Introduction

Global manufacturing has become more popular as competition within global markets is very high and continues to grow. Manufacturing is a key element in value-chain strategy (Porter, 1985). Global manufacturing is used to have an advantage over your competitors, due to the fact that other countries can have an abundance of unique resources, for example cheaper labour, or help in other ways such as removing trade barriers. Many companies are looking to diversify into new markets such as setting up in developing countries in order to cut costs by creating a new source of manufacture, as many developing countries’ governments are looking to attract foreign investment in order to encourage growth within their economy. Manufacturing is a key part of most businesses as it determines costs and affects profits (IFM, 2013). As companies start to become more invested in globalising they will start to look into what other countries have to offer in ways of sourcing raw materials to governments schemes for new investors or even just creating a new source of distribution channels. Whilst globalising companies may find that their demand outweighs their supply thus increasing the attraction of creating a new plant to manufacture products, the company should then identify the best possible location for this plant. Technology has brought in new ways in which business can now become more cost efficient by decreasing the amount of human labour hours needed for each product, this also decreases human error and can improve quality. The image below shows the highest value added to a product after manufacturing.

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Why Go Global?

Globalization is not a new phenomenon (Strube, 2008). Technology and mass communications over the past century has been the forefront of expansion within the networking of the world’s economy, as there are now many multinational companies (Worthington, 2006). The main reason for going global is to increase sales creating more economies of scale effectively pursuing more profit, however there are many other reasons behind a company’s advancement into globalising as many foreign countries governments are looking to bring in foreign investment from multi-national organisations in order to supply employment for local labour to benefit the overall economy. Another reason for ‘going global’ might be to reduce costs such as trade tariffs as the World Trade Organisation (WTO) encourages international trade and helps remove barriers between countries (Daniels, 2013)

Global Manufacturing Strategies



The Main Manufacturing Issues For International Firms

There are specific interrelated questions an international firm must answer (Hill, 2013). These queries are of where the manufacturing activities will be situated, the long-term strategy positioning of foreign manufacturing plants, should the company outsource its foreign manufacture or own foreign plants, the way in which a globally dispersed supply chain should be managed, will the firm manage international logistics itself or should it outsource logistics to specialised companies.

The Location

When firms are looking into setting up production into a country they should locate their production plant in order for the plants production and logistics can be locally responsive, close to suppliers and populated areas, but for the production and logistics to be able to respond to shifts in consumer demands (Amit, 1993). Country factors must be taken into account as each country may have different political, economic and cultural views that may affect profits. Technological factors are important, as firms will have to consider the level of fixed costs, the minimum efficient scale and the flexibility of the technology in order for specifications for the product. Product factors such as value-to-weight ration if this is high then the product can be produced in one location and exported globally, or if the value-to-weight ration is low there is more pressure to have production in multiple locations globally.

The Strategy of Foreign Plants

The strategy of a foreign plant can always change over time as the advantages of that foreign plant may change due to a countries standing respective to laws or change in exchange rates. Foreign plants are mainly established to take advantage of lower labour costs but can develop overtime into having high quality performance. However many firms now see foreign plants as globally dispersed sources of excellence (Worthington, 2006), this supports the development of a more transnational strategy with also the effect of more innovation through global understanding.

Outsourcing Production

Make-or-buy decisions are important to a firm’s manufacturing strategies (Britton, 2006). As decisions involving global markets become more complex than those decisions concerning more local markets. Firms must take into account the vertical integration of making component parts rather than buying them in, making the component parts will lower costs, creates investments in highly specialized assets, protects a companies product designs and sensitive data and it also gives a standard of the scheduling of the process. However the advantages of outsourcing the component parts gives the firm more flexibility, it also helps the firm concentrate on driving down costs in other areas where inefficiency may be occurring, it will also encourage international customers if they are outsourcing globally. Outsourcing can be beneficial to both parties of the production as firms wont have to deal with organizational problems and a long-term alliance can encourage economies of scale for both parties.

The Global Supply Chain

Logistics now plays a huge part in the necessary means to get the needed materials to a manufacturing plant then through the process within the manufacturing and out into distribution channels towards the end customer. Using logistics helps to achieve the goal of managing a global supply chain at a low cost but in a way that best serves customers requirements.
Just-in-time (JIT) systems can help increase production turnover and become more cost effective giving the firm a better cash flow.

The Supply Chain Strategy

This is the management of information, materials and cash flow through from the initial raw materials to the selling of the finished product. There are four key factors in global manufacturing strategies compatibility, configuration, coordination and control (Daniels, 2013).

Compatibility

There are different strategies for various industries and are dependant on the product itself as if the product is a mass market product selling huge amounts of units then the firm may look into efficiency/cost strategy cutting costs with economies of scale by producing at a high enough rate to supply the demand and any shifts that may occur (Wenerfelt,1984).
Dependability this examines the market to find suitable suppliers at a low cost but good quality, with this the firm needs to set up on-going relationship creating a strategic alliance with them after a long-term, the firm then purchases the supplier after it has become the perfect partnership for the firm (Daniels, 2013).
Quality and Innovation if the market is a high value product then quality and innovation will lead the strategy on manufacture making the process more detailed and slower making sure each step is perfect in order to create high quality products, with innovation this encourages trends and creates a healthy product life cycle in order to stay competitive within the market.
Flexibility this allows the firms manufacturing plant to be more flexible with shifts in demand and in case other plants/suppliers cant make an order this flexibility allows the manufacturing process to be increased to create more products when needed (Daniels, 2013).

Configuration

This examines the best possible manufacturing configuration for the firm whether it be centralised manufacturing in one country, creating a controlled environment where as quality can be ensured and the manufacturing process can be observed effectively. There’s also regional manufacturing where the firm will identify specific regions to where there’s high demand to where they will look to manufacture. The multinational configuration is where a firm is looking to penetrate into a new market however there are trade barriers in place that increase costs and lower the competitive advantage this is when the firm must create a new manufacturing capability in this proposed new market in order to sustain their competitive advantage (Hill, 2013).

Coordination and control

However these are two separate key factors they are looked at as one as they go hand in hand with each other as control systems are used to coordinate the operations within the firm such as six sigma quality management this is implemented in situations where the quality of the product is the upmost important in terms of customer needs, so that quality is measured and will reflect the added value on the product (Spulber, 2009).

Six Sigma Manufacturing


Six Sigma methods pursues improvement within the process of manufacturing from increasing quality to reducing cost, its main asset is that is uses empirical and statistical methods that are all measurable and quantifiable. It looks to remove any defects/errors that might occur within the manufacturing process to create a more efficient and reliable process. Six-sigma manufacturing is a statistical quality control process (Adams, 2003).
DMAIC is the most commonly used method when using six sigma manufacturing techniques its implements a lean production process in order to reduce costs and increase profits.
  • Define – What the system is, what are the customers needs and expectations and set goals and objectives to work towards.
  • Measure – The key elements of the current system and collect necessary data in order to measure the manufacturing process
  • Analyse – the data in order to correct errors and defective processes.
  • Improve – update the current system into a more optimal operating process in order to reduce costs.
  • Control – sustain the corrected system to ensure the reduction in costs for long-term goals.
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Corporate Social Responsibility


Throughout the past decade there has been more and more pressure put onto large public limited companies to look after the environment in which they affect. This new trend started by consumers to buy ‘green’ products effects sales if the product that’s being offered is seen to cause harm to the local environment (Hill, 2013). Pressures like these affect not only the cost of the manufacturing process by increasing costs to stop environmental damage (Barney, 1991). These pressures are also being used to stop large corporations taking full advantage of low labour costs in foreign countries, for example Nike have been found to be using ‘sweatshops’ where employees would manufacturing products in countries like china in order to cut costs in labour, this then had an adverse effect on sales as customers are seen to choose other brands over Nike. As firms might not be able to cut these costs in their home country due to environmental laws and minimum wage laws these companies go overseas in order to cut costs at the costs the their local environment.

Offshoring The Advantages and Disadvantages

Offshoring is the relocation of the manufacturing process into a foreign country (Blinder, 2006). There are many advantages and disadvantages that occur when offshoring, however depending on the product itself and in what way the manufacture process occurs the effects will have different tolls on the firm.
The Advantages:
  • Lower labour costs – this is achieve by other countries having different laws and standard to the rate of wage per hour.
  • Identifying lower raw material costs – when a firm is looking to offshore its manufacture process its should consider all the possible availabilities and requirements it needs in order to make its products, so that if the necessary raw materials are at a lower price in a certain country that country is more favourable for the set up.
  • The availability of skilled workforce – there are now many governments that conduct operations in order to help train their active workforce in order to interest foreign investment, such as India has put a lot of investment in that past years into carpentry so that the people of India can learn a trade (Shepherd, 2003).
  • Increase in sales – if the company looks to set up in a new country they can also offer their products to this new country, by doing this it also encourages an increase in economies of scale reducing costs.

The Disadvantages:
  • Quality Control – having an offshore manufacture base is all well and good reducing costs but it could affect the products quality as the manufacturing is now in a foreign country with a different culture, control is a big aspect in business as without control not only quality could be affected but also quantity.
  • Security – many foreign countries with low labour costs have security problems due to corruption and underdeveloped systems to where general crime is at a high rate, mainly because the instability in the economic climate.
  • Time – offshoring can take time to start as labourers need to be trained and finding the correct facilities and area is no easy task.
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Case Study: Samsung's Global Manufacturing

According to Samsung Village (2012), Samsung is a major Global brand in the technology sector. The company was founded in January 1969 by Byung-Chull Lee. In 1970 they successfully produced 12 inch black and white TV’s and after two months of production started on the way to globalisation with exports to Panama.The merger of Samsung Electronics with Samsung Semiconductors in January 1980 helped create synergies in production for both business again demonstrating how global manufacturing trends are beneficial for business. At this point in the company’s history this approach was very much seen as a new trend in business. The company has continued along it’s successful path as in the first quarter of 2015 it sold 83.2 million smartphones globally (Gibbs, 2015). Samsung clearly embrace the trend for global manufacturing with 10,700 employees worldwide. Unlike many companies who manufacture only in the Far East/Asia , Samsung have two distinct manufacturing lines in very different parts of the globe. The first facilities which are for front end production are based in Korea and Austin, Texas, whilst the second facilities which are for assembly and testing are based in Korea and China (Samsung).

As mentioned previously the majority of companies tend to adopt the trend of outsourcing manufacture of either components or finished product to Asia. However, according to Cruickshank (2015), Samsung have recently announced plans to expand manufacturing into Africa. This clearly demonstrates a new trend in global manufacturing due to fact that the new plants will not only manufacture networked devices for the so called “Internet of Things” but they will help to build the region’s digital economy. This differs from traditional global manufacturing trends in that the contribution to the development of a new economy in the form of a “digital economy” differs from the standard provision of jobs seen previously (Cruickshank, 2015). Therefore, from it’s beginnings in 1969 Samsung has grown to become the world’s largest smartphone manufacturer and its information division serves as the world’s largest information technology company. To ensure that they keep this competitive edge, Samsung announced that they are planning to open a state of the art display factory in Vietnam in 2015 (Philips, 2015). This clearly demonstrates that they are ahead of the curve in adopting this new trend in global manufacturing along with Nokia and Intel by moving to Vietnam (Lee and Folkmanis, 2013). The move will help profit margins and also open up other markets for Samsung.

Conclusion

Global manufacturing has become a new trend encouraging successful businesses to thrive, by creating a global manufacturing base it not only allows the firm to have a competitive advantage but it also looks to increase profits as it focuses on decreasing costs in order to pursue profits. However this exploitation of global manufacturing may have an adverse affect if the exploitation is too critical, meaning the company doesn’t try to invest and inspire the local environment and economy where they have set up their new business venture. There are many concerns that a firm can come across whilst setting up in a foreign country but with time and an allotted effort these problems can be overcome in a way that it helps the local economy and the firm’s strategic objectives. The main problem for firms looking to invest in a foreign country is being able to control and maintain quality as if the foreign plant cannot replicate the quality of the original product, costs will increase and profits will drop. So to conclude the relevance of global manufacturing to the business world of today is becoming increasingly important as the trend to start foreign manufacture is increasing as it gives a competitive advantage over the competition in the market as the firms able to lower costs, allowing them to undercut competitors.

Bibliography


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Added References:



Additions



New trends of global manufacturing



In terms of the means of production, digital, intelligent technology and equipment will run through the whole life cycle of the product. With the development of information technology and the improvement of information spread, digital technology, network technology and intelligent technology increasingly penetrating into the whole process of product development,design, manufacture which produces the great changes on the production process(Gelinas.U, Sutton.S&Federowicz.J, 2008). On the one hand, the research and development design technology of digital, intelligent shorten the design cycle and manufacture cycle time between consumption and greatly reduce the time of new products into the market as well (Keoleian.A&Menerey.D,1993); on the other hand, robots, automated production lines and other intelligent equipment widely used in production which have already become the important means of increasing production efficiency and reduce labor costs(Nanterme.P&Daugherty.P, 2014). At the same time ,new technologies and platforms continue to emerge such as cloud computing. Global industrial chain and innovation chain run more efficiently and the co-ordinated production model has been widely accepted and used for the enterprise.

In terms of the development model, green and service is becoming a new trend in the development of the manufacturing industry transformation.The contradiction between ecological environment and production is becoming more and more acute which promotes the innovation of global industrial design idea and the upgrade of traditional technology that to realize the efficient utilization of energy resources and minimize the damage to ecological environment( Atchoarena.D&Gasperini.L, 2003). The development of energy conservation and environmental protection industry and the re-manufacturing industry shows that the green manufacturing development goal has become the consensus of manufacturing. And low energy consumption & pollution of products also gradually show its strong market competitiveness.At the same time,service also has become more important, leading manufacturing industry upgrade and maintain the sustainable development (DiSano.J,2007). Manufacturing production will reform from providing products to providing products and services.The border among research and development, design, production and after-sale has increasingly blurred.

In terms of the organization,the globalization of the allocation of resources has become a new way to cultivate the competitive advantage of manufacturing. In enterprise internal management,the traditional thought of industrialization emphasizes the hierarchical management organization which is difficult to adapt to the diverse needs of the market and products(Kamaw.M, 2011). However,the current Internet thinking stresses on openness, collaboration and sharing which requires to reduce the internal hierarchical structure of enterprise management and pay attention to specialization and refinement in the industrial division.

In terms of the development pattern, the dynamic change of comparative advantage will reshape the global manufacturing layout.It was generally believed the global manufacturing industries in developed countries hold the direction of the development of global manufacturing and the core technology(Seifbarghy.M& Nasiri.Z,1999). Emerging countries such as China, India, Brazil, which have low production cost and a large consumer market, have become a production base; Latin America and other industrialized countries, which have rich raw materials but weak industrial foundation and lack of skilled workers,have become the supplier of raw materials and energy(Manyika.J,Sinclair.J&Dobbs.R,2012). However, with the rising of labor wage and land prices in emerging countries, obvious changes have taken place in the regional distribution of manufacturing production cost.

References


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