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Cost Management-final                                                                                                       14

Geographic scope can allow firms to gain substantial competitive advantages by sharing or co-ordinating similar value activities in different places. The importance of this advantage is led by the recent success of firms with a global scope, such as Canon (Japan), Caterpillar (U.S.), N. V. Philips (Netherlands) and Siemens (West Germany). These firms sell and their products in practically every corner of the globe.

Automakers like Ford or GM are even more global: they carry out many key value-creating bs from engineering to manufacturing and sales — in dozens of countries around Id. The Japanese auto companies are also globalising rapidly, making huge invest-n manufacturing facilities in, for example, South Korea, Singapore and the U.S.

Nike’s value-creating processes are shoe design, manufacture of shoe components and assembly. All major inputs to each process are available in the U. S. However, Nike component manufacturing, requiring moderately skilled labour and capital, in Taiwan nth Korea. It locates assembly operations, a labour-intensive activity, in low-wage countries such as China, Thailand and the Philippines.

Taking a global view of the value chain is not without disadvantages. One possible negative s transportation between linked processes. Transportation consumes time and adds to costs. Shipments of electronic components between the Far East and North American assembly plants may save transport take at least a month. Transporting components to local assembly may save transport and inventory costs.

Scattering value-creating processes around the world can also lead to poor control, commu-1 and coordination. Close proximity of R&D, engineering, production and marketing lei may provide synergistic benefits in meeting customer needs.

For example, to increase its worldwide tire production capacity to compete with Michelin Japan's Bridgestone acquired Firestone Tire & Rubber in the U. S. Muddled strategies, slow decision-making and poor communication between Tokyo and Akron, Ohio, led to major losses, layoffs and a sell-off of assets.

The North American Free Trade Agreement among Canada, Mexico and the U. S. has introduced new relationships affecting value-chain analysis for suppliers and buyers alike These relationships require careful scrutiny. For example, lower labour costs in Mexico have motivated companies to locate their assembly and manufacturing processes there. How­ever, some firms have experienced costly productivity and quality problems that more that offset their labour savings. Each firm must balance the benefits/cost of a multi-location decision.

To properly evaluate the opportunities for competitive advantage in the global marketplace firms need to consider such things as a country's values, political climate, environmental concerns, trade relations, tax laws, inflation rates and currency fluctuations. The recent devaluation of the Mexican peso is an example of the risks of moving operations to uncertain economies.


Value chain analysis requires a strategic framework or focus for organising internal and external information, for analysing information, and for summarising findings and recommendations. Because value chain analysis is still evolving, no uniform practices have been established. However, borrowing recent concepts from strategists and organizational experts, three useful strategic frameworks for value chain analysis are :

industry structure analysis;

core competencies; and

segmentation analysis.

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