...ECONOMICS OF INDUSTRY Companies of firms in the same industry are bound to fall along the same vertical chain, this is the chain wherein some bit of value is being added to the product at each step. Vertical integration means the firm has complete control over its inputs, production and outputs along the value chain. The different firms only differ in terms as in how many links are present in their vertical chain. Adopting vertical integration for a firms means reduction of transportation costs as common ownership means closer geographical areas, the supply chain is more coordinated, barriers to entry are there making it hard for new firms to enter the market, core competency is expanded and access to uneasy distribution channels is gained. I think it can be in a firms interest to outsource its components from competitors rather than producing in-house because (Make Vs Buy Decision) this way the firms can gain economies of scale which is a good amount of saving in costs gained by the increased level of production (the firm being a supplier) whereas in-house production doesn’t gain much economies of scale as the demand would be little. The firm becomes obedient and efficient as they must follow the rules and efficiency as is in the entire market. Buying from the market improves flexibility but some disadvantages of the buy decision are the search costs, incomplete contracting which is transaction costs- under the contracts between parties only certain remedies are covered...
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...Assignment #2 Adam Ohanesian Email: Adam.Ohanesian@nichols.edu Table of Contents I. Why Inventec is not very profitable a. Industry competition b. New entrants c. Bargaining power II. Drivers of average profitability of the Original Design and Manufacturing industry d. Process of manufacturing products costs e. Low cost distribution III. Key factors Inventec needs to manage to earn above-average profits f. Comply with product standards and quality assurance g. Lower operating costs h. Differentiation IV. Profits of Indian software industry vs. Chinese ODM industry i. Growth rate j. Higher bargaining power k. Global outsourcing l. Competition V. Strategic advice for Inventec to improve profitability m. Change sectors to software development n. Vertical integration 1. Despite its growth and size, why is Inventec not very profitable? Inventec is not very profitable for a few reasons, first being the industry competition. There are many large competitors such as Asustek, Compal, and Quanta who all have larger sales revenues. Also, as OEMs usually outsource some of their technology, EMSs and ODMs are competing for the same clients more and more. The second reason Inventec is not very profitable is the threat of new entrants. Taiwan has a high rate of new entrants for instance. A business that wants to start in the ODM industry can just step right in without any...
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...contract was the last major step of the restructuring of the groups supply chain, which has been implemented in 2004 (www.lego.com). It is evident, that cost savings have been the driving force for the outsourcing agreement with Flextronics. At the beginning of the arrangement it was a win-win-situation. LEGO had a professional partner and Flextronics was able to diversify its products and get knowledge about plastics for further market diversification. Given the size and complexity of the assignment, preliminary experiences with this arrangement were fairly positive. However, they also clearly demonstrated the challenges that face a company moving from vertical integration to a network constellation (Pedersen, 2012). Nonetheless LEGO had to experience, that the outsourcing to Flextronics included some challenges. It was difficult to transfer production knowledge from LEGO to Flextronics. Whereas LEGO’s workers knew that 60% of the production took place in the second half of the year, Flextronics was used to a more stable and predictable environment. Therefore, it was difficult to conduct the process effectively, document the production and utilize capacities. Furthermore, trust and misconceptions lead to problems. It was problematic for LEGO to coordinate and control the outsourcing partner. Though there had been various forecasts the collaboration did not fulfil the initial expectations (Pedersen, 2010). What Lego Expected 1. Minimized production cost fluctuation risk through...
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...Multidivisional Structure • • • • Enhanced corporate financial control Enhanced strategic control Growth Stronger pursuit of internal efficiency 13 - 4 Problems in Implementing a Multidivisional Structure • Establishing the divisional-corporate authority relationship • Distortion of information • Competition for resources • Transfer pricing • Short-term R&D focus • Duplication of functional resources 13 - 5 Structure, Control, Culture, and Corporate-Level Strategy • Unrelated diversification – Easiest and cheapest strategy to manage – Allows corporate managers to evaluate divisional performance easily and accurately – Divisions have considerable autonomy – No integration among divisions is necessary 13 - 6 Structure, Control, Culture, and Corporate-Level Strategy (cont’d) • Vertical integration – More expensive than unrelated diversification – Multidivisional structure provides necessary controls to achieve benefits from the control of resource transfers – Must strike balance between centralized and decentralized control – Divisions must have input regarding resource transfer – Managed through a combination of corporate and divisional controls Copyright © Houghton Mifflin Company. All rights reserved. 13 - 7 Structure, Control, Culture, and Corporate-Level Strategy (cont’d) • Related diversification – Multidivisional...
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...supply chain strategy of Virtual Integration and strategies from companies like Dell. Although there are several key differences between the companies, Dell’s virtual integration strategy can be applied to Ford’s supply chain operation. A modification of the virtual integration system currently used by Dell could be applied to Ford’s dependent supplier base, distribution system, dealerships and divisions. Special care will need to be taken to address the unique dependency of our custom Tier 1 supplier. The management of lower tier suppliers of general or generic components would be more effectively suited by the standard procedures used by Dell. If we at Ford could find a solution to the obstacles of virtual integration, it could make our supply chain run smoothly with less bottlenecking, inventory, and better overall performance. Managers could overcome the complex and error-prone manual process of forecasting and procuring parts which would result in reduced OTD lessen costs and enhance customer satisfaction. ISSUE IDENTIFICATION Senior Executives have asked how Ford should use the emerging information technologies and ideas from new high-tech industries to change the way we interact with Suppliers. We must find ways to improve the Supply Chain management and to increase shareholder value and Supply Chain responsiveness. Specifically we are looking at how Dell manages their Supply Chain and incorporates the virtual integration strategy. A decision is required...
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...a critical analysis of the contribution of the existing body of empirical literature is conducted. In recent years, researchers have continued to develop and extend TCE. Williamson (1991b) introduces the shift parameter framework which investigates how the optimal choice of governance changes in response to dynamics in the institutional environment. Nickerson (1997) develops the positioning-economizing perspective arguing that decisions regarding market position, resource investments, and governance mode are interdependent and determined simultaneously. A number of authors came up with an increasing interest in relational institutional arrangements arguing that TCE may overstate the desirability of complex long-term contracts and vertical integration in exchange settings where a substantial hold-up potential is present. JEL Codes: Keywords: D23, L22 Transaction cost economics, discriminative alignment, theories of the firm, shift parameter framework, positioning-economizing perspective, structural form model, empirical literature Dresden University of Technology, Department of Business and Economics, Chair of Energy Economics and Public Sector Management, D-01062 Dresden. The usual disclaimer applies. Corresponding author: contact@sophia-ruester.de, URL: http://www.sophia-ruester.de. 1 1 Electronic copy available at:...
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...Royce Echarry Assignment 3 The Coca Cola Company is a global business that operates on a local scale, in every community where the company do business. There able to create a global reach with local focus because of the strength of Coca Cola System which comprises company and more than 250 bottling partners. The Coca Cola is not a single entity from legal or managerial perspective and the company does not own or control all of our bottling partners, while many view the company as simply Coca Cola the system operates through multiple local channels. The company manufactures and sells concentrates beverages bases and syrups to bottling operations, owns the brands and it’s responsible for consumers brand marketing initiative. A transnational corporation is any enterprise that undertakes foreign direct investment owns or controls income gathering assets in more than one country, produces goods or services outside its country of origin or engages in international production. For example Coca-Cola Company is a transnational corporation because they have proven successful in their international operations and are one of the most recognized brands in the world. Coca-Cola has used each of the six strategies. Coca-Cola Company was very successful in implementing strategies regardless of the country. The company has 6 keys of strategies necessary for firms to be successful when expanding globally. Differentiation strategy is defined as a marketing technique used by a manufacturer to...
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...BarCharts, Inc.® WORLD’S #1 QUICK REFERENCE GUIDE DEFINITIONS Strategic Management is a process for conducting the entrepreneurial activities of a firm for organizational renewal, growth, and transformation. The major tasks are: (1) set a mission and goals, (2) assess the environment, (3) appraise company capabilities, (4) craft the strategy, (5) implement the strategy, and (6) evaluate and control the strategy. Business Policy is a set of prescribed and discretionary statements, limiting actions of individuals in the firm, as set forth in directives and guides. Mission is the reason for which the firm exists, and what it will do. Basically, it describes the products/services to be supplied, the markets to be served, and the technology applied (if important). Vision Statement answers the question, What do we want to become? Goals express the aspirations of the firm, general ends that cannot be measured. Ex. “In unrelenting pursuit of perfection.” Objectives are specific targets to be accomplished by a specified time. Ex. “Profits will grow at the rate of 5% annually for the next five years.” Long-term objectives (5 years or more) are strategic objectives and define the desired character of the company, at the specified time. Strategy is simply the means or general actions to be taken to achieve long-term objectives. Strategic management is the work of the General Manager. General Manager is a person who is responsible for a profit center, as opposed to a functional manager...
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...IT and the Changing Social Division of Labor: The Case of Electronics Contract Manufacturing[1]GLOBAL PRODUCTION AND THE INTERNATIONAL DIVISION OF LABOR IN THE AGE OF THE INTERNET Boy Lüthje Institute of Social Research University of Frankfurt Senckenberganlage 26 D-60325 Frankfurt/M Germany Telephone: 069/756183-30, -43 Fax: 069/747709 E-Mail: luethje@soz.uni-frankfurt.de Draft paper for conference Transforming Enterprise Department of Commerce Auditorium Washington, D.C., January 27-28, 2003 Draft! Comments and suggestions welcome, but please do not quote! The impact of information technology on business, economy and society cannot be examined without an analysis of the profound changes in the productive structure of global capitalism. In the electronics industry, a new model of outsourced manufacturing has emerged as the centrepiece of globalized production networks: Contract Manufacturing (CM) or Electronics Manufacturing Services (EMS). This form of network-based mass production is closely linked to the disintegration of the value chain and the emergence of the “Wintelist” (Borrus and Zysman 1997) model of competition and the rise of “fabless” product design companies in key sectors of the IT industry. In contrast to the general perception of the “informational economy” (Carnoy et al 1993, Castells 1996) as service- or science-based, the rise of the CM-model demonstrates that manufacturing still matters in the "new economy" (Cohen and Zysman 1987)...
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...Topic 1: Analysing the external environment Strategy – direction and scope of an organisation over a long term, which achieves the advantage of changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations. Direction – Mission, vision, and course Scope – broad or narrow strategy Long term – 5-10years Environment – General environment & industry environment Resources – tangible and intangible Capabilities – capacity of organisation to integrate and deploy resources to achieve an obj. Stakeholders – society, suppliers, creditors, shareholders, employees, customers Levels of strategy * Corporate * Business General environment (Macro) – broad collection of factors that directly or indirectly have the potential to influence every firm in ever industry within the economy PESTDG framework * Identify trends * Explain trends * State if opportunity or threat * Explain why is it an opportunity or threat Segment | Trends | Political / Legal | Changes to workplace relations, carbon tax law | Economical | Rising interest rates, GFC, inflation rate, unemployment rate | Socio-cultural | Climate change, increase in casual workers, greater concern for health | Technological | Wireless communications, cloud computing, growth in hand held devices | Demographical | Aging population, growing disparity in income level | Global | Growth in Chinese and Indian economy, free...
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...approach History The history of Transactional Cost of Economics (TCE) has its roots somewhere during the second world’s war, when Coase (1937) was trying to find some practical explanations related to the economic theory existing at that time. The differences between the perception of a firm or company and its correspondence in the real world have been assessed, making an empirical analysis of possible attributes that can influence their development in close relation to its internal factors and, and the market interactions as well. Following Coase’s study “The Nature of The Firm”, many other economic papers and theories have emerged in the next decades, leading to the development of different concepts like TCE, vertical boundaries of a company, interactions between company and market and optimal decision for the “make or buy” dilemma as it is mentioned also by (Lafontaine and Slade 2007). Contributions of Coase and Williamson The basics for TCE development have been defined by Coase (1937), making an argumentation in favor of lower possible cost of assessing some activities within a company rather than acquiring them from the market by a set of more costly transaction. Also, he has argued that preferential treatments a firm can get from external environments (like governments), combined with the possibility of reducing the market exchange transaction costs (by directing some resources through a defined organization) can be seen as the main reason...
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...buy with a price target of `587 i.e (15x FY13e Adj. EPS of `36.62 + value of investments per share of ` 37.5). KEY HIGHLIGHTS ■ HCLT grew faster than Industry: Indian IT exports grew at a 5-year CAGR of 23% from $18bn in FY2005 to $50bn in FY2010. HCLT revenues grew at a 5-year CAGR of 29% from $764mn in FY2005 to $2705mn in FY2010. ■ Axon acquisition adds value: Prior to the acquisition of Axon in 2008, about 11% of HCLT’s revenue came from EAS. With the acquisition of Axon, HCLT’s revenues from enterprise solutions increased to more than 20%. ■ Gaining market share in ADM & IMS space: HCLT’s performance has been particularly strong in deals with bundled ADM and IMS. With the rising traction in restructure/renewal of global outsourcing deals in ADM and IMS, we expect the company’s deal flow to remain strong giving boost to overall revenue. ■ Multiple levers for margin expansion: Falling profitability has been a concern for HCLT for past few quarters. Going forward, we believe that the margins will pick up due to SG&A leverage, improving utilisation and better profitability of BPO business. Also, the management...
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...1. Discuss the concept of vertical relations between firms and present a case study to illustrate it. This paper will be looking at vertical relations between companies, putting an emphasis on supply relations, vertical integration and hybrids, illustrating the theory with multiple examples in order to better explain the concepts. Vertical relations refer to a logical and natural association between two or more entities as well as their relevance to one another and the linkages in between. This concept can be easily transposed into the business world, as the interdependence amongst companies is a state of fact in the vast majority of cases. As a matter of fact, it is a general truth that companies only achieve self-sufficiency after integrating all links of the supply chain. Even so, there are still operations that need to be outsourced due to a wide variety of reasons (lack of certain competences/”know-how”, geographical restraints, financial feasibility, time concerns, etc.). More precisely, vertical relations refer to the rapport between two companies in the sequence along the value chain, where there can be one (or multiple) upstream company and multiple (or one) downstream companies. Although the typical characterization of the rapport between a company and the market is a direct one (where the firm sells directly to the end consumer), it is generally not the case. In the most familiar scenarios it is considered that the producer would retain...
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...Network: any interconnected group or system, it comprises nodes and links. Networks are long-term, relationships between interdependent economic actors which are seeking for competitive advantage by forming the cooperation. More complex than alliances; bilateral relationship doesn’t qualify as network. From left to right: Market: “buy”. Network: jv, licensing, outsourcing, equity share, contractual cooperation, joint R&D. Hierarchy: “make” From left to right: Market: “buy”. Network: jv, licensing, outsourcing, equity share, contractual cooperation, joint R&D. Hierarchy: “make” Types of Networks: X & Y: X: Alliances between partners with complementary skills/strengths “closing the gap”. Y: Alliances between partners with mutually reinforcing resources/skills/competences “critical mass alliance”; by joining forces you reach a critical mass. Horizontal, vertical & lateral cooperation: Horizontal: Companies within the same position of the value chain cooperate (e.g. alliance between airlines) Vertical: companies from different positions within the value chain cooperate (eg. Buyer supplier relationships along the supply chain) Lateral: across industries, different players from different industries. Stable & Dinamic: Stable: platform for cooperation. Dinamic: project-based. Virtual factory: dynamic, order processing. Competition: Networks compete to each other; network is the compeititive ...
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...-Backward Integration: assuming a function previously provided by a supplier -BCG Growth-Share Matrix: sectioned into four quadrants and portrays a corporation’s portfolio investments. -Competitive Advantage: determined by resource endowments; must identify strengths/weaknesses, combine core competencies, appraise profit potential, select strategy, and identify resource gaps. -Core Competencies: a collection of corporate capabilities that cross divisional borders are widespread within a corporation, and is something that a corporation can do exceedingly well. -Corporate Governance: the relationship among the board of directors, top management, and shareholders in determining the direction and performance of a corporation. ~BOD: role is to monitor, evaluate and influence, and initiate and determine. ~TM: responsible for the strategic management of a firm -Corporate Level Strategies: growth (internal development, diversification, integration, partnership), stability (maintain status quo), retrenchment -Decision Making Styles: rational analytical, intuitive emotional, and political negotiating -Distinctive Competencies: a firm’s competencies that are superior to those of competitors -Diversification: corporate growth strategy that expands product lines by moving into another industry. Related- firm uses current strengths to diversify into related products in another industry; Unrelated- move into another industry to provide products unrelated to its current products...
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