Supply and distribution chains of multinationals: Harnessing their potential for development - ODI Background Notes

Multi-national enterprises (MNEs) operate in developing countries for many reasons: to take advantage of the availability of specific raw materials, natural resources, labour pools, skills-sets, or processing facilities, or to serve growing customer markets. In many cases, it is their supply chains that matter most in shaping their contribution to enterprise development and local earnings in developing countries. For companies with on-site production, such as mines or hotels, supply chains can be a greater source of local economic impact than the direct payroll. And they certainly outweigh philanthropic investment: Shell’s financial results for 2007 showed that the company spent $17 billion on goods and services from locallyowned companies in lowand medium-income countries, versus ‘only’ $170 million on social investment. For companies that do not produce or sell in the South, but source their primary inputs there (such as chocolate makers), and for those that contract intermediaries in the South (such as clothing companies), it is the supply chain that delivers impact. For those companies selling households goods in the developing world, from soap to soft drinks, distribution chains may have extensive reach into the local economy surpassing that of supply chains. While providing opportunities for workers, producers and vendors, supply and distribution chains are also where MNEs earn their margins, squeezing returns to low-income supplies or distributors. As such, whatever the sector, the supply and distribution chains of MNEs are major avenues by which MNEs affect the engagement of the poor in globalised markets.