Supply Chain Expansion and Integration

The past two decades have witnessed a radical movement from vertically integrated supply chains towards globally decentralized supply chains. With the advancements of information technologies and reduced barriers in global trade, supply chains are expanding in a way that retailers can buy products from a larger collection of suppliers, and suppliers can sell to a larger group of retailers at different regions of the world (Netessine 2009). All these factors transformed local supply chains in which only a handful of firms transact into integrated supply chains in which a multitude of firms transact and compete. This paper examines the impact of the supply chain expansion and integration on supply chain performance. Various factors fuel supply chain expansion and integration. Information technologies such as standard electronic business interfaces (SEBIs) enable supply chains to expand quickly and at low cost: Suppliers can easily sell to new retailers at different regions, and retailers can easily buy from new suppliers. Supply chain expansion or integration is also fueled by disappearing boundaries between countries after the formation of economic unions such as the European Union (in short, EU). When two countries join an economic union, transaction costs between supply chains in these countries decrease substantially because of reduced tariffs (taxes on imports or exports) and other trade barriers. Reduced transaction costs often induce local supply chains to form an integrated supply chain. For example, since Turkey entered the EU Customs Union in 1995, Turkish-specialty-food (e.g., sausage and pastrami) suppliers such as Aytac and Baktat have expanded their sales to retailers all over Europe, starting to compete with other Europe-based suppliers, such as Egeturk based in Germany and Gima based in the United Kingdom (in short, UK). More generally, after it is established in 1993, the EU Single Market Programme facilitated the integration of wholesale markets and supply chains throughout Europe (EU 2016). We may also see the opposite of integration, i.e., disintegration after the recent decision of the UK to leave the EU, popularly known as “Brexit.” After Brexit, if the UK leaves the EU Single Market along with the EU, supply chains that span both the UK and Europe may disintegrate. How this disintegration will affect the UK and EU is an important open question. In this paper, we examine the impact of the supply chain expansion and integration on supply