Transcript WHY MANUFACTURE ABROAD? (Ferdows)

WHY MANUFACTURE ABROAD? (Ferdows)
Most tangible
Least tangible
Reduce direct and indirect costs
Reduce capital costs
Reduce taxes
Reduce logistics costs
Overcome tariff barriers
Provide better customer service
Spread foreign exchange risks
Build alternative supply sources
Preempt potential competitors
Learn from local suppliers
Learn from foreign customers
Learn from competitors
Learn from foreign research centers
Attract 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 Europe
in 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
Alternate
ways of
organizing
production
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.
Site Competence
The Roles of Foreign Factories
Source
Offshore
Lead
Contributor
Server
Access to low
Outpost
Access to skills
Proximity
cost production
and knowledge
to market
Strategic reason for site
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