as the process of warranting that each succeeding phase in the production, processing, and marketing of a product is aptly managed and interconnected with the subsequent, so that resolutions about what to crop, and how much, are conversed as proficiently as conceivable, from the customer to the manufacturer.
Agricultural economists believe that the vertical integration of markets is very important in the food industry particularly due to its intricacy, the relative perishability of the involved products, and the huge number of participants involved in the various stages. The author fails to consider the availability of accurate market information, accurate prices, and the use of marketing contracts between sellers and buyers as important methods of attaining an appropriate vertical integration. Notably, the agricultural industry is organized like any other organization (McCormack et al., 2003). The hierarchies observed in contemporary organizations are also assumed in the industry implying that individuals at the top rank makes decisions and others follow. Any contraction or conflicts that arise in the industry should and must be addressed by the relevant forces. Due to the changes in market structure, especially in the agricultural industry, cost drivers, fundamental forces of consumer demands, and the regulations governing the operations of the industry in Armenia must be pragmatic.
While the article presents market competition as a pure environmental improbability since it increases the chances of buyers shifting to other suppliers and recommends that explicit contracts should be used to minimize the risk. However, such a move will compromise the freedom of buyers and suppliers and consequently the taste, needs, and preferences of the consumers (BOONE, 2012). The use of explicit contracts to control buyer-seller behaviors is apparently oppressive and disadvantageous to both parties and greatly against the aim of contemporary businesses. According to Hennessy 1996, “information externalities, arising from uncertainty concerning the nature of food quality and problems in detecting the quality, may be reasons why vertical coordination is being used to circumvent the marketplace.” However, the use of vertical coordination should not be used to compromise the quality and quantity of products and services accessible or available to consumers (BOONE, 2012).
The article unequivocally states that although the banking and finance sector has experienced rapid growth in the recent years, it continuously refrains from financing agriculture, a factor that has greatly hampered the growth of the Armenian agricultural industry. However, it should be noted that any business would avert investments that have high risks and low returns. The 5.5% of the total credit investments that are investment in the agricultural industry must, therefore, be perceived as an enough investment since the industry is quite seasonal and unpredictable. Any business operates with the aim of making profits; hence, the banking sector must charge high interests to ensure that it adequately caters for losses and/or uncertainties that might arise. The banking industry is adeptly using the information available to avoid succumbing to the challenges presented by the food industry (McCormack et al., 2003).
The results of the article indicate that the corporate dairy companies are less inclined to support their suppliers. However, the findings of the article cannot be wholly reliable since it is constrained by the sample size and the questionable research and regression analysis conducted. The data indicates some kind of deviations that relatively arouses doubt over the validity of the analysis. Since the data is more scientific, the research needed to incorporate SPSS, ANOVA, and Epi-info in the analysis to enable the researcher conduct a more detailed analysis of the buyer-supplier relationship and prices-investment. Inferential, mechanistic, predictive, and causal analysis needed to be conducted on the figures. The description and interpretation process were seemingly inappropriate and dubious. Bivariate and univariate analysis could also be conducted to improve the cogency and coverage of investment decisions and buyer-supplier relationships.
The article contributes to the study of supply chain literature by analyzing the determinants of the supply chain relationship, supplier support, and its impact on investment. However, it flaws in failing to analyze the real determinants of supply and investment and majorly assumes supplier support to be the major determinant of investments in the agricultural industry in Armenia (Luning et al., 2002). It fails to elucidate the many challenges that the Armenian agricultural industry suffers from. These include low quality of primary production, uncertainty over the availability of rainwaters, and the deteriorating self-sufficiency rate. These challenges play an imperative role in streamlining the dairy sector, determining supplier-buyer relationships, and improving the long-term prospects of the sector. It also indicates that buyers discriminate on who receives supplier support while, in reality, buyers do less in shaping who receives the support since the market forces victimize the less competitive and/or proficient suppliers and errands those who can provide products and services that meet the market demand, consumer tastes and predilections.
Vertical integration creates a continuous and organized flow of information across the supply chain and reduces information buoyancy or lopsidedness. However, McCormack et al., 2003 believe that the same market information can be used by Ad agencies to provide the same market information to different clients while benefiting a few players from the economies of scale. Additionally, he indicates that manufacturers capitalize on production systems that are substantial and affect supplier-buyer relationship through availing alternatives, creating supply market dynamism, and more complex supply chains. However, public failure in providing enforceable contracts greatly devastates the success of supply chains in many emerging economies.
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