Research Topic
Global Supply Chain With The Local Marketing Talent
Released in August 2014
Economic of scale and economic of scope
Now we’re moving to describe the economies of scale and economies of scope and its relation with marketing and supply chain management
First, let’s define the economies of scale and economies of scope
Economies of scale
Economies of scale refers to the accumulated volume in production and sales which occurs by decreasing the cost price per unit due to the experience curve and increased efficiency in a lot of factors such as production, marketing, and other factors. The global presence has a significant effect on extending the firm’s scale of operations by giving the firm a large capacity in its production as well as a large asset base. From this point we can say that; through large scale, the firm could create a competitive advantage but in case if the firm converts the scale into economies of scale, to make the idea more clear we can describe some benefits from economies of scale according to (Gupta and Govindarajan, 2001):
- Decreasing the operating cost per unit as well as spreading the fixed costs over a larger volume due to experience curve effect
- Pooling global purchasing supports the firm and provides an opportunity to concentrate global purchasing power over suppliers which leads to volume discounts and reduces the transaction cost
- Increase the talent of the members within the firm
From this point we’ll move to the other side, Economies of scope to explain more the idea of the relation between economies of scale and scope to marketing and supply chain management.
Economies of scope
First, let’s say the economies of scope happen when the firm is serving in diverse marketplaces in the world, simply the global scope can’t take place in case the firm is serving customers in just one country, customers should purchase a bunch of identical products and services across diverse countries and they can bring those products either from a horde of global suppliers or a single global supplier (international marketer) that are presents in all of the markets which the firm is already serving customers within. From this point, we can conclude that compared with a horde of local suppliers and a single global supplier (marketer) can lead to an increase in the value for the global customer among the consistency in the product’s quality and features as well as in the services across countries, here we can conclude the importance of the integration between marketing and supply chain management within professional supply chain network across the countries. As well as the importance of local marketing talents will be clear in the following paragraphs.
The challenge in capturing the economies of scope within the global level lies in the quick response from the firm on the tension between two factors: The need for central coordination of most elements of the marketing mix and the need for local autonomy in the actual delivery of products and services ((Gupta and Govindarajan, 2001). As the adaptation approach is Highly required in today’s business; multinational firms are serving a lot of different customers in different countries across the world. Could gain benefits from the concept of economies of scale and scope through transferring the experience gained from one country to another country in terms of similarity in culture, customer characteristics, and business environment. From this point, we can conclude that if the firm is concerned with improving the local marketing talent in different nations, it can exploit the experience that the marketer gained and use it in another country that shares similar culture, customer characteristics, and business environment. Which will be represented in the data and analysis section.
From the paragraph above we can conclude that everyone in the supply chain may value something different within the global value chain.
The value chain as a framework for identifying international competitive advantage
In all stages in the value chain, there’s an opportunity for a positive contribution to the firm’s competitive strategy through performing some of the activities or processes in a way that brings a competitive advantage in comparison with other competitors and if the firm can attain such a competitive advantage that’s profitable, defensible, and valued among the market, so it can earn high rates of returns.
In competitive terms, value can be defined as the amount that the buyers are willing to pay for the products or services that the firm provides to them, “perceived value” when the value of the products or services that the firm provides to the customers exceeds the costs of doing them, then the firm is profitable. And this is the goal of any generic strategy.
The value chain displays total value and it consists of value activities and margins.
The value activities can be described as the physical and technologically distinct activities the firms perform, as well as it’s the building blocks by which a firm creates a product or service valuable to the buyers Margin can be described as the difference between the total value (price) and the total and collective costs of performing the value activities.
Value chain activities can be defined as the key that links the company resources and its strategic position within the global market. And on this point, one logical question emerges here that’s; when the company resources considered to be valuable?
The answer is, that the company resources could be valuable when they are transformed into activities that generate either lower cost or greater value than competitors ( Sheehan and Foss,2009)
The firm might be able to identify elements of the value chain that aren’t worth the costs and this could be conducted outside the firm called “outsourcing” hence the role of supply chain management emerges.
The value activities are divided into 2 types:
1- Primary activities are the activities involved in the physical creation of the product, as well as its sale and transfer to the buyer as well as the services after sales that can be technical assistance.
2- Support activities can be defined as the activities that support the primary activities and each other through providing purchased inputs, technology, and human resources as well as various and wider functions, the procurement, technology development, and human resources management are related and associated with specific primary activities and supporting the entire chain.
So we can conclude that the value chain can be described as it’s not a collection of independent activities but it’s a system of integrated and interdependent activities either within one organization or within various organizations.
“Figure shows the value chain as a framework for identifying international competitive advantage
Global Supply Chain
When defining supply chain management, Most of the authors focus on the importance of the various chain players also consider the customers as vital players in the chain and this supports the research idea of “the importance of the local marketing talent in global supply chain design” about understanding and realizing the customer’s psychology wants, needs, characteristics, and behaviors are essential and the researcher consider this point as the main point in the organization success in all domains, so the researcher opinion is that; the best persons who can realize this point is the local marketer so the global supply chain as it essential in reducing cost and the success of the multinational firms in different markets should be according to the local marketing talents lets see how different authors talk about the supply chain management
A lot of definitions of supply chain management focus on the 2-way flows of goods and services along with information & funds from the purchaser to the user.
One of the interesting detentions that also support the researcher’s idea is the following:
Monczka et al. (2002) indicate that changes in global business conditions and situations as well as the competition increases among organizations have influenced the management complexity of all organizations.
In today’s business conditions, all organizations should manage both the upstream firms—suppliers that provide direct & indirect inputs and the downstream firms- distributive network.
Also, the author said; that the supply chain includes all the activities that are related to the flow and transformation of goods that start from the raw materials until the end user. The supply chain includes the managerial system, production & production scheduling, operation & assembly, inventory management, warehousing, transportation, and customer service. Supply chains are essentially linked to suppliers and customers; we can consider every customer is in turn a supplier to the next downstream organization until the final product reaches the ultimate end user. Supply chain management is considered the integration of all those activities through improving the supply chain relationship to attain a sustainable competitive advantage.
The points that are very interesting to the dissertation’s main idea . Supply chain management includes the associated information flows, materials & information flow up and down the supply chain, the author focuses on this point but as the information came from the upstream marketer from the Head Quarter the dissertation point view according to the researcher perspective, that the information should come from the Upstream marketer with the assistance from the downstream marketer from the local market and sure it should be aligned with the headquarter and the reasons will take a critical discussion in the following paragraphs supported with real examples.
Supply chain management has a tremendous impact on the strategies of any organization, mainly those associated with purchasing and sourcing, also it contributes to multiple organizations as chain participants.
Supply chain management can be divided into 3 parts :
- . Internal functions
- . Upstream suppliers
- . Downstream customers
1) The internal functions: the internal functions of the organization have some duties such as order processing that include extensive customer interaction that starts from taking the order until aftermarket service. One of the other duties of the internal functions within any organization is production scheduling which includes actual plans and schedules.
2) The upstream suppliers: the main function of the upstream suppliers is to manage the flow of the right materials at the right time to the right internal users.
3) Downstream customers; the main functions of downstream customers include the distribution channels, the process and function which the products possess through To reach the ultimate customers. In this area, the logistics managers are involved in managing transportation and distribution.
“Monczka” observed that there are upward and downward flows of both the materials and the information as well as the funds between the players or the participants of the supply chain management, its very important and also considered imperative to manage the relationship among those participants to align the activities between all of them. Effective management of the Supply chain is considered the core competency that offers an opportunity for competitive advantage to the organization in domestic and global markets as well it presents the following:
- Cost reduction
- Improving the delivery of the materials
- Shorter cycle time including product development cycle time
- Quality improvement. Access to a product and process technology
Ross said the supply chain management is based on 3 dynamics:
1- Operation management techniques
This refers to all the organization’s functions such as manufacturing, marketing, and finance. Those activities should be integrated to form the common business system and these techniques offer comparative advantage through adding value to the daily work and day-to-day performance of the regular activities. The 3 sets of activities are the inbound logistics, processing activities, and support activities.
2- Integrated logistics management
The main objective at this level is to interface closely with each other but not merge the identical functions performed by logistics counterparts outside the supply channel partners and this point takes us to one of this research ideas “In which degree the interdependent/integrated global economic system are driving the Multinational firms to rely on a network of relationships with external organization or parties.”
The main rationale of the dynamic process is that an organization needs support not only from its internal supply chain partners but also from external supply chain partners to gain a global competitive advantage and market leadership to manage the supply chain management toward customer value creation. Also, this point will be clear in one of the case studies of PepsiCo which did a joint venture with one Arabian company Almaraie.
3- Strategic dynamics
This part concentrates on reducing costs and time and also focusing on adopting the management technique as well as the management information system to attain breakthroughs in products and services that are suitable for the change of the customer needs. This strategic dynamic focuses on and opens up new dimensions for the firms as well and it enables the firms to attain a competitive edge between setting alliances with channel system partners as well as offering relationships, which are based on marketing to suppliers and customers.
After the analysis above Ross summed the definition of supply chain management as the following:
Supply chain management is a continuously evolving management philosophy, which is seeking to unite and consolidate the collective productive competencies and resources of the business functions that are within the organization and outside the organization. Supply chain management always searching for innovative solutions and synchronizing the flow of materials and information to create a unique source of customer value.
The ultimate objective of supply chain management is to achieve a strategic fit between the organization competitive strategy and supply chain strategy, the treatment that can achieve this strategic fit effectively is to understand and realize very well the customer demand that can help the organization to manage well the production and services as well as to define the cost and services requirements and understanding the supply chain activities that should drive according to the customer value creation, according to the multinational firms that doing business in different countries that have different customers, so the researcher sees that the local marketing talent should take high consideration on designing the global supply chain strategy, which means to be integrating with the global supply chain management design for the Multinational firms on a strategic level not only on operational and tactics level.
The major question here is if any mismatches exist between the capabilities of the supply chain of doing with considering the local customer demands and appeal, what the multinational firm should do?
- Alter its strategies in the local market that’s means the branch of the firm or the subsidiary should adopt their strategies and activities to be matching with the global supply chain of the multinational firm however this strategy doesn’t suit the local responsiveness to a high degree
- Alter the structure of the supply chain design to be able to satisfy the local customers for each different market and in this point, the role of the local Upstream marketer with the assistance of the downstream marketer should emerge and engage in the supply chain structure and design into more strategic level.
So the answer is the firm should alter the supply-chain design.
Another important element for this question, do the multinational firms set its marketing strategies according to the capability of the global supply chain or set the structure of the supply chain design according to the local market demands that’s means not suffice to depend only on the local market responsiveness and then either continue on this scale and design or alter and redesign the supply chain so from this point the importance of integration between the marketing and manufacturing & logistics, enable the factory to have a quick reaction as well as respond quickly to the dynamic market changes also ensuring the value creation for the customers, from this point the question here what about to make the factory have more quick reaction or could be parallel with the customer demands and trends changes in different market across the world so the dissertation is mainly focusing on the importance of global supply chain with the local marketing talent that should be integrated on the strategic decisions in the global supply chain design for the multinational firms on more strategic level.
Fredendall and Hill (2001) and Burt et al. (2003). Fredendall and Hill (2001) focused a lot on this point and examined the importance of including customers as one of the participants on the supply chain management and with the multinational firms this mainly depends on the local customer responsiveness in each different market.
Ross (1998) also highlighted the importance of customers and he mentioned that supply chain management should be completely customer-driven. Supply chain management plays a vital role in the communications of customer demand from the point of sale back to the supplier as well as the physical flow process that ensures the efficiency of cost and time, this is very important to ensure the efficiency and effectiveness of the application of supply chain management, Ross mentioned that the products should be customized because of customers nowadays are increasingly accustomed and this requires to receiving customized products and services specially as the market responds to demand-pull product strategies rather than push product strategies and for multinational firms, the responsibility of the local upstream and downstream marketer plays a vital role on this issue.
Various paradigms of supply chain management focus on the management of internal customers as well as external customers. The definition of internal customers can be as follows: internal customers can be defined as the receiver persons or could be a department of another person’s or department’s output or final product, service, or information. Many researchers and dictionaries like (APICS Dictionary, cited in Fredendall and Hill 2001). Also defined the internal customers as the persons or departments that ensure the delivery of products and services as well as the information to the external end-users.
According to Ross (1998), he mentioned that supply chain management is a dynamic and open–ended approach to marketplace competitiveness, and also it can be a continuous process of determining intercompany performance, product& services quality, information system techniques as well as the organizational & personal competencies to utilize the different customer demand, by the way, the utilization of both internal and external participants help the firms to achieve productivity profit and growth and can be done through the 2-way flows of product & service in information & funds from raw material until the end-user.
(Burt et al. 2003) defined supply chain management in very simple words” linkage between the ultimate customers and mother Earth”
Burt highlighted the involvement of funds and described it as the funds that come only when end-users purchase products or services, otherwise, the transactions that are performed within the supply chain could be as the simple allocation of those funds through the chain’s internal & external members.
A very important factor emerges on this point: professional communications and information flow tools are very important and valuable factors to coordinate and synchronizing the activities that are performed between the members within the supply chain management.
Here the importance of the strategic integration of local marketing talent in the various markets for multinational firms.
Collaboration
Collaboration can be defined as the process that involves the adaptation of a high level of purposeful cooperation of each partner to attain a trading relationship over time which is bilateral which means the partners have the power to shape the nature of the future direction over time. The mutual commitment of partners to the future is something essential in collaboration as well as the power relationship balance plays a vital role in collaboration.
The collaboration could have some disputes between partners so managing those disputes is critical the supply chain management should design the duties and function between partners as it is essential to success so the strategic integration between marketing and SCM as well as the local marketing talent is very important to the multinational firms.
Four important characteristics define the firms that succeed in developing global supply chain networks to control and manage the total supply chain costs and enhance the quality
1) Corporate Global vision:
The primary question on this point lies in “Do multinational firms create an effective global vision which is the primary driver for investing resources and effort in seeking global suppliers and customers?
On this point, if there’s no ideal vision of what the firm is focusing on and trying to achieve in their global marketing strategy and this vision should be well understood to all the firm’s subsidiaries in different markets will result that the managers in all subsidiaries will get confused in doing their activities.
Coordinating business unit strategies between all the firm’s subsidiaries is very complex so what about coordinating the business unit strategies with the external suppliers, as the multinational firms are seeking to expand their global operations as the effective vision as a primary force for developing a global supply base, so this take us to the idea of the multinational firms should integrate their local branches or subsidiaries in different markets in the strategic decisions and make them deiced what are the strategic business unit that should be conducted in their local markets and for sure under the headquarter consultancy otherwise the multinational firm should deploy a lot of headquarters which can identify the firm strategic decisions and strategic activities and this also require high costs and high tanning as well as the employee in different headquarter should be well understood and realize the local culture and business environment and people demographics of the country that doing business within but on a practical way not suffice to study reports through internet or reports from the managers from the different branches of the firms because as the research mentioned; the best persons that can realize well the people demographics and culture of the local market are the persons who are living in the local market.
2) Management structure and systems
The question on this point lies on: Are the multinational firms organized to promote an effective way the coordination through different global strategic business units?
Successful multinational firms have invested a lot of money and efforts in order to enabling the firms structure system to deploy the firm’s global vision through different ways and actions such as Global community council and reporting systems in order to deploy and ease the communications among different subsidiaries in different countries, also the international procurement officers (IPO) and sales officers should be in contact and make a strong relationships with governmental agencies to promoting its global strategy as well as to gain effective experience and knowledge regarding the traditional sourcing as well as the sales opportunities and country regulations and procedures as well as the multinational firms can gain an opportunity to improve total cost models for decisions making and one of the main important benefits is that the multinational firms can gain a valuable information regarding to providing sourcing and demand information to global production design sites so including the local marketer in those operations can facilitate performing all of those activities also the main important that the local marketer should be involved in determining the supply chain design and the multinational firm’s headquarter should adopt its global supply chain according to the local marketer recommendations.
3) Configuring the global supply base
The question on this point lies in “Are sourcing and sales strategies developed to optimize the mix of global suppliers/ distributors and local suppliers/distributors when the multinational firm sets up production units in a new country or region?
Almost of successful multinational firms often have discovered and the researcher used the word “has discovered” because, in global marketing strategies, there’s nothing fixed but rapid change always exists and is considered one of the main challenges of multinational firms, so discovering and investigating the concepts and the nature of the global business and environment is variable, for any case they have discovered that some mix of global and local suppliers/distributors is the optimal however the mix may occur some changes in their multinational firm’s supply chain but the benefits are greater than a change in some of the multinational firm’s supply chain strategy especially they can gain a valuable experience from the local suppliers. So the local marketer plays a vital role on this point.
4) Supplier development
The question on this point lies in “How could the multinational firms treat their global strategy to reduce costs among different markets and how it can ensure the supplier’s capabilities in the competitive & manufacturing strategies and align all the activities?
Supplier development approaches are different from one country to another or region to another according to the specific sort of problem encountered, Developing a global supply chain strategy requires a fundamental shift in the way of thinking in doing business, one of the main drivers on the marketing decisions is to understand well the total cost of the ownership across the entire global supply chain through understanding and realizing the cost drivers among well understanding and realizing the drivers of cost that underlie total cost, managers will have the availability to implement a strategic design to reducing cost.
From the four characteristics above we can conclude that the world economy is becoming integrated and interdepend which is driven by global market forces, as well as global cost forces and technological forces should be one of the highest priorities as the political and macroeconomic forces all of those changes affect the way of multinational firms think on doing business globally so the integrating marketing and global supply chain with local marketing talent is very important. Also, supply chain management usually involves a plethora of countries, as it comes with a plethora of new difficulties, to manage the global supply chain well, you have to think well about reducing costs and one of the main important factors in reducing costs is local labors.
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