Global Marketing Management

Masaaki Kotabe & Kristiaan Helsen

Third Edition
John Wiley & Sons, Inc., 2004
Chapter 10 Kotabe & Helsen's Global Marketing 1
Management, Third Edition, 2004
 Chapter 10

Global Sourcing Strategy: R&D,

Manufacturing, and
Marketing Interfaces

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 Chapter Overview

1. Extent and Complexity of Global Sourcing

Strategy
2. Trends in Global Sourcing Strategy
3. Value Chain and Functional Interfaces
4. Procurement: Types of Sourcing Strategy
5. Long-Term Consequences of Global
Sourcing
6. Outsourcing of Service Activities

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 Introduction

 Global competition suggests a drastically

shortened life cycle for most products, and it no
longer permits companies a polycentric, country-
by-country approach to international business.
 An increasing number of countries are competing
head-on for global leadership.
 In today’s competitive world, technology diffuses
quickly.

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 Introduction (contd.)
 Without established sourcing plans, distribution
and service networks, it is extremely difficult to
exploit both emerging technology and potential
markets around the world simultaneously.
 The increased pace of new product introduction
and reduction in innovational lead time calls for
more proactive management of locational and
corporate resources on a global basis.
 Global sourcing strategy requires a close
coordination among R&D, manufacturing, and
marketing activities across national borders.
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 1. Extent and Complexity of Global
Sourcing Strategy
 Marketing managers should understand and
appreciate the important roles that product
designers, engineers, production managers, and
purchasing managers, among others, play in
marketing decision making. Marketing decisions
cannot be made in the absence of these people.
 U.S. MNCs are the most experienced in the
industrialized world, and sell more than three
times as much overseas through their subsidiaries
as they export to the world.
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 1. Extent and Complexity of Global
Sourcing Strategy (contd.)
 Intra-firm trade is the primary factor leading to the
total volume of international trade among the
Triad region (i.e., the United States, European
Union, and Japan) increasing more than tenfold to
$735.0 billion in 2001.
 An increasing segment of international trade of
components and finished products is strongly
influenced by multinational companies’ foreign
production and sourcing investment activities.

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 2. Trends in Global Sourcing Strategy

 Trend 1: The Decline of Exchange Rate

Determinism of Sourcing
 Trend 2: New Competitive Environment Caused
by Excess Worldwide Capacity
 Trend 3: Innovations in and Restructuring of
International Trade Infrastructure
 Trend 4: Enhanced Role of Purchasing Managers
 Trend 5: Trend Toward Global Manufacturing

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3. Value Chain and Functional Interfaces

 The design of global sourcing strategy is based on

the following:
– Competitive advantage
– Comparative advantage
 The Value Chain Concept can be divided into two
major activities:
1. Primary activities
2. Support activities

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3. Value Chain and Functional Interfaces
(contd.)
 Five steps are involved in developing a global
sourcing strategy which include:
– 1. Identify the separable links in the company’s
value chain.
– 2. In the context of those links, determine the
location of the company’s competitive
advantages (considering both economies of
scale and scope).
– 3. Ascertain the level of transaction costs
between the links in the value chain and select

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3. Value Chain and Functional Interfaces
(contd.)
the lowest cost mode.
– 4. Determine the comparative advantage of
countries relative to each link in the value chain
and to the relevant transaction costs.
– 5. Develop adequate flexibility in corporate
decision making and organizational design so
as to permit the company to respond to changes
in both its comparative advantages and the
comparative advantages of other countries.

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3. Value Chain and Functional Interfaces
(contd.)
 R&D/Manufacturing Interface
 Manufacturing/Marketing Interface
– Core Components Standardization
– Product Design Families
– Universal Products with all Features
– Universal Product with Different Positioning
 Marketing/R&D Interface

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 4. Procurement: Types of Sourcing
Strategy
 Intra-Firm Sourcing
– Domestic-in-house Sourcing
– Offshore Subsidiary Sourcing
 Outsourcing
– Domestic sourcing/purchase arrangement
– Offshore sourcing
– Hollow corporations (companies adopting a
“designer role” in global competition; see
Global Perspective 10-4)
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 5. Long-Term Consequences of
Global Sourcing
 Requires close coordination of R&D,
manufacturing, and marketing activities, among
others, on a global basis.
– Ability and willingness of companies to
integrate and streamline operations worldwide
 Many MNCs with plants in various parts of the
world are exploiting not only their own
competitive advantages but also the locational
advantages.

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 5. Long-Term Consequences of
Global Sourcing (contd.)
 Sustainable Versus Transitory Core Competence
(long-term implications of offshore sourcing)
– Strategic alliances
– Dependence
– Gradual loss of design and manufacturing
abilities

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 6. Outsourcing of Service Activities

 In 2000, the U.S. was ranked the largest exporter

and importer of services, providing $274 .6 billion
of services to the world and receiving $189.9
billion worth of services.
 The technological revolution in data processing
and telecommunications makes the global
tradability of some services possible.
 Intellectual Outsourcing

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 6. Outsourcing of Service Activities
(contd.)
 Outsourcing of service activities may serve the
following purposes:
(a). Reducing time to implement internal
processes
(b). Sharing risk
(c). Improving customer service
(d). Improving access to expertise not available
in-house

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 6. Outsourcing of Service Activities
(contd.)
(e). Reducing head-count
(f). Instilling a sense of competition
 Service companies provide two types of services:
– Core Services (necessary outputs of an
organization)
– Supplementary Services (indispensable for
execution of the core services)

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 Copyright © John Wiley & Sons, Inc. 2004

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