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8/9/2019 Curs Master 5

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International Business: Strategy, Management, and the New Realities 1

International Business

Strategy, Management

& the New Realitiesby

Cavusgil, Knight & Riesenberger

Chapter 16lobal Sour!ing


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lobal Sour!ing" Shopping the #orl$

Along with competitors Reebok and Adidas, Nikecontracts out nearly all of its athletic shoe production toforeign suppliers. These firms are best described asbrand owners and marketers, not as manufacturers.

Apple omputer sources some !"# of its productionabroad while focusing its internal resources on impro$ingits operating system and other software platforms. Thisapproach allows Apple to use its resources optimally andfocus on its core competences.

%oeing and Airbus rely e&tensi$ely on globalmanufacturing networks, composed largely ofindependent suppliers.


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International Business: Strategy, Management, and the New Realities '

lobal Sour!ing

lobal sour!ing( the procurement of products orser$ices from suppliers located abroad forconsumption in the home country or in a thirdcountry.

Also called global outsourcing, global procurementor global purchasing;it amounts to importing.

)n$ol$es a contractual relationship between thebuyer and the foreign supplier, in which theperformance of a specific $alue*chain acti$ity issubcontracted to the firm+s own subsidiary or to anindependent supplier.


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International Business: Strategy, Management, and the New Realities

%rivers o lobal Sour!ing

Technological ad$ances, including instant)nternet connecti$ity and broadband a$ailability

-eclining communication and transportation

costs idespread access to $ast information

including growing connecti$ity betweensuppliers and the customers that they ser$e/

and 0ntrepreneurship and rapid economic

transformation in emerging markets.


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%e!ision 1" 'utsour!e or Not(

anagers must decide between internalizationandexternalization** whether each $alue*adding acti$ityshould be conducted in*house or by an independentsupplier.

3nown as the 4mae or buy!decision( 56hould weconduct a particular $alue*chain acti$ity oursel$es,or should we source it from an outside contractor78

9irms usually internali:e those $alue*chain acti$itiesthey consider a part of their core competence, orwhich in$ol$e the use of proprietary knowledge andtrade secrets they want to control.


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International Business: Strategy, Management, and the New Realities !

Business )ro!ess 'utsour!ing *B)'+

The outsourcing of business "unctions toindependent suppliers such as accounting, payroll,and human resource functions, )T ser$ices,customer ser$ice, and technical support.

%;< includes( Bac#o""ice acti$ities, which includes internal,

upstream business functions such as payroll andbilling, and

%ront#o""ice acti$ities, which includesdownstream, customer*related ser$ices such asmarketing or technical support.


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International Business: Strategy, Management, and the New Realities =

%e!ision " #here in the #orl$ Shoul$-alue./$$ing /!tivities Be 0o!ate$(

Coniguration o value.a$$ing a!tivity( The patternor geographic arrangement of locations where thefirm carries out $alue*chain acti$ities.

)nstead of concentrating $alue*adding acti$ities in the

home country, many firms con"igurethese acti$itiesacross the world to sa$e money, reduce deli$ery time,access factors of production, and e&tract ma&imalad$antages relati$e to competitors.

This helps e&plain the migration of traditionalindustries from 0urope, >apan, and the ?.6. toemerging markets in Asia, @atin America, and 0astern0urope.


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/n 2ample o #orl$wi$e Coniguration o -alue Chain

The Berman automaker % employs !",""" factory personnel at 2C

sites in 1C countries to manufacture its $ehicles. orkers at the unich plant build the % C 6eries and supply

engines and body components to other % factories abroad.

)n the ?nited 6tates, % has a plant in 6outh arolina, which makeso$er "" $ehicles daily for the world market.

)n N0 hina, % makes cars in a Doint $enture with %rilliance hinaAutomoti$e Eoldings @td.

)n )ndia, % has a manufacturing presence to ser$e the needs of therapidly growing 6outh Asia market.

% must configure sourcing at the best locations worldwide, inorder to minimi:e costs Fe.g., by producing in hinaG, access skilledpersonnel Fby producing in BermanyG, remain close to key markets Fbyproducing in hina, )ndia and the ?nited 6tatesG.


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International Business: Strategy, Management, and the New Realities 1"

Contra!t Manua!turing"lobal Sour!ing rom In$epen$ent Suppliers

An arrangement in which the focal firm contractswith an independent supplier to manufactureproducts according to well*defined specifications.Nike is a leading e&ample.

0&amples ;atheon, a leading contract manufacturers in the

pharmaceutical industry, pro$ides drug de$elopment andmanufacturing for pharmaceutical and biotechnology firmsworldwide. ;atheon operates 11 factories in North Americaand 0urope, producing o$er*the*counter drugs and se$eral of

the world+s top*selling prescription drugs for most of theworld+s largest pharmaceutical firms.

%enetton employs contract manufacturers to produce clothing. )30A uses contract manufacturers to produce furniture.


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Magnitu$e o lobal Sour!ing

)n 2"", )ndia alone booked H22 billion worth ofbusiness in answering customer phone calls, managingcomputer networks, processing in$oices, and writingcustom software for N0s from around the world.

Blobal sourcing has created more than 1.C million Dobsduring the past decade for )ndia.

eanwhile, between 2""" and 2""', some 1"","""ser$ice Dobs were outsourced each year from the?nited 6tates to other countries.

)n 2"", )T and business*process outsourcinge&ceeded H1" billion worldwide.


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Beneits o lobal Sour!ing

ost efficiency )mpro$ed producti$ity

Technological fle&ibility

)mpro$ed agility to redesign companyacti$ities

Access to skilled personnel

)ncreased speed to market Access to new markets


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Challenges o lobal Sour!ing

Iulnerability to e&change rate fluctuations ;artner selection, Jualification, and monitoring

costs

omple&ity of managing a worldwide network ofpartners and a global supply chain

@imited influence o$er supplierKs manufacturingprocesses

Iulnerability to opportunistic beha$ior bysuppliers

@imited ability to safeguard intellectual assets


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International Business: Strategy, Management, and the New Realities 1!

lobal Supply Chain Management

lobal supply !hain( the firmKs integrated networkof sourcing, production, and distribution, organi:edon a world scale, and located in countries wherecompetiti$e ad$antage can be ma&imi:ed.

6ourcing from numerous suppliers scatteredaround the world reJuires efficient supply*chainmanagement.

Third party logistics pro$iders FC;@sG as well asindependent logistics ser$ice pro$iders such as9ed0&, TNT, and ?;6 are useful facilitators.


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International Business: Strategy, Management, and the New Realities 2"

3eatures o lobal Supply Chain Management

osts associated with physically deli$ering a product toan e&port market may account for as much as '"# oftotal cost.

0&perienced firms use information and communications

technologies F)TsG to streamline operations, reducingcosts and increasing distribution efficiency.

Logisticsin$ol$es physically mo$ing goods through thesupply chain. )ncorporates information, transportation,

in$entory, warehousing, materials handling and similaracti$ities associated with the deli$ery of raw materials,parts, components, and finished products.


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4ransportation Mo$es

)nternational logistics typically in$ol$es multipletransportation modes.

&and transportation is handled $ia highways and railroads

'ceantransportation is handled $ia large container ships.

(irtransportation in$ol$es commercial or cargo aircraft.


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Ris5s in lobal Sour!ing

)* Less-than-expected cost savings. onflicts andproblems arise from $arious sources.

+* Environmental factors. 0&amples include e&changerate fluctuations, trade barriers, macroeconomic

e$ents, high energy costs, labor strikes* Weak legal environment. an affect protection of

intellectual property, eroding key strategic assets.

'. Risk of creating competitors

. Inadequate or low-skilled workers

-* Erosion of morale and commitment among home-

country employees due to outsourcing Dobs


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International Business: Strategy, Management, and the New Realities 2C

Strategies or Minimiing Ris5

1 !o offshore for the right reasonsThe best rationale is

strategic, such as enhancing the Juality of offerings, impro$ing

producti$ity, and freeing up core resources.

" !et employees on #oard* ;oorly planned sourcing proDects

creates unnecessary tension with e&isting employees.

$ %hoose carefully #etween a captive operation and acontract with outside specialists 6trike the right balance

between what to make, and what to buy.

& %hoose countries and suppliers carefully. There are many

options to choose from/ A sourcing broker can help.' Invest in supplier development and colla#oration

( )roactively safeguard interests, such as key assets and the

firmKs reputation


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International Business: Strategy, Management, and the New Realities 2'

)otential 7arm an$ thi!al Issues

Blobal sourcing can lead to three maDorproblems in the home country( *o# losses

Reduced national competitiveness +eclining living standards

N0s may be ineffecti$e or indifferent about( protecting the environment

promoting human rights

la#or practices and working conditions a#road


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)ubli! )oli!y 4owar$s lobal Sour!ing

)t is impractical to adopt a unilateral policyagainst global sourcing.

Rather, it is usually better to mitigate the harm

that global sourcing can cause.


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7elpul )ubli! )oli!y Initiatives

Buiding employment towards higher $alue*added DobsFe.g., by stimulating inno$ationG

,eep the cost of doing #usiness lowFe.g., $iaappropriate economic and fiscal policies, encouraging

inno$ation, keeping cost of capital lowG

Ensure a strong educational system, includingtechnical schools and well*funded uni$ersities thatsupply engineers, scientists, and knowledge workers.

aximi.e worker flexi#ilityto help those who loseDobs find other positions.

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