Management of Multinational Corporations ( MNCS )

Chapter 9 : Operations Management in MNCs

Where to Manufacture

Country Factors
Technology Factors

Customization and Cost Efficiency

Product Factors
Locating Manufacturing Facilities

Making Global Sourcing Decision

Logistics Management in MNCs
Global Supply Chain Management

Transfer of Knowledge from Home Country to the Host Country

Parent Subsidiary Relationship

New Product Development
Unleashing Innovation in Subsidiaries.

Chapter Summary

Reducing costs and improving quality are the two inter dependent objectives of operations management. R&D initiatives help derive competitive advantage a they make companies better equipped to respond faster to changes in market demands.

Three factors determine location of a factory: country, technology and product. Country factors include political stability, the FDI policy and the lobbying power of domestic industrialists and economic stability which is determined by factors like exchange rate. Land and labour costs of a country are crucial in deciding the location of manufacturing facility.

Technological developments also impact locational decisions. The higher the level of investment required, the stronger the case for centralized manufacturing. Moreover, economies of scale might require companies to concentrate manufacturing in a few locations. But some companies like Levi's have proved that customization and cost efficiency can go together.

Companies are often confronted with 'make or buy' questions. Global sourcing has been put to use effectively by many MNCs. The major advantages of sourcing components are that financial and operational risks can be reduced and fixed costs of investments in people, plant and machinery can be avoided.

The risk of dependence on the supplier can be mitigated either by vertical integration or by holding equity in the supplier's firms. There are three types of integration. Backward integration is said to occur when the firm produces its own raw material and component parts. In forward integration, a raw material manufacturer may produce finished goods.

Horizontal integration occurs when a firm acquires its competitor to expand capacity or to gain marketshare. Global Logistics and Supply Chain Management (SCM) are emerging as strategic tools to help companies focus on core competencies and achieve cost efficiency. Logistics management involves managing the flow of goods from the supplier to manufacturing facilities across the world and then distributing the finished goods to the consumer.

SCM is a wider concept that integrates the activity of demand forecasting and inventory management with other functions of logistics management. Forecasting of demand is often difficult because of the bull-whip effect which is the distortion of demand information due to certain reasons.

Companies have recognized the importance of the R&D function. However, most companies still do not empower the subsidiaries to innovate. While companies like Nestle justify the centralization of R&D, McDonald's and Siemens have proved to be good examples of unleashing innovation in subsidiaries.

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