The Dramatic Changes Caused By Globalization Commerce Essay


Our world has changed dramatically in the last few decades. There are many new technologies that make world market place change toward globalization. The company serve the market not just in one domestic country but serve international markets. These raise the importance of the supply chain management and plant location. The traditional view of international market is a sum of different national market. The international business strategy is used to base on these individual markets and sets up objectives and policies separately to satisfy the specific requirements of different national markets (reference). The effect of market become globalize is not only an increase in the number of competitors in the world but also a qualitative change in the nature of competitive advantage. "The 'trade-offs' principle of Skinner (1969) and the generic competitive strategy of Porter (1980) obviously are not enough to satisfy the global competitive requirements. In order to be one step ahead the rival, the focal company supply chain has to have three capabilities; agile, adaptable and align (Lee H.L. 2004).

Evolution in Manufacturing Networks research

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The origin of manufacturing networks research come from the operation management of the single facility. The practice of operation management with the strategic implications is demonstrated first in Skinner (1969) paper which discusses how to configure and organize manufacturing operations within the factory. His following paper (1974) introduces the focused factory idea and economies of scale which become the dominated issue in the operation research management during the 1970s.

During the late 1970s and the early 1980s, more scholars noticed the need to manage multi-plant organizations. One of the examples on this is Schmenner (1979) paper which introduces Multi-plant strategies. They are Product plant strategy, Market area plant strategy, Product-market plant strategy, Process plant strategy and General purpose plant strategy. However, the researches on this period treat each factory as separate unit and the networking issues were ignored.

The trend of globalization has increased significantly. The companies established more and more production facility around the world to serve the expanded market. During the late 1980s and 1990s, the researchers began to address the network issues which is develop from the multi-plant perspective from the last decade. The manufacturing network consists of many factories which each factory both influence and is influenced by, the entire manufacturing network. ( Shi and Gregory, () and Khurana and Talbot, () )

In Manufacturing networks research, there are two main area which Porter (1986) has shown; the distinction between configuration and co-ordination. After his work release, the discussions on international manufacturing and location decisions are often around this distinction. Configuration is the map of the location of facilities and the interfacility allocation of resources along the value chain. It has its origins in the multi-plant research, and location-based criteria dominate (see Schmenner 1979, DuBois et al 1993, Ferdows 1997). Co-ordination refers to the question of how to link or integrate the production and distribution facilities in order to achieve the firm's strategic objectives. Even though, both issues have been studied extensively but they are still inadequately addressed in combination (Gregory, Steele, Shi and Grant, 1996). There are some papers attempt to integrate the two issues to get better view of manufacturing network. Bert and Bart (1997) integrate the two issues into the Dutch investors invest in Thailand case which gain better insight in international manufacturing.

Plant location decision

The company have to make plant location in three cases. They are opening new first plant, open new branch and relocation plant of existing plant. The question that company have to figure out the answer is where should we establish the plant? The simplest answer and company usually believe to be correct is the least costly plant. However, Schmenner (1979) argue that the least costly site is not necessary to be the best option and often this mode of thinking invites disaster. MacCornmack et al. (1994) also agree this view. They said traditional approaches to production location no longer apply which is large, centralized manufacturing facilities in low cost countries with poorly skilled workers are not sustainable. From both view above, cost is not the most important factor. However no one can argue that it is not important factor as MacCarthy, etal. (2003) Delphi study present that cost is the important factor as it is in the top five of the factors affecting location decision. In plant location decision, the most widely used technique in qualitative factors in the location decision is a weighted checklist approach. The different important factors like proximity to customers, business climate, legislation, tax incentives and other support factors are rated on a weighted scale and combined into an aggregate score. The selected site is the one with the highest total score. Bowersox and Closs (1996), Chase et al. (1998), Ballou (1999) and Krajewski and Ritzman (1999) report details and applications in a wide variety of industries that use the approach. The result is varying depending on the preferences of the decision-maker and the nature of the industry. There are other four important factor which are costs, infrastructure, labour characteristics, government and political factors and economic factors. The research of manufacturing networks has its origin in the operations management of the single facility. In Skinner (1969), the author illustrated why the top executives should get more involved in creating manufacturing policies and what benefit the company would gain from that. This paper is focused on single facility. The research on operations management during the 1970 followed in Skinner's footsteps and was dominated by issues such as "the focused factory" and "economics of scale". The company will consider plant location decision when the company would like to add more capacity to existing business or for new business. For the existing business, there are three ways to add more capacity: plant expansion on existing sites, establishing new branch plants and plant relocation. Schmenner (1979) did not support plant expansion on existing sites idea if it would be done repetitively because the plant will become more complex and less competitive. He stated that the site location should not be chosen because it is the cheapest one but instead it is the best one to enhance the company competitive advantage. He argued that just depend on the quantitative analysis alone to find the optimal plant location is not the right thing to do but instead we should find a few plant locations that have similar cost structure and then consider the intangible and qualitative features of a location that could be expected to contribute to the company's competitive success. Schmenner (1983) outlined the plant life cycle into phases and what the plant managers have to face over each phase. He also shows the two rules for good manufacturing health: 1. Do not mix different production technologies in the same plant, and 2. Specify a limit on plant employment. MacCormack et al. (1994) examined the impact of the global trading trend, new production systems and new technologies in the plant location decision. The authors demonstrate even more importance of worker education and skill levels because of the new production systems. Each plant will be smaller and more flexible than is typical today. The location of such plants will be based more on regional infrastructure and local skill levels than on purely cost-based factors to get long term advantage. Porter (1998) argued that if it is true that more open global markets and faster transportation and communication should diminish the role of location in competition, why most of particular high performance products will come from particular place not anywhere. His view is the ability that the company can compete is influenced by the location. To cluster together each company can benefit from the skilled worker and knowledge from local institutions. Ferdows (1997) outlined the roles of the foreign factory. The author showed that the company can gain advantages in establishing plant more than just lower cost. The company can expect more from the foreign factory which are local expertise, transforming the knowledge that it gathers into useful products and processes.

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The international business literature recognizes that location is very important to the success of international operations.

Qualitative factors in plant location

.[stop here from last night] Schmenner (1982) tested the significance of qualitative variables for the plant location decision and reported a comprehensive survey of the plant location/re-location practices among Fortune 500 companies in the US. The study identified favourable labour market, nearness to market, quality of life in the area, nearness to supplies, low labour rates as the most important variables considered by managers in the location decision. The author reported marked variations in the above responses (i.e., importance of the variables) among different industry groups. Schmenner (1979) emphasized that a location strategy focused chiefly on financial assessments could often result in a poor solution and recommended re-location and opening of new branches over on-site expansion. Schmenner (1983) outlined the concept of plant life cycle based on the changing charters that plant managers face over different phases of the life of the plant. MacCormack et al. (1994) examined the impact of the global trading environment, new production systems, and new technologies on the plant location decision. The authors suggested that existing literature approached the plant location problem narrowly, focused on quantitative data such as transport costs, exchange rates, taxes, and labour rates, as opposed to qualitative factors such as infrastructure, worker skills, local government regulations and access to suppliers. For example, plant location decisions that ignore skill levels of local workforce could significantly affect the ability of the firm to implement new process technologies, or can limit the effectiveness of total quality management programs. Therefore, companies ought to emphasize qualitative factors that are required to support overall business strategy. Only after establishing a set of desirable location options, based on qualitative factors, should companies refine choices using cost based algorithms. Khurana and Talbot (1998) proposed that a richer understanding of plant roles could be obtained by focusing on an assessment of manufacturing capabilities and plant missions in global manufacturing networks. Using case and survey data in the global colour picture tube industry, they found that plant manufacturing capabilities along with plant location criteria were important factors in defining plant missions. The authors concluded that plants which considered location factors congruent to their respective missions and capabilities were found to enjoy higher business performance in comparison to plants that did not consider capabilities in conjunction to plant location factors. Ferdows (1997) described how superior manufacturers gain competitive advantage by methodically charting strategic roles for their foreign factories. He suggested that companies that locate plants in foreign countries merely to benefit from tariff and trade concessions, cheap labour, capital subsidies, and reduced logistics costs do not tap the full potential of their foreign factories. In contrast, companies use their foreign plants not only to gain access to usual incentives described above, but also to get closer to their customers and suppliers, to attract skilled and talented employees, and to create centres of expertise for the entire company and enjoy higher levels of performance. The above line of research raises the important issue of benchmarking the relative efficiency of the location decision given different charters and roles that different plants have defined for themselves. The "self" performance of the plants over time therefore needs to be assessed in conjunction with the comparative performance of competitor plants. This in turn raises the issue of supply chain performance measures that will be discussed in a later section

Supply chain

The supply chain is "a network of manufacturers and service providers that work together to convert and move goods from raw materials stage through to the end users. These manufacturers and service providers are linked together through physical flows, information flows and monetary flows." (Bozarth & Handfield 2005) This is one of hundreds of definition of supply chain. In the business world, every business tries to win and in order to getting there, they need good supply chain management. There are so many tools and things that can be used to mange and improve the supply chain.

Supply chain strategy

Building the strong supply chain is essential for business success. But many businesses focus only on supply chain speed and costs which tend to be inadequate to stay competitive in the market and would be deteriorate over time. According to Lee. L Hau (2004), the only companies that build supply chains that are agile, adaptable, and aligned get ahead of their rivals. The author call is the triple-A supply chain. He also presents the guideline how to achieve these capabilities which does not require any increased technology and investment. These guidelines are summarized in the table below.

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Respond to short-term changes in demand or supply quickly; handle external disruptions smoothly.

Promote flow of information with suppliers and customers.

Develop collaborative relationships with suppliers.

Design for postponement.

Build inventory buffers by maintaining a stockpile of inexpensive but key components.

Have a dependable logistics system or partner.

Draw up contingency plans and develop crisis management teams.


Adjust supply chain's design to meet structural shifts in markets; modify supply network to strategies, products, and technologies.

Monitor economies all over the world to spot new supply bases and markets.

Use intermediaries to develop fresh supplies and logistics infrastructure.

Evaluate needs of ultimate consumers-not just immediate customers.

Create flexible product designs.

Determine where companies' products. stand in terms of technology cycles and product life cycles.


Align the interests of all the parties in the supply chian to create better performance.

Exchange information and knowledge freely with vendors and customers.

Lay down roles, tasks, and responsibilities clearly for suppliers and customers.

Equitably share risks, costs, and gains of improvement initiatives.

In the same year, Christopher, M. (2004) work is published and present similar idea. He calls it Resilient Supply chain. This paper give more specific detail how to achieve resilient supply chain and place emphasize on the different types of risk. However, Christopher did not mention about the supply chain adaptation in the market changing perspective which is mentioned in Hua Lee (2004)'s work.

One of the key criteria for the selection of suppliers should be the risk awareness of the supplier.

Supply chain uncertainty

No one likes the uncertainty. In supply chain, there are five sources of uncertainty; supply, demand, process, control, environmental uncertainty.

A stable supply chain is one where the manufacturing process and the underlying technology are mature and the supply base is well established. Uncertainty.png

An evolving supply process is where the manufacturing process and the underlying technology are still under early development and are rapidly changing, and as a result the supply base may be limited in both size and experience.

Supply Chain Strategy

Lee (2002) proposed the uncertainty framework which to be used to characterize a product when seeking to devise the right supply chain strategy.

International manufacturing and location decision

Skinner [7] was the first to observe that a company's manufacturing function could do more than simply produce and ship the products.

Delphi study

The top five major factors that strongly influence international location decisions are costs, infrastructure, labour characteristic, government and political factors and economic factors.

The number of firms considering location on a worldwide basis continue to increase (Flaherty, 1996).

Name of paper

Year of publication

Goal of study


Factors affecting location decision in international operations - a Delphi study


Determine the factor affecting location, selection process

Single plant, not as network

Bert and Bart


Balancing configuration and co-ordination aspects

Manufacturing Strategy

Feitzinger and Lee (1997) showed the benefit of using the postponement strategy in Hewlett-Packard. The company does not need to hold inventory of every single product but instead the company can let the warehouse hold module and standard part and do the last configuration at the warehouse because send the product to the customer.

(Schmenner, 1979) view is that there are three ways the company can add more production capacity: plant expansion on existing sites, by establishing new branch plants, or by plant relocation.

He state that the site location should not be chosen because it is the cheapest one but instead it is the best one to enhance the company competitive advantage.

He argue that just depend on the quantitative analysis alone to find the optimal plant location is not the right thing to do but instead we should find a few plant locations that have similar cost structure and then consider the intangible and qualitative features of a location that could be expected to contribute to the company's competitive success.

Skinner (1969) argued that the manufacturing policy should be defined by the top executives not by the manufacturing manager or industrial engineering because the manufacturing performance has the direct effect to the corporate strategy and the competitiveness of the company. He proposed new entirely new approach from Frederick W. Taylor which is the top down manufacturing approach.

Plant strategies

(Skinner, 1974) believed that the focused factory is better than the complex factory because repetition and concentration in one area allow its work force and managers to become effective and experienced in the task required for success. The focused factory is manageable and controllable.

The conventional wisdom of manufacturing management has been and continues to be that the measure of success is productivity. Schmenner (1979) surveyed

Macroeconomic-Level Trends

The trends in trade and investment patterns indicate that the most effective way to serve global markets is with a regional approach because the company will gain advantages in reducing cost, providing better customer feedback, and minimizes risk resulting from exchange rate fluctuations and other political factors. This approach is the similar to the Market area plant strategy in (Schmenner, 1979)

He stated that we mistakenly cling the old nation that a good plant is a low-cost plant. This is simply not so. The view is also supported by (Schmenner,1979)

In his paper, he show that the factory can have more productivity through focused factory. He show inconsistency in manufacturing policies come from professionals in each field attempted to achieve goals which, although valid and traditional in their fields, were not congruent with goals of other areas.

He provided the four-step approach to achieve the focused plant.

(Schmenner, 1979) has stated five type of the Multiplant strategies. Product plant strategy is each plant manufacture distinct products or product lines and each plant serving the company's entire domestic market area. This strategy can provide the company with the advantages of economic of scale and allow company to select the process technology, equipment, labour force, manufacturing policies, and organization that are consistent with the particular competitive priorities.

Market area plant strategy


Many company try to seek the plant location that provide the low labour cost but this is misleading because we cannot look at just the labour cost alone. We have to look at the productivity in relation to the labour cost. For example if one labour in developing country cost £5 per hour for wages and can assembly 5 products within one hour which mean it cost £1 per product to assembly. However, in another area, the wages for labour is £10 per hour and can assembly 15 product in one hour which mean it cost less than £1 per product. However if we look at the labour cost alone we may choose the wrong choice.

Plant location decision is very important because it can affect the company profit and as well as company competence. So we have to consider the possible locations carefully in every aspect. Choosing the least cost location is seem like the most reasonable logic but in reality it is not often the case.

The New Dynamics of global Manufacturing Site Location - Another disadvantage of strictly cost-based methods is that they tend to focus on factor cost advantages, which are all too often transitory.

This view is the same as Roger W. Schmenmer

Government regulations, tax systems, and exchange rates can quickly change. Strategies based on such parameters may eventually be rendered obsolete by the very factors the first created advantage.

Economies of scale

The term economies of scale has been widely used in the business but most people misunderstand and (Schmenner) show that we can devide economies of scale into three type