The World is Flat Global Offshoring Strategies

Transcription

1 The World is Flat Global Offshoring Strategies Torben Pedersen Professor Center for Strategic Management and Globalisation Copenhagen Business School

2 Structure of seminars 1. Yesterday: The world is spiky Local responsiveness Internationalization Process Case illustrations: Ribe & Danfoss 2. Today: The world is flat Global integration Offshoring Case illustrations: Ecco, Vestas & Coloplast

3 Technological Advances as a Driver of Globalization Advances in technology provide the means for internationalization of firms Advances in technology: Reduces cost of doing international business; Enables even small firms to go international Helps coordinate worldwide activities; Mitigates geographic g distance

4 The Death of Distance Speed for major transport modes (km. per hour)

5 Cost of transportation

6 Declining Cost of Global Communication and Growing Number of Internet Users

7 Communications Technology Especially important. Includes telecommunications, satellites, optical fiber, wireless technology, and the Internet. The Internet, and Internet-dependent systems such as intranets, extranets, and , connect millions of people across the globe. The Internet opens up the global marketplace to all The Internet opens up the global marketplace to all firms, large and small

8 Convergence in consumer preferences

9 Pressures for Global Integration Economies of Scale. Concentrating manufacturing in a few select locations to achieve economies of mass production. Capitalize on converging consumer trends and universal needs. Companies such as Nike, Dell, and Coca-Cola offer products that t appeal to customers everywhere. Uniform service to global customers. Services are easiest to standardize when firms can centralize their creation and delivery. Global competitors. Global coordination is necessary to monitor and respond to competitive threats in foreign and domestic markets. Availability of media that reaches customers in multiple markets. Firms now take advantage of the Internet and cross- national television i to advertise their offerings in numerous countries simultaneously.

10 Global Integration strategies Global integration seeks economic efficiency on a worldwide scale, promoting learning and cross- fertilization within the global network, and reducing redundancy. Global integration is justified by citing converging demand patterns, diffusion of uniform technology, availability of pan-regional media, and the need to monitor competitors on a global basis. Companies in such industries as aircraft, credit cards, and pharmaceuticals are more likely to emphasize global integration.

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12 . Sourcing (onshore-nearshore-offshore) Location Home country Foreign Operator (onshore) Nearshore country (offshore) Contractual (Onshore) Offshore outsourcing outsourcing Partner (outsourcing) Ourselves Captive (insourcing) offshoring (FDI)

13 Offshore outsourcing: Boing s dreamliner

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16 A value chain approach Fine-slicing of value chain Firm Infrastructure Human Resource Management Technology Development Procurement Inbound logistics Operations Outbound Logistics Marketing and sales Service

17 The starting point Value Chain Input Process Output

18 Fine-slicing of the value chain Value Chain Input Process Output

19 Location and organization Choice of location and organization? Value Chain Input Process Output

20 Danish textile-companies Fine-slicing of the activity: outsourcing/offshoring OPT Concepts CMT SOD Outward Processing Traffic Cut, Make and Trim Sourcing from own Design ( ) 1990) ( ) 1995) ( ) Design Denmark Denmark Denmark Logistics Denmark Outsourcing Outsourcing Denmark Denmark Procurement Denmark Outsourcing Denmark Processing Cutting Outsourcing Denmark Outsourcing Denmark Southern Europe Eastern Europe Eastern Europe Eastern Europe Asia Sewing Southern Europe Eastern Europe Asia Packaging Southern Europe Eastern Europe Asia Quality control Denmark Southern Europe Asia Branding Denmark Denmark Denmark

21 Smiley of the value chain.. Value added d Design Logistics Procurement Processing Cutting Branding and marketing Quality Control Sewing Packaging Input Processing Value chain Output

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23 Mubambi (2008):

24 Strategies for control

25 Raise new design issues Where to specialize? Which components? Documentation of different components Interdependence relationships between components Specification and standardization of interfaces Etc Basically learn more about own processes

26 A dispersedd value chain configuration with low interaffiliate coordination UK USA Japan M a rk e tin g & S a les

27 A concentrated value chain configuration with high inter-affiliate coordination. U K Mgt Ireland USA Lo g istic s R&D IT M a n u fa c tu rin g India China M&S Marketing & Sales

28 Doz et. al.: The New Global Game Innovation Offshoring SENSE MOBILISE LEVERAGE

29 Investment in innovation is anything but equal 1-3

30 1-3

31 Quinn & Hilmer: Strategic Outsourcing Concentrate investments and energies on what the enterprise does best core competencies Focus resources and time on core Full utilization of external suppliers core competencies E.g. Cost advantages or Accces to new knowledge Aj joint strategy t decreases risk and lowers investments t etc. Less capital-intensive i i

32 What are the disadvantages of global sourcing?

33 Challenges in Global Sourcing Partner selection, qualification, and monitoring costs Increased complexity of managing a worldwide network of production locations and partners Limited it influence over the manufacturing processes of the supplier Constrained ability to safeguard intellectual assets Linkages: e.g. production design/development 33

34 LEGO on Offshoring Production in another country even within the same company requires ten times better documentation than in the company from which the production was offshored [Michael Vaag, SCM, LEGO Systems, March 14, 2008]

35 Production cost savings versus extra transaction and transportation costs Percentage Benefits Extra costs Production Labor Deprecia- Materials, Scale. LCC Logistics Other Duties Landed cost costs in high costs countries tion components and tooling manufacturing costs costs (e.g. transportation) management costs from LCC

36 Case: Maersk Line (Shipping) Handling of all the purchasing requested by the vessels Conducted by Operational Purchasers (OPs) in Copenhagen. Most knowledge in the heads of the Ops Decided to offshore part of the purchasing logistics to its own subsidiary in Manilla

37 Maersk offshoring gprocess Aimed at de-coupling the knowledge from the individuals and the context by writing scripts on all tasks Project-manager tapping knowledge from OPs and writing the scripts Hiring Philippines living in Denmark: Testing scripts and Project-manager adjusting the scripts Finally, the tasks is transferred to Manilla with the scripts

38 What does all this say in terms the spiky or flat world? There arguments to be made both for the spikiness of the world and for the flattening of the world Very much depend on the industry and even the business model of the individual company Different business models competing in the same market 38

39 Different businesses have different competitive requirements HIGH CIVIL AIRCRAFT CARS PHARMA- CEUTICALS TELECOM EQUIPMENT GLOBAL INTEGRATION PACKAGE TOURS RETAIL BANKING FOOD RETAIL LOW LAUNDRY SERVICES LOW LOCAL ADAPTATION HIGH

40 Take aways The world has surely become flatter but is not flat and might never become completely flat However, opportunities for reaping benefits of global integration are expanding Different business models based on local adaption and global integration, respectively, will compete in the same markets. In fact, we will see many new business models new ways of organizing activities - appearing