Omar Salgado Intenational Manufacturing

Abstract:

Subsidiaries located on free trade areas may adopt heterogeneous procurement strategies to fulfil markets’ requirements. Additionally to the cost advantages; the number of trade agreements in which a location is immersed, impact importantly on subsidiary’s sourcing patterns and product configuration. This paper explains through case studies, important implications that trade agreements have on the Manufacturing Network’s coordination mechanisms, procurement patterns and suppliers’ development at subsidiary’s level and under the view of subsidiary’s managers.

Introduction:

Reasons for moving part or a complete set of operations to different countries have been widely discussed since 1920’s until the conceptualization of internationalization schools that explain companies’ internationalization attempts. (see: Johanson & Vahlne, 1977; Bilkey & Tesar, 1977; Dunning, 1988; Turnbull & Valla, 1986; Reid, 1983). Incremental commitment is one of the most common internationalization factors since more and more countries are liberalizing their markets and start to be open to receive foreign products (Lall & Narula, 2004) but, although exporting is indeed one of the steps of internationalization, the complexity of the process and decision variables increment when evaluating an investment opportunity in a foreign country.

In general terms, authors (Porter, 1990; Benito; Larimo; Narula; Pedersen, 2002) have spoken about forces that either expel or keep at home the business activities of companies, acting as centrifugal / centripetal forces that either speed up or slow down the internationalization process. Hence, these forces with the combination of companies’ strategy and the location attractiveness constitute a complex mechanism to explain the different economic performance of regions. Trade agreements can now be included in the list of location advantages as ‘policies and incentive systems’ (Narula & Dunning, 2000) that exclude from certain benefits to those companies that do not manufacture their products in a specific region, extending the ‘administrative distance’ (Ghemawat, 2001) and making the competition harder. However, no industrial policy can create by itself the proper conditions to succeed but by the synergy resulted due to the accumulation of talent (Saxenian, 1994; Enright, 2000). It is therefore that the role of location in a competitive environment has changed from location inherent advantages to location created advantages and becoming more and more dynamic (Porter, 1994).

In manufacturing terms, companies specially MNE’s, have gone through location decision exercises widely, tailoring their international manufacturing strategies until the conception of ‘manufacturing mobility’ that states the internationalization of manufacturing activities as a knowledge transfer process (Minshall,; Chai; and Gregory, 1998) that can be adapted or not, to different locations accordingly and via a ‘fitness for transfer’ analysis in order to see the process’ ‘appropriateness’ and ‘robustness’ for a specific location (Grant & Gregory, 1997). Once a company has decide to allocate a subsidiary abroad with a specific purpose, usually called plant’s role (Ferdows, 1997; Birkinshaw, 1995), it won’t be isolated neither from the rest of the location/region entities and environment nor from the rest of the parent/peer and strategies making the plant role change with the dynamic of the competition. It is expected that subsidiaries working in a specific location for long time are able to disseminate knowledge in the region via different collaboration mechanism being ‘supplier development’ a common practice in automotive OEM’s (Sako, 2004), and achieving remarkable success stories not just for demand responsiveness but also for increasing companies’ capabilities and competences such as product/components development (Liker; Rajan; Kamath; Wasti; Nagamachi, 1996).

The first part of the paper shows changes in the legal framework of the automotive industry in Mexico and how the Mexican OEM’s subsidiary adapted to it. The second part states the theoretical background of the topic followed by the introduction of the research question. In the third part, the author analyses the configuration of a vehicle and shows three case studies from suppliers with difficulties to comply the vehicles’ technological needs. This paper ends with the discussion of the sourcing rationale and the need for further research on the topic.

Type: Paper

Author: Salgado, Omar; Shi, Yongjiang, Gregory, Mike. (2006).

Repository: Academy of International Business