Hello everyone, welcome back. The last session, we talked about procurement history and the key element of global marketing and the procurement practice, especially when it goes back to 1800. Before industrial revolution and in the industrial revolution, how the ancestors used to call public procurement, their definition and especially in the early part of the 1800. A new terminology, a mature man and appear in the mining industry equivalent to a procure manager all in this day who sources supply of the good and services and also select the best of product for their work. Also, we'd talk about what other different country used their budget for the public procurement and different consent, different country has a different combination of their budget distribution for public procurement. Today, I'm going to talk about a very important issue of the supply chain management. I want to share the Michael Porter supply chain management overall, value chain basically. This is a very important concept that addresses importance of the procurement. In the past, procurement was only a small function of a corporate activity like buy things without any specific direction or specific strategy. But Michael Porter actually came up with supply chain and management in the context that supply chain management is the core concept of many global player like iPhone. Basically iPhone, other than their design house, there's no traditional concept of manufacturing, distribution, operation, or other concept which are very different. So when you look at the value chain of supply in chain management, you can see the procurement, and right in the middle and the very center of corporate activities, in the right middle of this value chain for the supply chain management and you had the procurement, technology development, and human resource management, and actually a firm infrastructure. So the procurement is a backbone of the corporate activities. So if you've got it wrong about procurement, we talk about here is a commercial procurement but all other corporate Infrastructure, especially when it comes to fiducial high-value ICT information communication technologies item, if you've got a wrong procurement cycle or if you do not have the right procurement strategy, your corporate income, your corporate revenue, your corporate and logistic inbound and outbound, and you operation on a concept, even marketing and the sale will be affected. So that's how important it is, procurement. So now in this day, a procurement and also a supply chain management in the context of the having the right procurement strategy play a very crucial and important role for corporate activity. When you look at public procurement overall, you have, basically, like the market concept. We looked at it before, we had a domestic market, and we had a national market, automation market, we had international market, and we had global market. So the same thing apply, I want to have a look at it, how we elevate the engagement of the procurement in itself. It goes from basically domestic procurement. Domestic procurement goes into domestic competitive procurement. You can have a single source for domestic procurement, but when domestic market get bigger, you need to have a competition, so you'll have a domestic competitive procurement. In the national level, same thing apply. You can have a domestic or a national single-source procurement, but market get bigger, you always need to introduce competition and turn into national competitive procurement. International market is not different. International also you can have international procurement, or international singular-source procurement, when market getting bigger, the more competition introduce, you will have international competitive procurement. In this contact, normally, you heard the expression ICB. ICBs come from here, International Competitive Biddings. International Competitive Bidding is when country A, for example, want to build a bridge. The country has two option. You either can call national competitive procurement, or you can call International Competitive Bidding. The country A want to build a bridge. Let's say the country A borrowed money from Asian Development Bank, $100 million to build a bridge, or actually build airport. When this country A decided to call national competitive bidding, which mean only company register and domicile in A country legally, or legitimately can compete in this national competitive procurement. What will happen is, basically when you have under-developed country, and developing country, if a bidding either limited for that specific country and the boundary, what will happen? All of the stakeholder in the country will have a hand here and there, so you will have a serious problem of not utilizing public fund in right direction. The best option for country A, when they want to build $100 million effort with money from ADB, Asian Development Bank, best way is one, country A should go to international competitive procurement. That mean not only for the company in the national country A, all other company from different countries can participate International Competitive Bidding, or the procurement. So that's how you create the concept of the best value for money. You heard expression, "A best value for the money." Best value for the money is a term that you are going to hear it over and over again, the key concept of the public procurement. Now we talked about the domestic, and national, and International Competitive Bidding, and then we have basically made different legal framework at the word as one market place under World Trade Organization. World Trade Organization, with all the member country, including Korea, US, and all other major country including European Union, we have one legal framework called GPA, Government Procurement Agreement. GPA is the backbone of public procurement among the member. You can be World Trade Organization, but you cannot be, for example, you do not belong to GPA signatory country. For example, like you're Korea, US and Japan, all these country are member of the World Trade Organization, as well as the signatory countries for the government procurement agreement. We always have international commercial term, Incoterm, as a commercial activity, and we are going to talk about the differences between Incoterms and the World Trade Organization government procurement agreement. So I want to talk about specific issue about the government public procurement. We will have opportunity to talk about the commercial public procurement and address the value chain for the supply chain management side. Let's have a look at what they mean by in the government public procurement. The government procurement is necessary because the government cannot produce all of input for the good and they provide themselves. Basically, they have to buy it from elsewhere, even authoritarian country, they cannot produce everything by the government. The government usually provide the public good, for example, like national defense or public infrastructure. A public goods are non-rival or non-excludable, which mean that one individual consumption does not diminish quantity or the quality of the commodity available to others. An individual cannot be prevented from freely consuming the commodity or free riding. Consequently, private market cannot provide the public good. Instead, the government provide those good, finance them by raising tax from all citizens. As we pointed out earlier, the public procurement, they got to have three key element. The first element, where the money comes from. Do we have the right to tax because there is no way the government can buy everything by themselves. In other word, they cannot produce everything, what they need in their own means. Secondly, because you have a public procurement as a source of funding and you got to have rules or regulation. For example, United Nations. Have a UN public procurement guideline which should stipulate all the terms and conditions, how the order supplier register can comply with UN regulation for the public procurement. If you want European Union, you have Directive 2014 EU 24, that be the new procuring guideline for European Union. For example, if you go to US Federal Government, you have more than 1800 pages thick. You get the federal government acquisition regulation. People basically use [inaudible] as the bible of a public procurement guideline. So all of the public procurement has three key element. All of the public procurement has a fund in itself or have the public fund, have the rules and regulation and also the beneficiary as a public entity. So in addition to public good, government often also provide the merit of the goods, such as education and health. These are actually different levels of public procurement. Public procurement, they acquire service for the education or the health care. That also is a part of the major public procurement. So public procurement has a two major approaches. One is for public, the health public good and education. The other one is a public general consumption. If the army unit want to change the uniform, they need to call public procurement for defense buy all the needed uniform. But who is the benefit? Who is going to benefit from buying or having new police car, school building, a uniform? All the public entity, they will have benefit of having a new police car, new school building, and uniform, etc. So all of this process basically and the procedures to provide the public with goods and services, we call a public procurement. So public procurement is the process and the procedure to secure, acquire all the necessary goods and services for public interests. That's what they mean by public procurement as a definition. I want to bring a little bit of information how the US Federal Government. I introduce three different element. I want to bring, actually, more, but maybe we will start with US Federal Government. The reason I only want to introduce at this juncture US Federal Government is, US as you know, got three different level of government engagement. You have the federal government with the capital in Washington DC. You have 50 different state government and you have a local government and thousands of different thing. So it will not be practical to address all of the state-level procurement here. So I decided to only introduce US Federal Government and the market trend. So if you look by over 2018, US Federal Government spend more than $544 billion so b for billion-dollar a year. Huge market for public procurement including service at work. That how much US Federal Government spend last fiscal year. But if you go back to 2015, its actually changed a little bit, but is going up. One thing you will see, I will have opportunity to talk about it when we talk what defense area. At 2015, US Government spend 437 billion, 2016 472 billion, and then 2017, you start to see 500 billion, and you have basically 579 billion and then 2018, $544 billion. So this is how much increase actually, about seven percent of each year over the public procurement spending. So US has a very different political system as you may aware of. The Congress House of Representative has authority for the budget and not the Senate. So they actually appropriate the fund to spend the money, and including US forces in Korea, including service in the work, work mean the construction. So that's how much US Government is. It is one of the largest public procurement market in the world. We are going to talk about more, about the different market. Let's have a look at other market. I want to talk about actually a Multilateral Development Bank, we call it MDB. The MDB market is very important. Even our focuses for this Coursera course, for public procurement, is US Federal Government because as title suggest, I want to make it as a global context. Therefore, MDB and other markets such as the United Nations is very important. So Multilateral Development Bank is an institution created by a group of the country, region actually, that provides the financial and professional advice for the purpose of development. The keyword, development, of the member country. This is not a commercial activity by any mean. MDB have very large membership including both developed donor country and developing borrowing country. For example, ADB, Asian Development Bank. Korea is developed country, donor country with a 5.5 percent ownership, US got more than 15 percent, Japan got more than 15 percent. These are the developed donor country or as an institution. You have a developing borrowing country, that all the recipient of the fund. So therefore, MDB Finance, the project in the forms of long-term loan at a market rate, very long-term, 30-40 year-long, also as a credit or grant, below-market rate and/or through the grant. So MDB is [inaudible] bank but is not a commercial bank. MDB is in the market to support developing country to build the social infrastructure, and the medical, and the IT, and the power, and energy from the money that accumulated from the donor or to raising money in public market and then their rate is very low, well below the commercial market and with a very long-term loan arrangement. We talked about direction of public procurement in the United State, federal market, and we talked a little bit about Multilateral Development Bank, MDB, procurement side. Then we're going to talk about next session on the UN and other specific issue about the public procurement. Thank you.
