• I remember hosting a lecture in 1983 in Victor Hall, where RCA first pressed records. A retired VP was telling the story of RCA’s decision to farm out VHS production to Matsushita (Panasonic), in order to concentrate on Betamax.  It was ironic, standing in the middle of Camden’s downturn, to hear the consequences of that decision.
• Relate this to the concept of the “hollow corporation”

The Hollow Corporation

• By shifting production overseas or shopping abroad for parts and components,
• are U.S. companies are whittling away at the critical mass essential to a strong industrial base?
• Elimination of home-market manufacturing and design facilities
• Transfer of technology to firms in other markets who produce on your behalf
• De-industrialization?

Problems and Alternatives

• Focus on reducing costs and moving to low-cost markets may dilute the product, harm home market, create negative public sentiment
• Have US managers and firms lost their skills in manufacturing?
• Lack of investment in US plants - consider Pittsburgh and the demise of the steel industry, the railroads, the auto industry...
• Deindustrialization of the US - let’s look at page 295 - what do you think??? Are we shifting too much overseas?

What’s Going On?

• Are our frameworks limited that have been used in our programs?
• Are we training a generation of managers to de-industrialize our corporations?
• Are we losing our competitive edge?

Life Cycles

• Product Life Cycle:  sales growth over time, possible extensions, rejuvenation
• Market Life Cycle:  markets may be in various stages of development
• Product Trade-Cycle Model:
•     new products introduced in high-income markets
•     export trade develops
•     manufacturing moves to low-income mkts

• Assumes products are first developed to serve needs of local consumers; then demanded by foreign consumers or sold to use of excess production - leads to standardization
• Cost competitiveness is a key factor
• Careful!  Often a US point of view
• Often assumed that only is developed in a few industrialized countries
• Conditions today suggest similar needs, similar environments for technology

• Introduction - product developed to meet unmet needs in home country, may be extended to similar markets, standards not set since may be in other countries - assume home country sales
• Growth - standards lead to mass production, price competition - assumes increased exports, increased competition - info transmission through internet
• Maturity - competition through differentiation, market entry, foreign. mfgr., cheap labor AND imports from other countries increase
• Decline - Revitalize? Spin-off? Discontinue?

Overview

• Three major limitations of the international product cycle theory
• 1. The trend to increased pace of new product introduction and reduction in innovational lead time
• 2. Ability to preempt the product life cycle-predictable sourcing development during the product life cycle.
• E.g. GE could obtain its supplies quickly to overtake the British company in CAT scanning technologies\
• 3. More active management of locational and corporate resources on a global basis.

Trends In Global Sourcing Strategy

• Trend 1: The Decline of Exchange Rate Determinism of Sourcing - just follows price, which may be short term - ignores value of long-term relationships, quality, etc.
• Trend 2: New Competitive Environment Caused by Excess Worldwide Capacity - excess capacity not an issue - quality and reliability, unavailability, technology are drivers - also market entry factors
• Trend 3: Innovations in and Restructuring of International Trade Infrastructure - look at www.mfginfo.com for global interconnectedness
• Trend 4: Enhanced Role of Purchasing Managers
• Trend 5: Trend Towards Global Manufacturing

• A company is a collection of activities that are organized to design, manufacture, market, deliver, and support its product.
• This set of interrelated corporate activities is called the value chain.
• What are the competitive links? E.g. refrigerators from old US autos taken to Japan for reprocessing, mfg in Mexico into refrig -  “Sears” today
• Where does the co. have comparative advantages?? - reprocess old US steel in Japan
• What are the transaction costs among the links? - transportation to Mexico
• Comparative advantages vs. the transaction costs - cheaper to make refrig in Mex with high quality labor
• Develop abilities to respond

• R&D/Manufacturing Interface - we can make it - do customers want it? - chunk chicken
• Manufacturing/Marketing Interface - we know they want it, we can make it, but design doesn’t work - Tucker/ or, mktg wants too many designs, cost of mfg is too high
•     Core Components Standardization
•     Product Design Families
•     Universal Product with All Features
•     Universal product with Different Positioning
• Marketing/R&D Interface - we know they want it, but it costs too much to make it! Or product is too high tech for those consumer who should want it!

Logistics Of Sourcing Strategy
Intra-Firm Sourcing
    Domestic
    Abroad
Outsourcing
    Domestic
    Abroad
NAFTA - does it help or hurt?? - let’s look at both sides
Freer access to neighboring markets
 

Costs and Consequences of Global Sourcing

• Need for Coordination
• Functional Mismatch
• Long - Term Consequences - what is a “hollow corporation”? Were there any in Camden?
• Strategic Alliances
• Dependence on other firms
• Gradual Loss of Design and Manufacturing Abilities

 

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