How does a multinational corporation choose between various manufacturing sites for its products? Kodak’s business Imaging Systems Division designed, manufactured, marketed and sold microfilm readers and printers. More than 50% of reader/printer businesses were outside the U.S. Kodak’s readers and printers were manufactured in two plants; Rochester, NY and Manus, Brazil. The Rochester plant served the world market except Brazil. The Brazil plant served only the Brazilian Market. An underlying problem that forced Kodak to evaluate the location of its manufacturing sites is increasing pressure from foreign competition. Kodak was losing market share to their primary competitors; European and Japanese companies. Customers were beginning to shift based on Low price and better value. Multinational corporations have to be prepared to deal with both local and foreign competitors. It is hence essential to the company to establish a competitive advantage. In order to be able to compete companies have to address a number of issues including various costs, management, research etc. Kodak’s Business Imaging Systems Division needed to also consider whether manufacturing only, development only, or both was appropriate in each country of operation [ (Kodak Business Imaging Systems Divison, 1992) ]. As a result of the ongoing process of globalization, companies have to include the option of selecting an international location in their strategies [ (Harm-Jan Steenhuis, 2004) ]. Kodak selected a high level manufacturing executive to handle the responsibility of examining plant location aspects of manufacturing strategy [ (Kodak Business Imaging Systems Divison, 1992) ] The Business Imaging Systems Division (BISD) of Kodak identified the plant location issue as being central to their competitive strategy. Keith and Andy as part of their analysis had to come with a model that would be useful to Kodak and other companies facing a product manufacturing sourcing decision. Theory
Theory selected were those dealing with location decisions for internationally operating companies. Porter’s distinction between configuration and co-ordination is essential to discussing location. According to Porter, configuration indicates the location of facilities and the inter-facility allocation of resources whereas co-ordination refers to the question of how to link or integrate the production and distribution facilities in order to achieve the firm’s strategic perspective [ (Bert Meijboom, 1997) ] Two key variables identified are 1) the primary motive for establishing the factory and 2) the extent of technical activities at the site. The first variable addresses access to low cost input factors, use of local technological resources and proximity to the market. The second deals with aspects such as process engineering and improvement, product customization, after sales service, decision making on procurement and distribution and ultimately, product development. [ (Bert Meijboom, 1997) ] Configuration and Co-ordination aspects can be integrated as demonstrated below;
Mapping International Factory Networks,
“Source”“Offshore”| “Lead”“Outpost”| “Contributor”“Server”|
Level of technical
Access to low Use of local technologicalProximity to Market Cost input factors resources [ (Ferdows, 1989) ]
Ferdow in the above model identifies six types’ plantsoffshore, source, server, contributor, outpost, and lead plant. Plants abroad start as off-shore and source. Ferdow describes Lead plants as possible in theory only. The vertical axis shows the levels at which technological activities are performed at the plant; otherwise level of competence at a plant. The horizontal axis shows the 3 drivers of the decisions namely, low cost of input factors, technological resources and Proximity to market. Problem Causes...