INTERNATIONAL MANAGEMENT

sjawneh@utg.edu.gm
 GLOBAL SOURCING STRATEGY: R&D,
MANUFACTURING & MARKETING
INTERFACES
Shifting production function to a most cost efficient countries (Sourcing)

Describes management by MNCs of the flow of components & finished

products in serving world mkts.

Requires close coordination among R&D, manufacturing & marketing

activities across national boundaries.

Differing objectives of each of these elements always results to conflict.

It encompasses management of;
 a. Interface among the 3 links .
 b. logistics on component supply
 EXTENT & COMPLEXITY OF GLOBAL
SOURCING STRATEGY
Managers should mobilize support from
product designers, engineers & production
managers & purchasing managers in their
corporate strategy development.

Diversity in different production centers

makes assembly difficult.
TRENDS IN GLOBAL SOURCING STRATEGY

• The decline of the exchange rate determinism

of sourcing
• New competitive environment caused by
excess worldwide capacity
• Innovations in and restructuring of
international trade infrastructure
• Enhance role of purchasing managers
• Trend toward global manufacturing
POTENTIAL PITFALLS IN GLOBAL SOURCING

• Standardization vs adaptation
• Globalization vs localization
• Global integration vs local responsiveness
• Scale vs sensitivity
VALUE CHAIN & FUNCTIONAL INTERFACES

• Value chain concept offers wider understanding

in managing interrelated value-adding activities
of companies on global basis.
• Design of global sourcing strategy is based on
the relationship between a company’s
competitive advantages & comparative
advantages of various countries.
• Competitive advantage affects the firms
decision on where to source and market.
 VALUE CHAIN IN TWO PARTS
• 1. Primary activities
Inbound logistics
Manufacturing operations
Outbound logistics
Marketing & sales
After-sale service
VALUE CHAIN TWO PARTS CONTD,
• 2. Support activities
Human resource
Technology
Procurement
Infrastructure
 FIVE STEPS IN DEVELOPING GLOBAL
SOURCING STRATEGY
Identify separable links between (R&D, manufacturing & marketing) in
the company’s value chain.

Within the links, identify where the company’s competitive advantage

lies including economic of scales & scope.

Ascertain the transaction cost at each level in the link.

Determine the comparative advantages of countries (including the

company’s home country) relative to the link & transaction costs.

Develop flexible corporate decision making & org. design to respond

to changes in both competitive and comparative advantages of
countries.
 GLOBAL SOURCING STRATEGIES
ENCOMPASSES
• Management of the interfaces between R&D,
Manufacturing & marketing on global basis

• Logistics identifying which production units

will serve which particular markets & how
components will be supplied for production.
 3 IMPORTANT INTERRENATED INTERFACE IN
VALUE CHAIN
• R & D/Manufacturing interface
Production innovation
Designing for manufacturability
Manufacturing process innovation
Component sourcing
• Manufacturing/Marketing interface
Product & component standardization
Product modification
• Marketing/R&D interface
New product development
Product positioning
INTERRENATED INTERFACE IN VALUE CHAIN

R&D

Manufacturin
Marketing
g
LOGISTICS OF SOURCING STRATEGY
• Firms has number of choices to serve foreign
mkts;
Use of imports, assembly or production
within the country to serve foreign mkts

Use of internal or external supplies of

components or finished goods.
SOURCING DECISION MAKING BY MNCs
• Multifaceted in nature and entails two
implications
Contractual:
 a. From the parent or their foreign subsidiaries
on an “intrafirm” basis called intrafirm sourcing
 b. From independent supplier on a “contractual”
basis called outsourcing
Locational:
 a. Domestically (domestic sourcing)
 b. From abroad (offshore sourcing)
CONSIDERATIONS IN SOURCING STRATEGIES
ON GLOBAL SCALE
Manufacturing costs
Cost of various resources
Exchange rate fluctuation
Availability of infrastructure
Industrial & cultural environment
Ease of working with foreign host
governments
 MAJOR CHALLENGES OF INTERNATIONAL
SOURCING
• Logistics
• Inventory management
• Distance
• Nationalism
• Lack of knowledge in foreign markets
LONG TERM CONSEQUENCES OF SOURCING

• Two opposing views of the long term implication

of offshore sourcing
 a. Strategic alliances (joint ventures,
subcontracting, licensing etc)

 b. Dependence

NOTE: Both in some way may result to gradual loss

of design & manufacturing abilities.