The shocks (pandemics, wars, shortages...) that have successively impacted the global economy have heightened our awareness of our interdependence, with entire sectors of activity suffering from shortages or difficulties in sourcing essential raw materials and components for their operations [1]. We have also had to deal with an increase in transportation costs, an unusual rise in energy prices, and inflation. According to a recent UN report, global production growth will slow, with a 2022 estimate of 3% falling to 1.9% in 2023 [2]. The Covid-19 health crisis alone has had a significant impact on French business activity, with a 6.3% decrease in turnover between 2019 and 2020 [3].
The ongoing strains on supply chains have changed the balance of contracts. In the food and non-food retail sector, known to be one of the toughest in terms of negotiation, a new source of tension has emerged. "The production costs of suppliers/manufacturers have drastically increased - in general - and have led to a new showdown over.
This tension adds to those that have been exerted for years now commercial terms negotiations, a tension that unfortunately has not been reduced by the accumulation of regulations," says Alexandra Berg-Moussa, one of our associates specializing in distribution law. In other sectors, fear of new supply chain disruptions has tipped the balance in favor of suppliers, to the point of reversing an historically balance of power favorable to buyers [1].
In this rapidly changing context, how can economic actors defend their interests, or even survive?
Diversifying partnerships in order to avoid risky dependencies is an important objective for any company operating in a stable economic environment. This is even more true in a constrained economy, which forces companies with the right latitude to develop new connections and contracts, both upstream (in the supply chain) and downstream (with clients). Others may be tempted to reconsider the terms that bind them to some of their contractors. To that end, a well-developed legal arsenal exists to ensure that everyone can defend their goals: the incorporation or execution of price revision or indexation clauses, and the recourse, if necessary, to contract law principles to obtain contractual adjustments to counter the reality or the threat of termination.
On the other hand, some businesses will prioritize partnership consolidation, and the need to preserve the economic fabric in which they operate. Shared interests and goals will, of course, be the pre-condition to a balanced partnership. This relationship will require (but also benefit from) partner consultation, a shared understanding of operating processes and reciprocal constraints, the implementation of co-management processes for specific projects, and even the occasional launch of shared development plans and investments.
The ability to collect concrete information on the ground - such as market comparison elements or a partner’s specific production know-how - is critical to effective, closer collaboration. As a result, much has been written the serendipitous discoveries that can be capitalized on. Even when planned, knowledge exchange can occur in the context of audits organized to improve the performance a partner. Not surprisingly, collaboration can be fruitful on a varied range of subjects.
Provide financial support to a partner is another one. This could include granting them temporary flexibility in contract execution, such as adjusting payment terms, partially suspending contract execution, or negotiating future price reductions. These measures can assist the struggling company in its recovery, without significantly affecting the accommodating partner's balance. Finally, such measures will support the maintenance of a mutually beneficial synergy long-term.
It is critical to document all these measures in writing, to ensure transparency and legal cover to all parties.
[1]https://solutions.lesechos.fr/tech/c/penurie-de-composants-electroniques-ou-en-est-on-32446/
[2]https://reliefweb.int/report/world/situation-et-perspectives-de-leconomie-mondiale-2023-resume-analytique
[3] "L’impact de la crise sanitaire en 2020, une analyse à partir des données fiscales », DGFIP Analyses, Janvier 2022, n°1
[4]Sarah Guillou, La dépendance aux intrants chinois et italiens des industries françaises, 2020
[5]https://www.decision-achats.fr/Thematique/strategie-achats-1236/relation-fournisseurs-2263/Breves/Relation-fournisseur-un-rapport-de-force-inverse-depuis-la-crise-373436.htm / https://www.decision-achats.fr/Thematique/strategie-achats-1236/relation-fournisseurs-2263/Breves/Les-nouvelles-formes-de-relations-fournisseurs-375573.htm