Sitkin and Bowen: International Business, 2nd Edition Revision Tips PDF

Sitkin and Bowen: International Business, 2nd edition Revision tips  Generally speaking, production specialists are interested in standardizing, since this enables economies of scale and helps them to achieve their...

Sitkin and Bowen: International Business, 2nd edition Revision tips  Generally speaking, production specialists are interested in standardizing, since this enables economies of scale and helps them to achieve their operational goal of manufacturing goods cheaply and efficiently. This conflicts with marketing specialists’ focus on adaptation. Value chain management cannot be accurately assessed without regard for the tension between its upstream and downstream sides.  At the very beginning of the production process are the ideas that companies try to leverage. Knowledge management affects all of a company’s functions, in particular upstream activities like research and development. R&D depends partially on the ‘national innovation system’ of the country where the MNE is operating, and specifically on the possibility of knowledge spillovers between the corporate and academic spheres. There are significant regional variations in R&D behaviour, with corporate ‘research intensity’ highest in Asia and generally lowest in Europe.  R&D can also be studied from MNEs’ perspective. In sectors like pharmaceuticals followed by automobiles and information technology, research and development can be an extremely expensive investment. This means that companies are forced to think globally and develop international alliances if they want to have any chance of achieving sufficient sales to justify the initial cost.  At the same time, there is a risk in international R&D that a foreign partner may steal a company’s intangible assets. This explains why some firms locate their research efforts close to headquarters. The problem with this ‘push’ approach is that the new technology being developed may not be particularly relevant to the needs of different foreign markets. MNEs can then implement a ‘push’ R&D approach characterized by multiple research centres, but this is expensive.  The same dilemma affects multinational design decisions. Companies may wish to save money and achieve economies of scale by designing a single product to be sold worldwide. However, if the target markets do not converge sufficiently, the design will not sell well everywhere. A good example of this is the difficulty that automobile MNEs have faced in designing a ‘world car’.  The next topic in international production is supply chain management (SCM), which includes all of the operations involved in sourcing, producing, transporting, assembling and finalizing a product or service. Global SCM occurs when firms are in a position to purchase and take delivery of raw materials, components and modules anywhere in the world. The first global SCM decisions that companies must make is whether to offshore components production to in-house units located abroad or to outsource to entities belonging to an external partner. © Oxford University Press, 2013. All rights reserved.  Sitkin and Bowen: International Business, 2nd edition  International outsourcing can be motivated by a company’s desire to reduce the size of its balance sheet to raise return on equity. This can be achieved by getting external partners to take responsibility for certain productive activities, a solution that is all the more justifiable when the supplier’s competitive advantage is such that it is cheaper for the prime contractor to purchase the good externally than to manufacture it internally. Outsourcing contracts are also flexible and cheaper. Lastly, they are easier to terminate in case of an economic downturn than if the company had to shut its own factories due to overcapacities.  International outsourcing raises questions relating to the quality of the relationship between the prime contractor and its suppliers. This is, in part, a technical communications challenge, and there are many IT systems nowadays that help different companies working together within the supply chain to share information relating to the location of a particular component at a given moment in time.  Outsourcing is also a strategic question, since sharing a value chain with other companies creates a dependency relationship and indicates a level of trust between the companies involved. The risk for a prime contractor is that the upstream supplier will engage in forward integration and become a competitor to its own customer. Conversely, the risk for the supplier is that the prime contractor will engage and backward integration and crowd out its upstream counterparts. Trust in value chain partners is in part a cultural phenomenon that varies internationally.  This dependency aspect also raises technical production issues relating to the quality and reliability of deliveries. This latter factor is particularly crucial in ‘lean production’ systems where parts are supposed to arrive their assembly plant ‘just-in-time’. The distances involved in international outsourcing can extend the ‘lead-times’ needed to deliver a good. This explains the recent trend towards ‘near-sourcing’, where prime contractors choose suppliers based on physical proximity. This is sometimes encapsulated in ‘follow sourcing’, where companies create ‘suppliers parks’ in the immediate vicinity of their customers’ overseas plants.  Sourcing relationships are generally split between short-term, so-called American model, prime contract is forced to suppliers to compete any time a contract is renewed. This keeps prices low but prevents cooperative industrial planning - the opposite of the more long-term approach embodied by Japanese keiretsus, where groups of companies active at the different stages of a good’s value chain cooperate for decades if not generations, engaging, for instance, in ‘concurrent’ practices where engineers who are in title employed by different companies pool their competencies to achieve technological progress.  The main principles guiding international manufacturing have a varied over the years. The modern era is widely considered to have started with the mass production techniques that Henry Ford invented in the early 20th century. This © Oxford University Press, 2013. All rights reserved.  Sitkin and Bowen: International Business, 2nd edition organization is based in specialized assembly line work that maximizes economies of scale. The problem with Fordism is its inflexibility - the whole line shuts down if one workstation fails, for example, due to a shortage of stocks. In addition, it is not very efficient at providing the kind of production diversity needed to serve differentiated global markets.  Ford’s great rival at General Motors during the 1920s, Alfred Sloan, devised a ‘volume and diversity’ strategy where manufacturers can achieve economies of scale by making invisible sub-assemblies using the same components, before giving consumers a sense of customization by differentiating the visible parts bolted onto the product at the end of the manufacturing process. This compromise solution has been alternatively referred to as deferred differentiation, ‘platform strategy’ or ‘postponement’. It can be summarized as standardising for as long as possible and differentiating as fast as possible.  A dominant industrial models since 1970s has been Toyotaism, built on the idea that volume manufacturing can coincide with product flexibility as long as there is minimal uncertainty about the level and timing of factory flows. This predicated on several conditions. Firstly, production volumes should be ‘pulled’ through a factory by ‘kanban’ signals derived from customer demand, instead of being ‘pushed’ by the factory manager’s necessarily imperfect forecasts. Secondly, workers must voluntarily adopt a ‘kaizen’ attitude where they are permanently trying to lower costs and improve quality – a factor that has become increasingly important over the years, as witnessed by the rise of quality assessment organizations like the International Standards Organization that companies pay to certify the quality of their goods.  Aside from Fordism and Toyotaism, a more recent industrial model is Dellism, where more or less ‘hollow’ firms make almost nothing themselves but assemble goods made by others and serve as the nexus of global supply chains that they control through top performance logistics, often carried out by specialist firms.  Relying upon the logistics sector’s global reach, many MNEs have adopted manufacturing configurations in a way that they hope will maximize productive efficiency and minimise costs. One example is the trend towards ‘centralized inventories’, where companies store global stocks of semi-finished and finished products in a few key regional distribution centres, including ‘free trade zones’ that offer temporary tax exemptions. Another is the rise of ‘focused factories’, where each of a company’s worldwide plant specializes in a particular production. This approach increase economies of scale at the factory level but also causes longer lead times and complicates packaging and communications. The rationale for the MNE’s plant location decisions must be juggled against the logistics constraints that they create.  The mission attributed to a production unit also depends on where its output is sold. Some plants only serve the countries or regions where they are located. Others send their output globally, either to sister MNE units or directly to customers. Lastly, there is a key difference between plants that merely © Oxford University Press, 2013. All rights reserved.  Sitkin and Bowen: International Business, 2nd edition assemble modules, and others that manufacture their own generic goods. The former are cheaper and less capital-intensive, and can therefore be dispersed relatively easily. This differs from big manufacturing plants, which by their very nature cost more and are therefore less likely to be replicated worldwide. © Oxford University Press, 2013. All rights reserved.