Presentation on theme: "Professor Jeff Dyer Global Strategic Management 1 Nike & Reebok: Core competencies, make versus buy, designing and managing the global supply chain."— Presentation transcript:
Professor Jeff Dyer Global Strategic Management 1 Nike & Reebok: Core competencies, make versus buy, designing and managing the global supply chain
Professor Jeff Dyer Global Strategic Management 2 Nike & Reebok: Summary of Key Ideas A firms supply chain management strategy, including what and where to outsource, is often key to competitive success. Nikes core competencies are marketing (e.g., creating a brand name, including managing relationships with athletes) and shoe design. maximize flexibilityNike/Reebok design their global value chain to take advantage of country comparative advantages and to maximize flexibility to adjust to changing market conditions/country advantages. At the extreme, Nike could potentially save as much as $23 billion in labor costs by choosing Indonesia vs. Germany as a mfg. location for all its shoes (assumes identical labor productivity and production methods).
Professor Jeff Dyer Global Strategic Management 3 Nike & Reebok: Summary of Key Ideas When firms choose to outsource, they need to determine whether to treat outside firms as partners or as arms-length subcontractors. –The greater the inter-company interdependence and value of coordination (and the less environmental factors [e.g., exchange rates, wages, etc.] change the relative costs and performance of suppliers), the more it makes sense to partner. –The more the company values flexibility (due to changes in suppliers costs, technology, etc., the more it makes sense to use arms-length relationships
Professor Jeff Dyer Global Strategic Management 4 STRATEGIC GLOBAL SOURCING (Building a global network of capabilities) Industrialized Countries Newly Industrialized Countries Emerging Economies PCMCIA Unit (Japan: $17.50/hr) Notebook (P.C) (Singapore: $3.25/hr) Adaptor (India: $.50/hr) Innovation Growth Mature COMPAQS NOTEBOOK COMPUTER
Professor Jeff Dyer Global Strategic Management 5 Vertical Integration Who Let INTEL INSIDE?
Professor Jeff Dyer Global Strategic Management 6 Theories of Vertical Integration (Efficiency) Vertical Integration as a means for reducing transaction costs and improving coordinationVertical Integration as a means for reducing transaction costs and improving coordination. –When investments in specialized assets are high (e.g., oil refinery and pipeline) Vertical Integration as a means to gain control over important inputs/marketsVertical Integration as a means to gain control over important inputs/markets –Avoid foreclosure to inputs or markets (e.g., Alcoa integrates back into bauxite to secure scarce and critical raw material for aluminum) –Guarantee input quality (e.g., McDonalds growing potatoes in Russia) Vertical Integration as a means to control/acquire informationVertical Integration as a means to control/acquire information –Protect proprietary information/technology (Bose makes most critical inputs for its audio equipment) –Acquire information on markets or technologies (e.g., GM integrating into automotive components to gain knowledge regarding suppliers costs and technology that assists in bargaining).
Professor Jeff Dyer Global Strategic Management 7 Theories of Vertical Integration (Non-Efficiency) Vertically Integrate to exercise monopoly powerVertically Integrate to exercise monopoly power –Price discrimination (to allow firm to price discriminate in different markets and avoid arbitrage). –Create or increase the size of the barrier to entry in to a business (capital market imperfections make it more costly to raise larger sums of capital required for multi-stage entry; e.g., Coke & Pepsi) –Squeeze non-integrated competitors (subsidize one stage of the value chain with another to squeeze competitor margins; bundle/matrix price, e.g., Microsoft Office vs. WordPerfect). Vertical Integration as a loophole for regulatory actionVertical Integration as a loophole for regulatory action –Tax avoidance (through transfer pricing and sales tax avoidance). –Price controls/rate of regulation avoidance (integrate backwards into non regulated industries and make higher profits in that industry).
Professor Jeff Dyer Global Strategic Management 8 MODEL FOR MAKE VS. BUY Partner (compare capabilities) - Seats - Air conditioners - Tires High Make - Engines - Transmissions Low Buy - Bolts - Nuts - Belts - Filters LowHigh Asset Specificity Partner (compare capabilities) - Engine components - Interior and exterior trim products Component Value Value