1.5 Location Choices by MNCs Flashcards
Stakeholder theory
Any individual or group who can affect firm performance or be affected by the firm’s achievement of objects
Shareholders, employees, customers, suppliers, governments, local communities, NGOs, unions, competitors, press
Internal challenges with stakeholders
Adapt management and staffing to local cultures and “rules of the game”
Conflicts of interest (ex. Between employees and owners)
External challenges with stakeholders
Stakeholders are part of the MNC’s external environment, which bears threats and opportunities
Different types of stakeholders
Influencer
Collaborator
Claimant
Recipient
Types of stakeholder: influencer
Critical, explicit, urgent claims
Power to have claims recognized
Ex. Shareholders, suppliers, governments, NGOs
Types of stakeholder: collaborator
Willing to cooperate with MNE
Claims are not urgent
Ex. Universities, standard setting entities
Types of stakeholder: claimant
Claims from moral or social right
MNE not dependent on them, but have moral obligation
Ex. Employees in countries with weak labor laws
Types of stakeholder: recipient
Directly affected by actions of the MNE
Latent claims, lack of power
Ex. Local communities with MNE polluting its environment
Stakeholder analysis
Identify stakeholder, which are relevant
Categories stakeholders (nature of their claims?, backed up?, how powerful are they?)
Prioritize stakeholders (which have the most urgent and explicit claims, who has greatest impact on MNE’s operations)
Develop and implement stakeholder strategy (how to address and manage claims, communication, conflict resolution)
Corporate social responsibility
Responsibility of an organization for the impacts of its decisions and activities on society and the environment through transparent and ethical behavior
Why is CSR important?
MNEs are increasingly involved in developing countries
Extended and complex value chains
Environmental concerns labour issues (most foreign employees not directly employed by MNE)
Why should firms engage in CSR?
CSR and firm performance have a positive relationship
Porter’s value model, aligns objectives for society and the firm
Porter’s value chain primary activities
Inbound logistics (reducing impact of transportation)
Operations (reducing waste)
Outbound logistics (reducing packing, using recycled materials)
Marketing and sales (ethical advertising)
After sales service (end of product life cycle management)
porter’s value chain support activities
Firm infrastructure ( social responsibility reporting)
HRM (safe working conditions)
Technology development (product safety)
Procurement (enforce supply chain practices)
CSR challenges
To what extent are firms responsible for all stakeholders?
Should firms be held accountable for the entire supply chain process?
Conflicting stakeholder interests: low prices vs good working conditions
Different cultures have different opinions on what is ethical
Should MNEs take a proactive or reactive approach, both subject to criticism
Why do we need to create shared value
Because of the growing need of achieving CSR goals
Porter and Kramer’s model to reinvent capitalism so that we can sustainability create innovation and growth
Porter and Kramer’s model to create shared value
Suggests that businesses need to be more involved in philanthropy, CSR, and CSV
Philanthropy: donations to social causes, volunteering
Corporate social responsibility: compliance with community standards, good corporate citizenship, sustainability, mitigating risk and harm, improving trust and reputation
Creating shared value: addressing societal needs and challenges with a business model
Value creation activities
Production includes activities involved in creating a product
Supply chain management (SCM): the integration and coordination of logistics, purchasing, operations and makers channel activities form raw material to end customer
Strategic objectives
Ensure that total cost of moving from raw materials to finished goods is as low as possible for the value provided
Increase product quality by establishing process-based quality standards and eliminating raw defective raw material, component parts, and products
Total quality management (TQM)
The management philosophy that focuses on the need to improve the quality of a company’s products and services
Based on philosophy that aims to reduce defects, boost productivity, eliminate waste and cut costs, “Six sigma quality” is the goal
TQM is helpful for structuring global processes for multinational corporations
Country factors
Political and economic systems, culture and relative factor costs differ from country to country such as:
Location economies
Formal and informal trade barriers
Transportation costs
Rules and regulations
Exchange rate movements
Production and supply chain functions must be able to
Accommodate demands fro local responsiveness
Respond quickly to shifts in customer demand
International standards
Technical standards developed by internationals (intergovernmental organizations) such as WHO
A set of audited criteria which is recognized and used worldwide
Voluntary, not mandatory
Not a set of guidelines but a set of independently verified and certified set of criteria
Ex. Rainforest alliance, fair-trade, ISO stamps
3 factors to choose where to produce
Flexible manufacturing and mass customization
Product feature
Strategic roles for production facilities
Choosing where to produce: flexible manufacturing and mass customization
Reduces setup times for complex equipment
Increases utilization of individual machines through better scheduling
Improves quality control at all stages of manufacturing process
Enables companies to customize products to demands of small consumer groups
Enables companies to customize for different national markets
Flexible machine cells (FMC): a manufacturing system created by grouping several machines determined for a certain group of parts
Choosing where to produce: product features
Value to weight ratio influences transportation costs
Universal needs (food, oil)
Choosing where to produce: strategic roles for the production facilities
Importance of global learning; valuable knowledge does not just reside in firm’s domestic operations, so firms might choose to produce through:
Offshore factory
Source factory
Server factory
Contributor factory
Outpost factory
Lead factory
Make or buy
Buy: implementing purchased package on-site “off the shelf”
Make: developing custom product, tailored to unique organizational needs
Buy advantages and disadvantages
cheaper, easier to procure, high quality and low risk
- quality control costs, purchasing raw materials form far, foreign entry requirements, multiple party contract, management of outsources productions
Make advantages and disadvantages
Customizable
can result from issues of product success, specialize knowledge, strategic fit, specialized design/production
Netflix, Chat GPT reborn with their own product and haven’t taken anyone else’s
Decision between make or buy is based on
Cost and production capacity
Inventory planning is also a critical factor
3 main supply chain functions
Logistics
Purchasing
Distribution strategies
Supply chain function: logistics
global distribution center management , inventory management, packaging & materials handling, transportation, reverse logistics
Supply chain function: purchasing
Domestic
International purchasing only as needed (reactive)
International purchasing as part of firm’s supply chain
Global purchasing, integrated across worldwide locations and functional groups (common items, purchasing process and supplier selection at global level)
risks in global supply chains
There can be multiple risks in global supply chains as it gets bigger and more complicated
Risks include: miscommunication, terrorism, manufacturing process reliabilities, transportation challenges, technology malfunctions, geopolitical tensions
Therefore, best to best resilient GSC
Resilient global supply chain should be able to
Adapt
Respond
Recover
Learn
Transform
