What is configuration? Briefly list and discuss the factors that influence
value chain configuration.
Chapter 12 Strategies
for International Business
#Daniels #15edition #StrategiesforInternationalBusiness #Chapter12International Business: Environments and Operations, 15e, Global Edition (Daniels et al.)
Daniels, 15edition, Strategies for International Business, Chapter 12
Answer:
ReplyDeleteConfiguration is the way that managers arrange the activities of the value chain. MNEs greatly improve their competitiveness and performance by configuring value activities to capture potential location economies—namely, the economies that arise from performing a value creation activity in the optimal location for that activity, given prevailing economic, political, and cultural conditions. Therefore, several conditions shape how managers configure value chains worldwide, most notably, cost factors, cluster effects, logistics, digitization, economies of scale, and business environments.
a. Differences in cost factors, such as wage rates, worker productivity, inflation rates, and government regulations, create significant variations in production costs from country to country.
b. The cluster effect is when a particular industry gradually clusters more and more related value creation effects in a specific location. Each economic cluster creates unique location advantages that offer firms in that locale access to specialized resources that can dramatically improve the potential for innovation.
c. Logistics is how companies obtain, produce, and exchange material and services in the proper place and in proper quantities for the proper value activity.
d. Degree of digitization, or the degree to which an analog product can be converted into a string of zeros and ones, influences how a company configures its value chain.
e. An economy of scale refers to the reductions in unit cost achieved by producing a large volume of a product. Generally, economies of scale occur in industries with high capital costs in which those costs can be distributed across a large number of units of production, thereby resulting in lower per-unit costs.
f. The business environment is influenced by government policies, and these policies can make a country more or less attractive for an MNE.