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

2. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 2 Chapter 10 Global Sourcing Strategy: R&D, Manufacturing, and Marketing Interfaces

3. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 3 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

4. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 4 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. 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. An increasing number of countries are competing head-on for global leadership. In today’s competitive world, technology diffuses quickly. In today’s competitive world, technology diffuses quickly.

5. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 5 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. 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. 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. Global sourcing strategy requires a close coordination among R&D, manufacturing, and marketing activities across national borders.

6. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 6 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. 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. 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.

7. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 7 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. 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. An increasing segment of international trade of components and finished products is strongly influenced by multinational companies’ foreign production and sourcing investment activities.

8. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 8 2. Trends in Global Sourcing Strategy Trend 1: The Decline of Exchange Rate Determinism of Sourcing Trend 1: The Decline of Exchange Rate Determinism of Sourcing Trend 2: New Competitive Environment Caused by Excess Worldwide Capacity Trend 2: New Competitive Environment Caused by Excess Worldwide Capacity Trend 3: Innovations in and Restructuring of International Trade Infrastructure Trend 3: Innovations in and Restructuring of International Trade Infrastructure Trend 4: Enhanced Role of Purchasing Managers Trend 4: Enhanced Role of Purchasing Managers Trend 5: Trend Toward Global Manufacturing Trend 5: Trend Toward Global Manufacturing

9. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 9 3. Value Chain and Functional Interfaces The design of global sourcing strategy is based on the following: 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: The Value Chain Concept can be divided into two major activities: 1. Primary activities 2. Support activities

10. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 10 3. Value Chain and Functional Interfaces (contd.) Five steps are involved in developing a global sourcing strategy which include: 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

11. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 11 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.

12. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 12 3. Value Chain and Functional Interfaces (contd.) R&D/Manufacturing Interface R&D/Manufacturing Interface Manufacturing/Marketing Interface Manufacturing/Marketing Interface –Core Components Standardization –Product Design Families –Universal Products with all Features –Universal Product with Different Positioning Marketing/R&D Interface Marketing/R&D Interface

13. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 13 4. Procurement: Types of Sourcing Strategy Intra-Firm Sourcing Intra-Firm Sourcing –Domestic-in-house Sourcing –Offshore Subsidiary Sourcing Outsourcing Outsourcing –Domestic sourcing/purchase arrangement –Offshore sourcing –Hollow corporations (companies adopting a “designer role” in global competition; see Global Perspective 10-4)

14. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 14 5. Long-Term Consequences of Global Sourcing Requires close coordination of R&D, manufacturing, and marketing activities, among others, on a global basis. 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. Many MNCs with plants in various parts of the world are exploiting not only their own competitive advantages but also the locational advantages.

15. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 15 5. Long-Term Consequences of Global Sourcing (contd.) Sustainable Versus Transitory Core Competence (long-term implications of offshore sourcing) Sustainable Versus Transitory Core Competence (long-term implications of offshore sourcing) –Strategic alliances –Dependence –Gradual loss of design and manufacturing abilities

16. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 16 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. 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. The technological revolution in data processing and telecommunications makes the global tradability of some services possible. Intellectual Outsourcing Intellectual Outsourcing

17. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 17 6. Outsourcing of Service Activities (contd.) Outsourcing of service activities may serve the following purposes: 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 in-house

18. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 18 6. Outsourcing of Service Activities (contd.) (e). Reducing head-count (f). Instilling a sense of competition Service companies provide two types of services: Service companies provide two types of services: –Core Services (necessary outputs of an organization) –Supplementary Services (indispensable for execution of the core services)

19. Chapter 10Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 19 Copyright © John Wiley & Sons, Inc. 2004