most tangible least tangible why manufacture abroad? (ferdows) reduce direct and indirect costs...
Post on 19-Dec-2015
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Most tangible
Least tangible
WHY MANUFACTURE ABROAD? (Ferdows)
Reduce direct and indirect costsReduce capital costsReduce taxesReduce logistics costsOvercome tariff barriersProvide better customer serviceSpread foreign exchange risksBuild alternative supply sourcesPreempt potential competitorsLearn from local suppliersLearn from foreign customersLearn from competitorsLearn from foreign research centersAttract talent globally
Types of Overseas Investments
•market-oriented production– where?– Notion of typical evolutionary
sequence
•Supply-oriented production
–natural resource industries
•cost-oriented production– a relatively recent category
– encouraged by developments in transportation and production technology
– increased attraction of other factors like labor
But, we need to remember
• differences in industry mix• differences in labor productivity• differences in labor militancy and
controllability may be as important as costs
Erica Schoenberger American transnational production in Western
Europein 1970s and 1980s(high tech products)
Alternative hypotheses
1. Cost-oriented production hypothesis
•Tariff barriers of 5-15%•but:
– production cost disadvantage of 17% or so
– transportation costs not significant
– product differentiation permits success despite tariff costs
2. Alternative hypothesis???
•Practical advantages of a local presence
• these are heightened as distinction between product and service gets blurred
Organizational Structures and Networks of
Relationship • Organizational structures as a
sequential process
Competitive Strategies
Locational needs and spatial patterns
• corporate and regional headquarters offices
• R & D facilities• production units
Alternateways of organizin
gproductio
n units
Ferdows’ thesis: Managing foreign plants according to
traditional criteria is no longer enough
• Declining tariffs reduce advantages of traditional market-oriented factories
• growing sophistication of products and importance of having world class suppliers reduces traditional cost-oriented factories
• pressure to get new products to market quickly requires closer links between product development and production
The emerging trend is:
Make foreign factories true sources of competitive
advantage. Custodians of specialized product
development and production for the entire company.
Sit
e C
omp
eten
ce
Strategic reason for site
Access to low
cost production
Access to skills
and knowledge
Proximity
to market
The Roles of Foreign Factories
Offshore
ContributorLeadSource
OutpostServer
Example: Hewlett-Packard’s Singapore factory
• 1970. Offshore factory. Simple low-cost components.
• Why Singapore???• Investment in quality improvement leads
to transfer of whole HP-35 calculator (1973)
• late 1970s. Makes keyboards, solid-state displays, integrated circuits all designed and first produced in U.S.
• 1983. Plant gains some product development and engineering functions
• 1986. R&D group of 35 people. Sole responsibility for developing and making all HP keyboards.
• Mid 1980s makes thermal inkjet printer within 4 months of intro. to American market.
• Mid 1990s. Lead plant for design, development and mfer. of HP’s portable printers.
Networks of external relationships
• Japanese keiretsu• overseas Chinese family business
network• international strategic alliance
– example of Nike