chapter 10kotabe & helsen's global marketing management, third edition, 2004 1 global...

Chapter 10 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004

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Global Marketing ManagementGlobal Marketing Management

Masaaki Kotabe & Kristiaan HelsenMasaaki Kotabe & Kristiaan Helsen Third EditionThird Edition

John Wiley & Sons, Inc., 2004John Wiley & Sons, Inc., 2004


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Chapter 10Chapter 10

Global Sourcing Strategy: R&D, Global Sourcing Strategy: R&D, Manufacturing, and Manufacturing, and

Marketing InterfacesMarketing Interfaces


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Chapter OverviewChapter Overview

1. Extent and Complexity of Global Sourcing 1. Extent and Complexity of Global Sourcing StrategyStrategy

2. Trends in Global Sourcing Strategy2. Trends in Global Sourcing Strategy3. Value Chain and Functional Interfaces3. Value Chain and Functional Interfaces4. Procurement: Types of Sourcing Strategy4. Procurement: Types of Sourcing Strategy5. Long-Term Consequences of Global 5. Long-Term Consequences of Global

SourcingSourcing6. Outsourcing of Service Activities6. Outsourcing of Service Activities


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IntroductionIntroduction

Global competition suggests a drastically Global competition suggests a drastically shortened life cycle for most products, and it no shortened life cycle for most products, and it no longer permits companies a polycentric, country-longer permits companies a polycentric, country-by-country approach to international business.by-country approach to international business.

An increasing number of countries are competing An increasing number of countries are competing head-on for global leadership.head-on for global leadership.

In today’s competitive world, technology diffuses In today’s competitive world, technology diffuses quickly.quickly.


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Introduction (contd.)Introduction (contd.)

Without established sourcing plans, distribution Without established sourcing plans, distribution and service networks, it is extremely difficult to and service networks, it is extremely difficult to exploit both emerging technology and potential exploit both emerging technology and potential markets around the world simultaneously.markets around the world simultaneously.

The increased pace of new product introduction The increased pace of new product introduction and reduction in innovational lead time calls for and reduction in innovational lead time calls for more proactive management of locational and more proactive management of locational and corporate resources on a global basis.corporate resources on a global basis.

Global sourcing strategy requires a close Global sourcing strategy requires a close coordination among R&D, manufacturing, and coordination among R&D, manufacturing, and marketing activities across national borders.marketing activities across national borders.


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1. Extent and Complexity of Global 1. Extent and Complexity of Global Sourcing StrategySourcing Strategy

Marketing managers should understand and Marketing managers should understand and appreciate the important roles that product appreciate the important roles that product designers, engineers, production managers, and designers, engineers, production managers, and purchasing managers, among others, play in purchasing managers, among others, play in marketing decision making. Marketing decisions marketing decision making. Marketing decisions cannot be made in the absence of these people.cannot be made in the absence of these people.

U.S. MNCs are the most experienced in the U.S. MNCs are the most experienced in the industrialized world, and sell more than three industrialized world, and sell more than three times as much overseas through their subsidiaries times as much overseas through their subsidiaries as they export to the world.as they export to the world.


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1.1. Extent and Complexity of Global Extent and Complexity of Global Sourcing Strategy (contd.)Sourcing Strategy (contd.)

Intra-firm tradeIntra-firm trade is the primary factor leading to the is the primary factor leading to the total volume of international trade among the total volume of international trade among the Triad region (i.e., the United States, European Triad region (i.e., the United States, European Union, and Japan) increasing more than tenfold to Union, and Japan) increasing more than tenfold to $735.0 billion$735.0 billion in 2001. in 2001.

An increasing segment of international trade of An increasing segment of international trade of components and finished products is strongly components and finished products is strongly influenced by multinational companies’ foreign influenced by multinational companies’ foreign production and sourcing investment activities.production and sourcing investment activities.


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2. Trends in Global Sourcing Strategy2. Trends in Global Sourcing Strategy

Trend 1Trend 1: The Decline of Exchange Rate : The Decline of Exchange Rate Determinism of SourcingDeterminism of Sourcing

Trend 2Trend 2: New Competitive Environment Caused : New Competitive Environment Caused by Excess Worldwide Capacityby Excess Worldwide Capacity

Trend 3Trend 3: Innovations in and Restructuring of : Innovations in and Restructuring of International Trade InfrastructureInternational Trade Infrastructure

Trend 4Trend 4: Enhanced Role of Purchasing Managers: Enhanced Role of Purchasing Managers Trend 5Trend 5: Trend Toward Global Manufacturing: Trend Toward Global Manufacturing


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3. Value Chain and Functional Interfaces3. Value Chain and Functional Interfaces

The design of global sourcing strategy is based on The design of global sourcing strategy is based on the following:the following:– Competitive advantageCompetitive advantage– Comparative advantageComparative advantage

The Value Chain Concept can be divided into two The Value Chain Concept can be divided into two major activities:major activities:

1. Primary activities1. Primary activities

2. Support activities2. Support activities


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3. Value Chain and Functional Interfaces 3. Value Chain and Functional Interfaces (contd.)(contd.)

Five steps are involved in developing a global Five steps are involved in developing a global sourcing strategy which includesourcing strategy which include::– 1. Identify the separable links in the company’s 1. Identify the separable links in the company’s

value chain.value chain.– 2. In the context of those links, determine the 2. In the context of those links, determine the

location of the company’s competitive location of the company’s competitive advantages (considering both economies of advantages (considering both economies of scale and scope).scale and scope).

– 3. Ascertain the level of transaction costs 3. Ascertain the level of transaction costs between the links in the value chain and selectbetween the links in the value chain and select


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the lowest cost mode.the lowest cost mode.– 4. Determine the comparative advantage of 4. Determine the comparative advantage of

countries relative to each link in the value chain countries relative to each link in the value chain and to the relevant transaction costs.and to the relevant transaction costs.

– 5. Develop adequate flexibility in corporate 5. Develop adequate flexibility in corporate decision making and organizational design so decision making and organizational design so as to permit the company to respond to changes as to permit the company to respond to changes in both its comparative advantages and the in both its comparative advantages and the comparative advantages of other countries.comparative advantages of other countries.


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R&D/Manufacturing InterfaceR&D/Manufacturing Interface Manufacturing/Marketing InterfaceManufacturing/Marketing Interface

– Core Components StandardizationCore Components Standardization– Product Design FamiliesProduct Design Families– Universal Products with all FeaturesUniversal Products with all Features– Universal Product with Different PositioningUniversal Product with Different Positioning

Marketing/R&D InterfaceMarketing/R&D Interface


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4. Procurement: Types of Sourcing 4. Procurement: Types of Sourcing StrategyStrategy

Intra-Firm SourcingIntra-Firm Sourcing– Domestic-in-house SourcingDomestic-in-house Sourcing– Offshore Subsidiary SourcingOffshore Subsidiary Sourcing

OutsourcingOutsourcing– Domestic sourcing/purchase arrangementDomestic sourcing/purchase arrangement– Offshore sourcingOffshore sourcing– Hollow corporations (companies adopting a Hollow corporations (companies adopting a

“designer role” in global competition; see “designer role” in global competition; see Global Perspective 10-4)Global Perspective 10-4)


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5. Long-Term Consequences of 5. Long-Term Consequences of Global SourcingGlobal Sourcing

Requires close coordination of R&D, Requires close coordination of R&D, manufacturing, and marketing activities, among manufacturing, and marketing activities, among others, on a global basis.others, on a global basis.– Ability and willingness of companies to Ability and willingness of companies to

integrate and streamline operations worldwideintegrate and streamline operations worldwide Many MNCs with plants in various parts of the Many MNCs with plants in various parts of the

world are exploiting not only their own world are exploiting not only their own competitive advantages but also the locational competitive advantages but also the locational advantages.advantages.


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5. Long-Term Consequences of 5. Long-Term Consequences of Global Sourcing (contd.)Global Sourcing (contd.)

Sustainable Versus Transitory Core Competence Sustainable Versus Transitory Core Competence (long-term implications of offshore sourcing)(long-term implications of offshore sourcing)

– Strategic alliancesStrategic alliances– DependenceDependence– Gradual loss of design and manufacturing Gradual loss of design and manufacturing

abilitiesabilities


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6. Outsourcing of Service Activities6. Outsourcing of Service Activities

In 2000, the U.S. was ranked the largest exporter In 2000, the U.S. was ranked the largest exporter and importer of services, providing and importer of services, providing $274 .6 billion$274 .6 billion of services to the world and receiving of services to the world and receiving $189.9 $189.9 billionbillion worth of services. worth of services.

The technological revolution in data processing The technological revolution in data processing and telecommunications makes the global and telecommunications makes the global tradability of some services possible.tradability of some services possible.

Intellectual OutsourcingIntellectual Outsourcing


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6. Outsourcing of Service Activities 6. Outsourcing of Service Activities (contd.)(contd.)

Outsourcing of service activities may serve the Outsourcing of service activities may serve the following purposesfollowing purposes::

(a). Reducing time to implement internal (a). Reducing time to implement internal processes processes

(b). Sharing risk(b). Sharing risk

(c). Improving customer service(c). Improving customer service

(d). Improving access to expertise not available (d). Improving access to expertise not available

in-housein-house


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6. Outsourcing of Service Activities 6. Outsourcing of Service Activities (contd.)(contd.)

(e). Reducing head-count(e). Reducing head-count

(f). Instilling a sense of competition(f). Instilling a sense of competition Service companies provide two types of services:Service companies provide two types of services:

– Core ServicesCore Services (necessary outputs of an (necessary outputs of an organization)organization)

– Supplementary ServicesSupplementary Services (indispensable for (indispensable for execution of the core services)execution of the core services)

chapter 10kotabe & helsen's global marketing management, third edition, 2004 1 global...

Documents

global basis

global leadership

marketing activities

marketing interfaces

marketing decisions

marketing decision making

sourcing plans

types of sourcing strategy