Research in

Global Production StrategyMajor Academic Literature

 Dicken and international value adding

The view of global production as a network of
relationships was developed in more detail by Dicken
(1998). Two sets of relationships are explored:
1. the internal network of relationships within the global
business; 2. the network of external relationships with
independent and quasiindependent businesses (large,
small, transnational and domestic).
The basic building block to understand both internal and
external networks is the model of the production chain
shown in Figure 8.1, where the term production is used
in its widest sense to include the provision of services as
well as physical production.

 This model shows the whole range of activities (valueadded activities in Porters, 1985 terminology)
performed within the production system (i.e., a chain of
linked functions: see Chapter 3 on the value chain). The
way in which the chain of transactions is organized and
co-ordinated determines the international businesss
internal and external network of relationships. At one
extreme, the chain of transactions can be performed
entirely within the business itself (i.e., internalization).
At the other extreme, each function could be the
responsibility of individual, independent businesses
(i.e., externalization). A wide variety of relationships
may exist between these two extremes.

 Dickens four production strategies

Globally concentrated productionThis
is the simplest case, where the
business concentrates all production
in one central locationand supplies
world markets through its marketing
and sales network. This is consistent
withPorters (1986) purest global
strategy\ of geographically
concentrated and highly co-

 Host market productionAccording to

Dicken (1998) this has become a
common production strategy among
globalbusinesses. It is essentially
local production for local markets
consistent with Porters
(1986)multidomestic strategy of
geographically dispersed and uncoordinated (autonomous) operations.

 Product specialization for a global or

regional marketThis is a strategy of
production as part of a rationalized
product or process strategy
(i.e.,specialization of production in a
few plants supplying multi-country
markets). According toDicken (1998)
this strategy is becoming
increasingly popular, especially in
large regionallyintegrated markets,

 Transnational vertical integration of

productionThis is a strategy of specialization by
process or by semi-finished products (rather
than by finalproducts as in product specialization
above) and is consistent with Porters (1986)
strategy ofhigh FDI (foreign direct investment)
with extensive co-ordination among subsidiaries.
Aparticularly important aspect of this strategy
according to Dicken (1998) is the increasing use
ofoffshore processing as part of a vertically
integrated global production network.

 Two main typesof activities are particularly suited

to offshore sourcing1.products at the mature
stage of the product life cycle, in which
technologyhas becomestandardized, long
production runs are needed andsemi-skilled or
unskilled labour costsare very important;2.There
are certain parts of the production process of
newer industries(e.g., electronics)which are
labour-intensive and amenable to theemployment
of semi-skilled and unskilledlabour, even though
theindustry as a whole is capital and technologyintensive.

 five major location-specific factors derived from FDI

considerations:1.markets size, growth, type of
products/services demanded, degree
ofcompetition;2.resources availability of raw materials and
services, availability of aworkforce withappropriate skills (or
which is trainable);3.production costs labour and
productivity, raw materials, transportation,energy,currency
exchange;4.political conditions attitude of host government
to FDI (e.g., restrictionson ownership,tax rates, incentives,
trade barriers, governmentand economic stability [the degree
ofrisk], employment legislation);5.cultural and linguistic
affinities product attractiveness and other
marketingissues,similar ways of doing business, no need to
communicatein a different language,attractiveness of host
country to parentcompany nationals.