I. INTRODUCTION
The industrial revolution, development and expansion of transportation networks, technological revolution and communications revolution, collectively over a span of decades, have given rise to formation of global supply chains. Before these developments, supply chains were limited to local jurisdictions and domestic markets due to which the markets were saturated with non-competitive and conventional products and old methods for production were followed. Empowered by global revolutions, supply chains underwent major changes and enabled the rescue of businesses striving to enhance efficiency & reduce costs while also saving the global workforce that was struggling to secure employment in their respective jurisdictions.
In a short span of time, the benefits of global supply chains became widespread among economies. Governments played a major role in facilitating global supply chains by lowering their trade restrictions, amending trade laws, eliminating trade costs to facilitate their economic development, promote growth of supply chains in their domestic markets and maximize ease of doing business. This further allowed supply chains to go global, penetrate international markets, gain diverse perspectives, foster innovation, seek expertise and reduce costs significantly.
As international supply demand increased, the government tightened control over the industry and to add to the pre-existing complexities, the Covid-19 pandemic caused significant disruption in the global supply chains. Lockdowns across nations shook supply chains, slowed and stopped productions and negatively impacted majority sectors, causing input shortages, shutdowns, lack of skilled labour, and delayed processes. The pandemic was an eye-opener for businesses and regulators as it brought out various shortcomings of the supply-chain and loopholes in regulations. Workforce had to be managed in the new work-from-home setting and it was difficult especially for those in factory settings to adapt to the new atmosphere and cater to the needs of the business while also adhering to social distancing and safety norms and the regulators had no control over the havoc created in economies.
II. CHALLENGES & RISKS ASSOCIATED WITH GLOBAL SUPPLY CHAINS
Keeping the complexities of the operating and internal environment in mind, it is vital for businesses to not only identify various risks associated with the global supply chains but also to actively mitigate them. Cross-border supply chains attract various laws and compliances like customs declarations, appropriate and exhaustive manifests, product licenses, packaging requirements, export evidence and invoices, all in accordance with different applicable laws across different jurisdictions. While businesses are largely dependent on suppliers and vendors to source raw materials, components and goods, however, engaging suppliers and vendors can prove to be a challenging aspect when they are exposed to the regulatory radar for inadequate compliance or non-compliance, violations of labour laws, anti-competitive practices, violations of environmental regulations, and non- compliance with import and export regulations and product safety standards (across different jurisdictions).
Contracts with suppliers, manufacturers, distributors, and other partners in the supply chain can pose major challenges as these contracts define rights and responsibilities of parties, recourses for breach of contracts, dispute resolution mechanism, representations and warranties pertaining to adherence of applicable laws, indemnities, protection of intellectual property rights (specifically in products developed as a custom-built order) and jurisdictions. It is vital for companies to understand these clauses in contracts to have a clear understanding of their rights and responsibilities and to be able to enforce them when required. Clauses like notices in case of disputes, confidentiality, indemnity, arbitration, force majeure, etc may seem simple but can pose complexities for businesses if drafted poorly and not followed appropriately. Choosing the right jurisdiction is equally important as the jurisdictions determine what laws will be applicable when disputes arise, and different jurisdictions have different remedies which might not suit every business.
Supply chain transparency can also pose major hindrance for companies. Companies must comply with the country and industry specific human rights issues like trafficking, forced labour, child labour, sustainability and other environmental and social issues. Such issues may be more prevalent in lower tiers of supply chain as compared to the higher levels; therefore, proper systems must be in place for keeping regular checks/assessments and resolution of such issues.
Global supply chains expose a business's intellectual property which may result in infringement, theft and piracy. Inadequate or improper protection of Intellectual Property can risk the business' market standing thereby causing loss to their proprietary designs and tooling processes. Similarly, data privacy is an ongoing concern across the world, and it plays a significant role in supply chains as well. The businesses must have in place, sufficient policies and efficient mechanisms to address data breaches, cyber-attacks on their sensitive information, designs, financial records and customer records. An optimal mechanism for data protection must foremost involve compliance with data privacy laws, conducting audits and ensuring inclusion of contractual obligations with third- parties.
The abovementioned challenges can pose various risks to global supply chains as mentioned hereunder:
Suppliers of products may use such inputs and processes that do not meet standards set by governments, regulatory agencies, or general industry standards. Use of such information may result in product malfunction, which may require the business to recall, remanufacture, or replace the product thereby affecting their reputation negatively; and increasing costs incurred by the businesses significantly. Scrutiny and frequent inspections of regulators in business operations could result in disruptions to business operations, as well as delays in making deliveries and keeping commitments made to customers. These repeated non-compliances can damage the manufacturer's reputation which may eventually lead to customers losing their confidence in the product thereby resulting in reduced sales, negative rumours and long-term damage to the business.
III. ROLE OF LEGAL ADVISORS IN ENSURING SMOOTH SUPPLY-CHAIN MANAGEMENT
To ensure smooth supply chain management, businesses must seek expertise and assistance from legal advisors/lawyers. The numerous ways in which legal advisors can assist businesses are:
- Licenses and registrations: Businesses, as stated above, are required to comply with various applicable laws pertaining to their global supply chain (as briefly explained in this article) and must undertake tedious tasks like obtaining licenses and permissions form different government and regulatory authorities; complying with the domestic trade laws; adhering to numerous other laws including but not limited to import export laws, labour laws and environmental laws. Legal advisors can thoroughly assist the businesses in undertaking such processes, procure all required licenses, permissions and registrations; and complying with the post license compliances (as may be required by different government departments).
- Drafting of requisite contracts/agreements: Majority of business relationships shall be governed by contracts which contain the scope of work between of the parties, their liabilities, conditions for termination, disputes resolution, consideration, governing law, confidentiality, etc, which, if drafted incorrectly, may bring substantial legal trouble for the business in case of conflict with the counter parties. Legal advisors ensure that the agreements/contracts are stringently drafted and contain all such clauses that protect the business's interests in all aspects.
- Formulation and implementation of company policies: Complying with laws and regulations may require businesses to inculcate certain practices throughout their supply chains and organisations which practices/mandates shall be laid down by businesses in the form of policies. Legal advisors can help the businesses to formulate and implement such policies within their organisations and ensure the inclusion of best industry practices in the policies and, if required, may also provide trainings for proper implementation of such practices across the organisation.
- Dispute resolution: Often, there may arise contractual disputes, payments disputes, or other disputes among the supply chain partners or with the businesses. Seeking legal help can save time and resources as lawyers can aid the businesses by solving the disputes through the right channels like arbitration, mediation or litigation, as the situations may require.
- Conducting due diligences: Legal advisors help in conducting due diligences for mitigating supply chain risks by reviewing suppliers' licenses (or buyer's licenses in some cases), statutory compliances, certifications and filings, maintenance of registers, in order to identify areas that might pose future risks to the business. Reviewing suppliers' contracts, discovering their ongoing litigations, assessing their intellectual property rights are some other aspects of the due diligence undertaken by legal experts to ensure risk free supply chains.
IV. CONCLUSION
Fuelled by technological advancements, economic trends, increasing demands, the supply chains continue to thrive. While the pandemic and geopolitical tensions may have slowed the developments, causing disruption in global value chains, the value chains have regained their momentum in the near past. Stakeholders demand transparent operations, sustainability & social considerations and compliance with laws and regulations therefore, businesses must adapt to the geopolitical changes, dynamic regulatory landscape and the specific demands of their stakeholders with respect to their supply chains. While it may be difficult for businesses to achieve that, seeking the right legal advice can ensure satisfaction among stakeholders, protection of the business's interest and an uninterrupted business operations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
