International business论文.doc

A multinational company maximizes its competitive advantage by controlling its own supply chainIntroductionFirms that control and own businesses in more than one country are multinational enterprises (MNEs). The supply chain means the flow of materials involved in producing a product from start to finish. Each component of the supply chain is of great importance to the future of the company that uses the supply chain. Some people think that a multinational company maximizes its competitive advantage by controlling its own supply chain, while others do not. This thesis will discuss these contrasting views in an elaborate way, and help us see how important global supply chain management to MNEs is. And the author is convinced that a multinational company maximizes its competitive advantage by controlling its own supply chain.Firms that control and own businesses in more than one country are multinational enterprises (MNEs). Located in the home country, headquarters or base firm is the parent firm of the MNE, which owns one or more foreign affiliates (subsidiaries or branches) located in one or more host countries. A foreign affiliate can obtain financing either from its parent or outside lenders and investors. Supply chain is the network consists of distributors, retailers, storage facilities, transporters and suppliers that participate in the production, sale, and delivery of a particular kind of product. The management of supply chain is of great importance to the success of enterprises, especially multinational ones. Many people advocate that a multinational company maximizes its competitive advantage by controlling its own supply chain, yet others are not convinced.Moving production operation to places with higher productivity may add to the flexibility of business, but it also makes many MNEs vulnerable when adversity occurs. For example, many computer suppliers outsource their component manufacturing to Asian countries, where technology is advanced and productivity is high. According to Asia Pulse, about 50% of chip production and 80% personal computer related products are made in Southeast Asia. This brings risks of supply failure to the MNEs. For instance, 2500 people died when Taiwan was hit by a huge earthquake in 1999, which made many major products supply break off for as long as one week. The 911 event and SARS are just similar. These supply failures reveal the fact that though the integration of global economy is offer chances for success, it also makes companies vulnerable when facing external attacks. Many leaders of MNEs have felt the security risk they face when their business, stuff and supply chains are diffused. So the management of multinational supply chain should not only aim at improving cost effectiveness, but also provide flexibility for MNEs.Global supply chain is so different from domestic supply chain that it can extend for thousands of miles, spanning several countries and oceans. Many potential of supply failures are lurking out there due to different requirements on respects such as regulations and law, and they are changing all the time. Besides, the longer supply chains are, the more chances of delay occur. Global supply chain is accompanied with many uncertainties, hence weakening the cost saving it aims. These problems have attracted attention from managers of MNEs. Lead time as a key factor in global operation, is rather long in global supply chains, which is unfavorable to enhance the response speed to market. Besides, these uncertainties cause extra costs for MNEs, since there are far more indeterminacies in international logistics operation than in domestic logistics operation. Delay in delivery cost MNEs more time cost and money. Generally, managers will choose to resist these risks by improving inventory level, using faster yet more expensive transportation, or by developing relationship with transportation partners. All this solutions bring a huge rise of costs. And viewed in a long term, these extra costs in logistics and inventory are bond to offset the cost saving aimed by global supply chain. So its of especial significance for MNEs to control risk management in global supply chain. And a shorter supply chain will cut off those invisible costs and uncertainties.Coase (1937) wonders whether market trades between individuals generate the most optimal and efficient outcomes, then how come the existence of companies? Later, he finds out that on some aspects, firms do a better job than market. It can reduce transaction costs like search costs (labour, inventory), coordinating costs (wages) and contracting costs (working with colleagues). For example, US Northeast in the period of 1820-1860 was studied by Sokoloff (1986). The study focused on changes in prices and productivity in the following sectors woodwork/furniture, cotton textiles, iron, shoes, liquors, glass, and wool textiles, without paying attention to innovation in each sector. Markets have following disadvantages: For example, the property right approach says that, if paper mill polluting a river, you can make private incentives include all social effects by making the river someones property. Either river users own it & charge mill for pollution or let mill own the river & demand compensation for cleaning up. Choose between this, which is less costly to implement. As for MNEs, three things determines the firms organisation form, they are Subsidiaries versus joint ventures, Horizontal versus vertical integration and R&D.According to Coase, when the transaction costs occur through market exchange, the costs are higher. It may be less costly to coordinate production through a formal organisation than through a market. The boundaries of the firm occur at the point where the marginal benefit equal marginal costs of the firm activities, such as errors and rigidity from centralised authority. Professional managers make decision rather than owners. Coordinating function of the entrepreneur is superior to market. Coase put forward that the comparative costs of organizing transactions through markets instead of within enterprises are the primary and major determining factors of the scope and scale of enterprises. In light of Coases idea, productivity rose due to machinery introduction and spreading, work organization changes, economies scale realization, capital intensity increase and learning by doing. For example, retail sector in US, Walmart has especially become a subject of research. Findings demonstrate that prices in Walmart are generally 5 % - 48 % less than that of the same product in other conventional retail outlets and supermarkets. Besides, the opening of Walmart reduces retail employment on national level. It was estimated that each Walmart approximately replaces one and a half retail workers. The classical theory of the firm says that maximise profits occurs when produce until marginal cost equals marginal revenue.The Theory of the Growth of the Firm is the masterpiece of Edith Penrose, and it describes the ways in which firms grow and the speed of the growth. She writes in the book: All the evidence we have indicates that the growth of firms is connected with the attempts of a particular group of human beings to do something.” Penrose (1995) sees the limitations of the enterprise and its internal organisation changing as the firm grows.Growth strategy leads to change in the organisation & later facilitates further growth. The growth of firms can be researched as dynamic process of management that interacts with various resources. Since management tries to make the most of available resources that can be accessed, the existence of a truly- interacting, dynamic process would encourage continuous growth yet restrict the growth rate (Penrose, 1995). Managers are interacting with resources. There exists a close relationship between the all kinds of resources (the resources with which a firm works) and the development of experience, ideas, and knowledge of its entrepreneurs and managers. (Penrose, 1995). A company itself is a unique bundle of resources.The scope of a firm is restricted only by the abilities and talents of the managers who are taking initiatives, limited only by their competence and imagination, their managerial capacity and access towards resources (Penrose, 1995).Edith Penrose argues that top managers of the MNEs are non-accountable in the sense that they themselves define public interests. Top managers with large resources possess more power in society than assumed by internalization theory and contingency theory. Firms resources, according to Penrose could be managerial, entrepreneurial, engineering etc. These are the ones whose services are keys to growth. Resources are inherited, thus “history matters”. Growth is evolutionary process. The firms capacity to effectively and sufficiently control their supply chains calls for the same characteristics of elasticity. It might be the capacity of supermarket chains, for instance, to control their suppliers so as to reduce costs, thus empowering them to acquire a powerful position in relation to both suppliers and competitors in the market.Positive economics (as opposed to normative economics) are about the explanation and description of economic situations and phenomena. And it pays attention to facts and cause and effect behavioural relations and involves the testing and improvement of economic theories. A theory of positive economic might describe how capital supply growth influences inflation, however, it will not offer any instruction on which policy ought to be adopted. Yet it is generally deemed of necessity for the ranking of economic outcomes or policies as to acceptability, which belongs to the domain of normative economics. Scale Economies can be divided into two kinds. First kind is internal scale economies, where unit cost depends on scale of firms. While the other kind is external scale economies, in which cost depends on size of industry, size of entire industry, clustering of products in specific geographical region.Where do internal economies of scale come from? Scale of economies can be internal to the individual firm e.g. larger firm may have upfront costs, buying in bulk, experiences etc.There are many advantages of specialisation, such as lower average cost, starting early, large domestic market, speed into new markets, technological advantages and chance (for example, Toyota in 1970s).External economies of scale are based on scale of an entire industry in a given geographic region. The average unit cost of the company manufacturing the product in this region declines with output of the industry rising. External economies explain the clustering of the manufacturing of some products in a given area. Concentration of an industry attracts greater local suppliers of specialised services e.g. film production in Mumbai, IT in Bangalore, India. The advantages of larger scale production that result in lower average costs (unit cost).Economies of scale spread total costs over a much greater range of output. Many advantages arise resulted from the development of the company, for example, advantages in respects of financial, commercial, technical, and managerial as well as risk bearing.Acquiring and retaining one or more value-chain activities can help firm to minimise disadvantages, ensure greater control over foreign operations, help maximise quality, reduce risks, and complete reliable production tasks. For instance, Toshiba owns and operates in dozens of nations to produce laptops. This fact gets command of manufacturing process, ensures marketing process by headquarters, and retains assets and knowledge within the firm. Whats more, it helps create leading-edge knowledge.Dunnings eclectic paradigm argues that its needed to combine location specific resource or assets. Firms with unique and valuable assets often require foreign direct investment (FDI). It requires that the firm to set up production facilities where located those foreign assets.Three advantages discussed in Dunnings Eclectic Paradigm, they are first Ownership-specific advantages (OSA): firms own skills, knowledge, and physical assets. Second Location-specific advantage (LSA): factors in individual nations provide specific benefits such as natural resources, skilled labour, and low wages. And third, internalization specific advantages (ISA) firms benefit from internationalization of distribution, manufacturing, or some other value chain activities, supply chain management. According to Dunning these above 3 advantages provide these benefits relative to competitors such as ability to own, control and optimize value chain activities R&D, production, marketing, sales as well as relationship with customers worldwide. For example, German Siemens owns factories worldwide that provide access to natural resources, skilled low cost labour, and worldwide production medical equipment.There are three key factors in eclectic paradigm of FDI (Dunning). Firstly, Ownership advantage: creates a monopolistic advantage to be used in markets abroad. Secondly, unique ownership advantage protected through ownership. For example, brand, technology, economies of scale, management know-how. Third, location advantage: the FDI destination market must offer factors (land, capital, know-how, cost/quality of labor, economies of scale) that are advantageous for the firm to locate its investment there (link to trade theory).Buckley and Casson (affected by Coase), proposed that a company overcomes market disadvantages and imperfections by creating its own market by internalisation. Internalization theory or holding a monopoly control over certain information or other propriety assets, build on imperfection of markets. This was argued by Casson (1982) “Theory of FDI”. Form dynamic capability perspective, it argues that Eclectic model is necessary but insufficient for the success of international investment & production. The success depends only whether MNEs possess distinctive resources such as Singapore, Taiwan, and Hong Kong etc. their success is not due to resources but to dynamic capabilities. It means firms ability to deploy, diffuse, utilise and rebuild particular resources so as to acquire competitive advantages. Quantity-based deployment refers to the amount of key resources deployed in a target foreign market. From evolutionary perspective, it argues that process is shaped by MNCs experience. This model is also known as Uppsala model. Form integrated-responsiveness perspective, it argues that business people often talk about “thinking globally but acting locally”. Prahalad and Doz suggest that how such balance is achieved also known as global integration (I) & local responsiveness (R) or I-R paradigm.Since 1980s and 1990s firms begin to recognise collaborative ventures and other flexible entry strategies. In international collaborative ventures, horizontal collaboration occurs between partners at the same level of value chain. By collaboration firm may gain to foreign markets, know-how, skills, organisational & managerial efficiency etc. For example, Starbucks now has 500 coffee shops in Japan thanks to joint venture with local partners, Sazaby Inc. Networks and related assets; it represents the stock of firms beneficial relationship in various activities. Supply chain is a network formed by distributors, retailers, storage facilities, transporters and suppliers that participate in the production, sale, and delivery of a particular product. Supply/Value chain analysis helps managers to understand the behaviour of costs and the potential or existing sources of differentiation. A value chain disaggregates a firm into its strategically relevant activities in terms of primary activities that create & deliver the product. It supports activities that aid the individuals and groups engaged in primary activities. Value chains identify the format and interactions between different activities of the company. Configuration is the way that managers arrange the activities of the value chain. The factors influence value chain configurations are: cost factors, business environment, logistics, economies of scale