Chapter 3 Flashcards
What are the reasons for offshoring and outsourcing?
-different wage levels in global labor
markets
-to reduce costs in global
sales markets
-growing availability of service providers
-production capabilities on global
procurement markets
What is offshoring?
-subset of outsourcing
-relocation of business processes from one country to another (e.g. call centers)
What is vertical range of manufacture
degree of in-house production within company’s value chain
What is outsourcing?
transfer of property rights and know-how to third companies
aim: to reduce vertical range of manufacture by shifting internal sub-functions to external partners
What is difference between offshoring and outsourcing?
Outsourcing doesn’t imply that the shift of sub-functions occurs abroad.
Reasons for offshoring
-cost reduction through lower wage
levels abroad
-access to qualified personnel
-lower environmental standards
-local content requirements
-shorter approval procedures
-access to new markets (sales &
procurement)
-reduction of “time to market”
-trade restrictions abroad
-tax aspects and subsidies
Reasons for outsourcing
-cost savings
-higher quality of innovation
-access to special know-how
-focus on core competencies
-flexibility & capacity fluctuations
-transfer of risks to supplier
What are local content requirements?
laws controlling the supply of parts of production process in a nation
How can outsourcing or offshoring can be determined?
-if activities in question are not particularly strategic and if external partners can carry these out faster, better (specialization) and cost effectively (economies of scale)
-strategic factors of market proximity & risk management
What sub-functions are commonly outsourced?
-Supply chain
-HR, especially recruiting
-IT operations and services
-Training
-Finance & accounting
-Customer relationship management &
marketing
What is insourcing or backsourcing?
process of reintegrating previously outsourced processes and functional areas
Reasons of outsourcing or backsourcing?
-dependence needs to be scaled back
-outsourcing parties are incapable of
delivering required level of quality
-calculated cost advantages of
outsourcing never occur
-control of outsourcing partners is
more difficult than expected
-success-critical know-how is migrating
from company and can lead to risks
what are the 3 phenomenas in global production networks
liberalization and opening of international production markets & trade
expansion of international direct investment
splitting and geographical spread of value chains (manufacturing and processing industries)
What do global production networks do?
integrate all relevant firms, institutions & consumers that are involved in production, distribution and consumption of a good within a coherent system
What are the 3 different framework concepts of global production networks?
-global commodity chains
-global value chains
-global production networks
What is configuration?
-structure of network in global production networks
-task: selection of suitable national site
What is coordination
management of global production network
Approach in selecting suitable site during configuration in global production networks
-description of optimal location
requirements depending on
company’s objectives
-description & analysis of identified
sites
-development of a classification system
to structure location factors
-rough selection of suitable locations
-creation of shortlist according to
criteria (using e.g. utility value analysis
or transport cost analysis)
What is utility value analysis?
procedure of evaluating alternatives according to scoring model
What are roles and competencies in global production networking?
-contributor location (responsible for
production development)
-lead location (global hub for product
and process knowledge; support for
global markets
-offshore location: recommendations
for process improvement
-outpost location: responsible for own
purchasing and logistics, maintenance,
technical processes and production
-source location (responsible for
process development and
optimization)
-server location (responsible for
development of supplier networks)
What are the 4 site roles that are part of a knowledge network?
hosting network player: operates exchange of information & innovations, trains staff, communicates within network
active network player: operates proactive exchange of innovations, send employees to other location, communicates intensively within network
isolated factory: deals purely operational/ productive activities in closed production areas. little need to exchange info & employees
receiving factory: adopts innovations must adapt more rapidly to changing tasks. rare exchange of employees
Types of service provision within a network?
-full-scale production: competitive
production from raw material to
finished product
-benchmarking production: in-house
production becomes benchmark for
components produced externally
-ramp-up production: rapid implementation of new production systems that are transferred to other locations during roll-out
-prototype production: specializes in initial trial production & optimizing production process before roll-out
-laboratory production: development & testing of new materials; extended arm of development
(ramp-up, prototype, laboratory are not realized in all locations of global production network, only at lead-/ specialized contributor - locations
What is roll out?
expansion of small scale production process to other locations within global production network
What is logistics system?
coordinated network of physical transport capacity & intelligent IT; the optimized fast and cost-efficient transport of goods while remaining localizable
