NaimExplain

Do strategic alliances with suppliers make sense? Answer: Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliers.

Why buy (buying component parts of independent suppliers)? Answer: - Gives the firm greater flexibility: important when changes in exchange rates and trade barriers alter the attractiveness of various supply sources over time - Helps the firm capture orders from international customers: can help firms gain orders from suppliers' countries - Helps drive sown the firm's cost structure: avoids challenged of coordination and control additional subunits, avoids the lack of incentive associated with suppliers, avoids the difficulties with setting appropriate transfer prices

What is global learning and how does it apply to the strategic role of foreign factories? Answer: - Definition: Valuable knowledge can be found in foreign subsidiaries - Implies that firms are less likely to switch production to new locations simply because some underlying variable like wage rates has changed

Where does improvement in a facility come from? Answer: - Pressure to lower costs or respond to local markets - An increase in the availability of advanced factors of production

What is the strategic role of foreign factories? Answer: Factories established to take advantage of low cost labor can evolve into facilities with advanced design capabilities (can change over time).

What are the hidden costs of foreign production locations? Answer: - Possible union issues - High employee turnover - Poor workmanship - Poor product quality - Low productivity

What are the effects of whether the product serves universal needs? Answer: When products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense.

What are the effects of the product's value-to-weight ratio? Answer: - If the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world - If the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world

What are the two product factors that impact location? Answer: 1. The product's value-to-weight ratio 2. Whether the product serves universal needs

When does production in multiple locations makes sense? Answer: - Both fixed costs and the minimum efficient scale of production are relatively low - Appropriate flexible manufacturing technologies are not available

When does production in a few concentrated locations make sense? Answer: - Fixed costs are substantial - The minimum efficient scale of production is high - Flexible manufacturing technologies are available

Why are the minimum efficient scale important to technological factors? Answer: - Definition: The level of output at which most plant-level scale economies are exhausted - When minimum efficient scale is high, choose centralized production in a single location or a limited number of locations - When minimum efficient scale is low, respond to local market demands and hedge against currency risk by operating in multiple locations

Why is the level of fixed costs important to technological factors? Answer: - If fixed costs are high, produce in a single location or a few locations - When fixed costs are low, multiple production plants may be possible - Allows firms to respond to local demand

What should a firm consider when thinking of the important country factors? Answer: - The availability of skilled labor and supporting industries - Formal and informal trade barriers - Expectations about future exchange rate changes - Transportation costs - Regulations affecting FDI

Why are country factors important? Answer: Manufacturing should be located where economic, political, and cultural conditions are most conducive to the performance of that activity in order to create a global web of activities and global concentrations of activities at certain locations.

What should firms consider when thinking about location? Answer: - Country factors - Technological factors - Product factors

Where should production be located? Answer: Firms should locate production so that: - production and logistics can be locally responsive - production and logistics can respond quickly to shifts in customer demand

How an production and logistics add value by better serving customer needs? Answer: Eliminate defective products from the supply chain and manufacturing process.

How can production and logistics lower the costs of value creation? Answer: Disperse production to the most efficient locations manage the global supply chain efficiently to better match supply and demand.

What are the five main production issues for firms? Answer: 1. Where should production activities be located? 2. What should be the long-term strategic role of foreign production sites? 3. Should the firm own foreign production activities or outsource those activities to independent vendors? 4. How should a globally dispersed supply chain be managed, and what is the the role of internet-based in formation technology in the management of global logistics? 5. Should the firm manage global logistics itself, or should it outsource the management to enterprises that specialize in this activity?