Title: Getting a foot in global supply chains

Sub-title: Multinational corporations are a lucrative potential market for SMEs. But selling to them isn’t easy.

When Armand Afilalo finished his MBA many years ago, there were few initial indications that this rising executive wanted to start his own business.  However it wasn’t long before Afilalo, from his perch as a vice-president of a Big Five Canadian bank, spotted a trend that changed his life.

“I noticed that many multinationals were boosting their competitiveness by integrating themselves into global supply chains, in particular by outsourcing key production to small and medium sized enterprises (SMEs),” said Afilalo. “So when the opportunity arose to invest in MEP Technologies, one important selling point was how well the company was positioned to profit from this trend.”

Afilalo’s acquisition of MEP Technologies, a company he has headed for more than two decades, proved to be the right move. Since he got on board, this high-precision metal product manufacturer and designer, which supplies the semi-conductor, industrial and electronic sectors, has grown from just 13 employees to 200. Most of that work comes from sales to multinationals based in the United States and Mexico

“Through our international outsourcing program we play a key role in global supply chains. Much of the value we add comes from our flexibility,” says Afilalo. “In many cases we provide turn-key production solutions and integrate our operations completely into clients’ production processes. We can combine our manufacturing, with engineering and creative work and in many cases we source sub-components and assemblies in China, which are then incorporated into the final product.”

Integrating into global supply chains

MEP Technologies isn’t the only Canadian small business that has been profiting by selling to multi-national corporations. “SMEs account for a large share of the Canadian economy and comprise 62 percent of its private sector employment,” says Jérôme Nycz, Vice-President (Strategic Planning) at BDC. “But what many people don’t realize is how important the emergence of global supply chains has been, in fuelling their growth.”

Tim Krywulak, a senior research associate at the Conference Board of Canada agrees. “It’s a win-win situation for both big and small companies. As the economy is transformed by global value chains, large multinational corporations depend on their smaller suppliers for everything from product development to customer service,” says Krywulak. “Working with SME suppliers offers big gains for large MNCs in areas of improved productivity, increased innovation and access to new markets.”

So certain are the Business Development Bank of Canada and the Conference Board of the potential cooperation opportunities between big businesses and smaller ones that recently the two organizations published a report titled Big Gains With Small Partners: What MNCs Look For in Their SME Suppliers. The results of further research are scheduled to be released in coming months.

Specialize, add value and partner

According to Afilalo, there are several ways that Canadian SMEs can take advantage of the increased role played by the global supply chains of large multi-national corporations in world trade. For example MEP Technologies cooperates very closely with all of its customers in areas ranging from training programs to data access. The idea is that supplier and customer work as a unit.

“There’s no secret,” says Afilalo, “Our customers expect us to be the best at what we do. That doesn’t mean we need to be the cheapest. However we do have to add the most value for the dollars that we charge.”

Another way that MEP Technologies has stood out was to focus on quality. “We were the first company in our sector to be ISO certified. Back then hardly anyone knew what that meant. But for our customers it was important,” says Afilalo. “Still, we haven’t rested on our laurels. We are continuously upgrading and streamlining our processes to stay ahead of the game.”

That said, Afilalo admits that recent pressures caused by the economic downturn and Canada’s strengthening currency have increased competitive pressures. But he professes not to be concerned. “A big part of our success relates to the fact that multinational companies boost their efficiency by dealing with us,” says Afilalo. “So in the long run, if our customers need to be even more productive, that should be a good thing for us too.” 

Sidebar: What multinational corporations look for in SME suppliers

According to Karen Kastner, director of corporate planning at the Business Development Bank of Canada, small businesses that want to market their products and services to multi-national corporations need to first identify their needs, and then tailor how the products and services the SME supplies can help boost supply chain efficiency.

“Many multinational corporations are now transitioning from short-term transaction based relationships, towards deeper move collaborative relationships with suppliers,” says Kastner. “It comes down to focus. Smaller businesses have less resources. That means they need to concentrate on a few key areas, where they can outperform their competitors.” Kastner adds that in many cases, Canadian SMEs can add more value in knowledge-based sectors, such as engineering, research and development; as well as in specialized value-added manufacturing processes.

Peter Diekmeyer (peter@peterdiekmeyer.com) is a Montreal based financial and economics writer.

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