Summary lecture 6, introduction to IB

Lecture 6:

Video 12:
Bartlet and Ghoshal key question: How much autonomy should subsidiaries get.

Next question: How can an subsidiary not only be a competitive weapon in the market, but also contribute to entire MNE in other markets.

Traditional role of production subsidiaries: cheap production, new role: also overall added value for the firm.

3 changes that made subsidiaries adapt that new role

1. International tariffs went down (plants to overcome trade barriers is not that important anymore). Mostly due to trade agreements
2. Production is more complex in terms of supply chain management and planning (not just low wages, but overall productivity counts, including technology and infrastructure)
3. Time to go from manufacturing to marketing has become shorter (MNEs increasingly co-locate development & manufacturing)

 Framework of the idea’s of Ferdow,  (subsidiaries need to from the weak roles to the strong roles, upgrading)

This upgrading is spread over 3 stages:
 

1. Enhancing internal performance
2. Accessing and developing external resources
3. Developing new knowledge that can benefit the overall network

This upgrading does often not take place because:

1. Fear of relying on foreign subsidiaries by the HQ
2. Treating overseas factories like cash cows, neglecting long term investment
3. Creating instability by shifting production in reaction to exchange rates an wage costs
4. Government entices MNEs to locate in sometimes unattractive locations

Critique on Ferdows:

1. Ferdows believes that management should upgrade all factories, but is not necessarily true
2. Ferdows underestimates value of low cost factories in host country, might still be important
3. The choice for permanent offshoring can be a good one if the firm’s FSA is the capability to flexibly offshore activities.

Video 13:

Outsourcing, using a company outside the multinational firm to perform services and/or create goods that traditionally were performed in-house by the multinational firm (make of buy question)

Offshoring refers to obtaining services or product from another country, much offshoring involves outsourcing, but it can also refer to re-location of certain aspects of a business to another country.

Top 10 reasons to offshore:

1. Reduce and control operating cost
2. Improve company focus
3. Gain access to world class capabilities
4. Free resources for other purposes
5. Resources not available internally
6. Accelerate reengineering benefits
7. Reduce time to marker
8. Take advantage of offshore capabilities
9. Share risks
10. Function difficult to manage

Often (out)sourcing of production,  but also for innovation because

1. MNEs want to be present in different knowledge and innovations areas in the world
2. Commercial pressure to move quickly from innovation to market
3. Offshoring of advances tasks is also possible because of ICT revolution

Kuemmerle’s model:

1. Home-base exploiting sites, information and knowledge is developed in a central lab in the home country. This knowledge needs to be transferred to home country. Challenge because of distance. When knowledge is transferred, needs to be implemented in production. Often difficult because information might not fit in the host country. Solution, put mangers in charge in foreign lab that know the firm and the central lab
2. Home-base augmenting sites, knowledge is developed in the host-country  (cooperates with university, suppliers and scientist) in a lab and needs to be transfers to the central lab in the home country. Challenge: access local knowledge and use while not being an insider, thus strengthen ties with local community, but also make sure the knowledge is usable and relevant for manufacturing operations

3 key limitations of model:

1. Ignores tension between host country lab(s) and central HQ lab in setting the research agenda.
2. He does not include the possibility of joint ventures or strategic alliances as option to into foreign country’s knowledge.
3. Hidden (and rising) costs of offshoring: offshoring in US peripheral regions.

Reshoring, bringing activities back to home country, after it has been offshored to a host country. Some reasons, wage and currency changes, quality warranty an rework, fright costs, delivery