Week 6 Flashcards
What was the dominant pattern of the global factory up until the 1990s?
Unified ownership with centralised organisation and control by one firm
What is the new shift in the global factory trend?
Shifting towards a growth in arms’-length coordination between firms.
What is eroding these “traditional” corporate structures?
Trade and transaction costs have fallen which is making inter-firm collaboration more viable.
If a firm has lots of arms length contracts instead, what is its main role?
Its main role is now orchestrating (supervising/coordinating) its fragmented supply chain. (Fever-Tree)
What are the implications for SMEs of the evolving global factory?
MORE OPPORTUNITY. They could very likely be contracted
What are the benefits for MNEs using arms length fragmented supply chains?
They can focus on high value activities and areas of competitive advantage. Delinking reduces capital tied up thus increasing profitability and returns
Give a rough definition of the global value chain
Complex vertical sequence of linked production processes that combine to deliver a finished good or service
Why might firms cooperate as a long term strategy?
- Global expansion strategy
- Reduce R&D, marketing, distribution costs
- Capability seeking
What are X-Coalitions?
Horizontal alliances where each firm performs specialist activities at one or more stages in value chain. Each firm provides O and/or L advantages
What is the most common type of X coalition?
Joint ventures
What are the principal objectives of joint ventures?
Resource or capability seeking
Idea is to create an otherwise unavailable combination of specialist skills and knowledge
What are some characteristics of a joint venture?
- Separate legal entity
- Shared decision making
- Shared investment
What are the costs/risks of joint ventures?
- Conflicting managerial structure
- Incompatible objectives
- Opportunistic behaviour
What is a Y coalition?
A vertical alliance where many, if not all, activities of value chain are undertaken by each firm in the alliance.
STRATEGIC BUSINESS ALLIANCE
SBAs generally occur between…
major global competitors.
What is the primary objective of a strategic business alliance?
To reduce fixed costs in R&D, manufacturing, logistics and distribution by delivering greater scale economies
Why are SBAs important in technology-intensive industries?
Because the costs associated with R&D in tech intensive industries are very high so pooling resources is smart.
Give another advantage of SBAs relating to advantage sharing.
They can improve production and managerial efficiency by pooling together know how and O advantages
Why are SBAs becoming more popular?
- Rising R&D costs means firms need to consolidate their efforts
- Firms are increasingly specialised in R&D so joining forces is good
Are SBAs good for competition?
There are of course competition concerns with SBAs relating to collusion.
What are some costs and risks of SBAs?
- Mutual dependence
- Coordination
- Incompatible objectives
- Unequal commitment
What are OEMs?
Own-equipment manufacturer
Contracts for outsourcing production at arms length with independent suppliers. The MNE transfers O advantages so the contractor ONLY supplies this one MNE
What are OBMs?
Own-brand manufacturers
Contracting out production and supplying several MNEs.
Using OEM and OBM allows MNEs to..
- Reduced their capital tied up
- Reduce their investment
-Reduce variable and fixed costs
MNEs can focus on increasing the sources of their competitive advantage
