Supply Chain Control by Multinational Companies - Term Paper Example

? A Multinational Company Maximises Its Competitive Advantage By Controlling Its Own Supply Chain.” Discuss Introduction In relation to the continuous growth of internationalisation, Multi-National Corporations (MNCs) are highly witnessed to expand their business subsidiaries across different global regions. Alongside the transformational changes of the modern business world, supply chains have also been recognised to attain rapid growth throughout the international subsidiaries (Rugraff & Hansen, 2011). Moreover, the competitive pace among the MNCs has been viewed to be influenced by advanced methodological aspects associated with business strategies and continuous development of their supply chain activities. Most numbers of the MNCs in the present business environment are likely to strengthen along with build wide network of their supply chain strategies in order to attain superior competitive position (Costinot, Vogel & Wang, 2011). With regard to the field of governance, the supply chain mechanisms that implement by the MNCs are often incorporated with complex systems due to the prevalence of different structure along with power proportion existing between the business partners. The organisations such as McDonald’s, Wal-Mart and Nestle S. A. among others are highly inclined with maintaining strong supply chain governance that enables them to proactively perform range of business operations across the global subsidiaries. In relation to increase the efficiency along with the business operations, organisations are significantly influenced by the aspect of Foreign Direct Investment (FDI). According to the present increasing growth of globalisation, FDI portfolios have major bearing upon the competitive position of the MNCs. FDI has long been identified as an essential aspect for the countries, facilitating them to stabilise their respective economic position. The development of FDI can only be made through the accession of MNCs into respective business markets. The integration of MNCs generally enables the countries to obtain substantial direct investment and also radically develop their commodity along with technical trade facilities (Qin, 2011). In this context, the theories associated with the efficiency of the firms have greater influence regarding the success of an organisation (Kusluvan, 1998).Based on the competitive scenario of the modern business environment, the primary objective of this essay is to demonstrate an in-depth understanding about the conventional theories associated with the major attributes that can be observed to remain in an unconventional SCM process. The essay therefore, tends to critically assess and justify the importance of an effective set of SCM process along with its key roles that further lead organisations to accomplish greater competitive advantage. 2. Discussion 2.1 Theories of the Firms With respect to the unconventional changes along with rapid development of SCM strategies made by the global organisations, it is widely accepted that strategies are generally developed in order to attain long-term sustainability in the competitive market. A few of the major theories associated with firms’ long-term sustainability have been briefly demonstrated in the following discussion. Coase Theorem The concerns associated with building interpersonal relationship regarding the individual efficacy creeps through taking into concern the conventional theorem ‘The Problem of Social Cost’, which developed by Ronald H. Coase. In relation to Coase theorem, the issues associated with impossibility in terms of making scientific comparison of interpersonal individual efficacy can be considered as one of the problems of social cost. In order to effectively deal with the problems of social cost, the Coase theorem and its disciples play an essential role for the modern entrepreneurs to reduce optimum influence of externalities such as air or noise pollution (North, 1992). The Coase theorem of the firms tends to define economic efficiency concerning economic allocation with the existence of externalities. In relation to this theorem, the principles significantly define that if trade is possible with the existence of externalities without any transaction cost, bargaining would be a central aspect for an efficient outcome irrespective of preliminary apportionment of property (Coase, 1937). For instance, the pollution derived from noise can be considered as a major example of externality, as the noise pollution generating from manufacturing plants, garage band or through the the process of wind turbine generally imposes extensive cost on a particular segment of populaces (McGuigan, Moyer & Harris, 2010). Penrose Theory (The Theory of the Growth of the Firm) The comprehensive theory of Edith Penrose significantly defines the nature and role of the firms in terms of efficiently utilising the resources through which they can attain considerable growth. The theory of Penrose tends to represent the efficacy of management in terms of using firm’s resources, diversification strategy along with productive opportunities. Precisely, the theory of the growth of the firm developed by Penrose signifies an instructive sensibleness to unknot the casual relations prevailing amid the organisational resources, potentialities as along with competitive advantages. These aspects in turn, ensure contributing an effective resource-based theorem for the organisations to gain competitive advantage over the rivals (Kor & Mahoney, 2004). The initial concept regarding the theory of organisational growth can be stated as the development of the internal operations of the firms, rather rapid global expansion through performing merger and acquisition and other related strategies. The theory significantly describes the process of promoting effective use of the internal resources in order to achieve growth. According to the observation of the theoretical concept, it can be viewed that the importance of managerial resources is highly focused in terms of considering the firms as an effective set of individuals who possess adequate experience through working in a collaborative manner. In this regard, the managers of the firms require a feasible experience of working together with the aim of effectively performing each activity (Lockett, Wiklund & Davidsson, 2007). For example, the continuous process of training and development programs for the employees are highly promoted by the multinational firms in accordance with their changing strategic directions. The senior executives or managers in this context have major responsibilities towards improving the skills and competencies of the employees. Williamson’s Theory The transaction cost approach developed by Oliver E. Williamson also tends to describe an effective model, which crucially supports the organizations to assess their respective governance systems in order to cut back the transaction costs. Williamson’s theory of transaction cost approach significantly refers the firm’s transaction as the fundamental component of analysis, which portrays about how organizational governance structure assists in economizing the transaction costs of the firms (Williamson, 1979). In relation to the theoretical background of Williamson’s transaction cost, the experience or skills acquired through a learning-by-doing approach and it’s transferability within the organisational units can ensure to build strong governance structure. In this concern, the critical dimensions of the transaction cost approach such as uncertainty, frequency and durability help the governance structure of the organisations towards achieving their desired objectives. Moreover, the specificity of the assets is also an effective element of transaction cost, as the future trade activities are highly associated with the transactions. In this regard, the asset specificity can be considered as a major element of the transaction cost of the organisations. Asset specificity can be associated with organisational site(s), physical and human assets (Williamson, 1981). For instance, the process of learning-by-doing would certainly enable the management team of the firms to gain substantial experience and strengthen their decision making competencies in order to achieve potential opportunities. It would also enable to form and maintain strong governance structure at large. 2.2 Dunning’s Theory of Foreign Direct Investment The Electic paradigm theory of John H. Dunning tends to refer critical arguments that combine organisational resources and location specific assets. In relation to the electic paradigm theory of Dunning, it can be apparently observed that owned unique assets of the firms often require the support of FDI. It generally requires the organisations to establish well-built production facilities that are located in a place, covered by the FDI amenities. The electic paradigm of Dunning can be recognised to incorporate three major advantageous aspects relating to location-specific advantages (LSA), ownership-specific advantages (OSA) and internationalisation-specific advantages (ISA). According to Dunning’s theory, the LSA is one of the the major set of benefits that can be obtained by an organisation in various business locations. The factors associated with LSA include low wage, skilled workforce and natural resources among others (Denisia, 2010). In this similar context, the aspects associated with OSA incorporate physical assets, human assets and knowledge along with skills of the workforce as the major advantageous factors. Correspondingly, the ISA in the Dunning’s electic paradigm involves certain beneficial factors that can be accomplished by an organisation through internationalising its business units. A few of the major aspects associated with ISA include internationalisation in production, distribution along with other different value chain functions and supply-chain activities (Denisia, 2010). 3. Supply Chain Management The concept of SCM can be stated as an effective and essential approach, which incorporates strategic and systematic coordination of business activities and gets involve in performing various operational practices within the organisations. The organisations of the present business world are significantly focused to develop their respective SCM systems for the purpose of building long-term sustainability within the market (Brindley, 2004). It is also regarded as an extended approach, which facilitates the organisations to efficiently develop various functions including production to supplying goods to the final consumers. The model encompasses different channels such as logistic network, supply chain and other deliverable techniques that tend to satisfy the ultimate consumers and also determine consumer desires along with needs concerning product features or delivery system (Zaheer, 2000). Benefits of SCM SCM approach provides numerous benefits to a firm in different ways. An effective practice of SCM can facilitate the organisation in lessening inventory costs, lead times and most vitally enhancing the timelines of the deliveries of the organisational products (Mentzer, 2001). Moreover, an efficient SCM model within the organisational process can also enable the firms to increase customer satisfaction level by delivering right products at the precise time in a desirable quality (Chartered Institute of Purchasing & Supply, n.d.). In addition, the SCM model is further stated as an essential element for an organisation in terms of properly managing inventory system, material handling, transportation system and operations, warehouse management as well as inbound transportation facilities. The various departments in the SCM model also provide effective assistance to the business organisations by rendering services related to customer service performance, order processing along with forecasting SCM budget. These aspects eventually enable the organisations to enhance their performance and quality of services within the competitive market (Zigiaris, 2000). In relation to the unconventional growth of globalisation, the intervention of technological aspects can be viewed towards extensively improving the performance of the MNCs. In order to critically assess the efficacy of modern SCM approach, the following discussion incorporates the SCM functions of modern organisations and their performances in the recent business environment. McDonald’s Corporation McDonald’s Corporation (McDonald’s) can be taken as one of the biggest examples in terms of clearly defining the efficacy of the SCM process. In relation to the present day context, McDonald’s is one of the world’s renowned brands and most successful fast-food chain retailers having in excess of 34,000 of fast-food retail outlets in 118 overseas countries (McDonald’s, 2013). The company upholds a wide and strong supply chain, encompassing numerous operational processes in different locations of the world. The supply chain operations of the organisation uphold a wide network in terms of procuring meat, vegetables and various types of milk products amongst others from different direct and indirect suppliers located in different regions of the world. Moreover, the organisation also possesses an effective and most preferable network of delivering its range of quality based fast-food items to the global customers. The supply chain approach of McDonald’s comprises number of local, national and regional supply chain that are performed through a strategic framework, procedures and the company’s own worldwide supply chain department (Han, 2008). Moreover, the global governance structure of McDonald’s also ensures to provide adequate guidance along with sustainable practices to its local, national and regional supply chains located around the world. The direct suppliers including different relevant production and/or processing plants along with farms and ranches are highly incorporated in terms of delivering quality-based fast-food items to the global customers. The company also tends to increase operational efficiency with its direct suppliers, advisors along with relevant business industries in order to ensure its long-term sustainability in the growing fast-food business industry (1 McDonald’s, 2013). Therefore, the strategic priority towards making continuous development of the company’s supply chain can be duly considered as one of the major competitive advantages for McDonald’s. Moreover, the worldwide presence of major suppliers along with preserving effective relationship with them eventually enables McDonald’s to attain competitive position as compared to other rivals in the worldwide fast-food industry. Nestle S. A. Nestle is regarded as one of the leading global organizations in providing nutrition, health as well as wellness products across diverse nations of the world. According to the present day context, the organisation incorporates more than 320,000 employees worldwide in its different segments including manufacturing, marketing and financing as well as distribution channels. The organisation possesses an effective supply chain management strategy, which enables it to efficiently distribute its range of products to each individual customer across the globe (Nestle, 2013). The SCM system of Nestle plays a decisive role for the organisation in terms of identifying the desires of the customers and producing quality products for them. The SCM system possessed by Nestle highly focuses on delivering values concerning manufacturing and delivery of products. The SCM strategy of Nestle comprises certain significant approaches that are directly linked with managing products, services as along with information collected from its major suppliers, production units, wholesalers, retailers and also from its ultimate customers (Rosenthal, 2012). According to the global performance of Nestle in the food processing industry, the organisation can be identified as one of the major food processing firms in terms of building strong relationship with the principle raw material suppliers belonging to different locations across the world. In this regard, the principle suppliers of the organisation can be viewed as the farmers who supply raw materials to the organisation (Nestle, 2010). In the context of preserving effective relationship with the suppliers, the Sustainable Agricultural Initiatives at Nestle (SAIN) is one of the major aspects, which represent major initiatives taken by the organisation in strengthening the productivity capability of the farmers. SAIN involves wide range of activities such as water management and irrigation related supports that largely determine the usage of SCM process by the organisation in generating competitive advantage (Nestle, 2012). With reference to the aforesaid examples of SCM initiatives of Nestle, the continuous development of SAIN along with other various essential initiatives have provided adequate support to the company. Moreover, it has been recognised that the development of SCM in the form of a strategic priority for the organisations, further leads Nestle to accomplish superior competitive position over its major rivals in the global food processing business industry. 4. Conclusion With reference to the conventional approaches and theories, it has been critically identified that the business operations of the MNCs must need to maintain adequate compliance with their respective SCM approaches in order to accomplish greater competitive advantage. The theories associated with the modern multinational firms have provided comprehensive understanding regarding the practice of SCM functions and their implications towards achieving competitive advantages. In relation to the unconventional approach of SCM implemented by the modern MNCs, it can be widely recognised that the organisations strategically prioritise the policies and the principles associated with SCM approach. The SCM approach encompasses major elements through which an organisation can run its business more efficiently. It is the increasing competitiveness of the global organisations, which has made the SCM process more complicated and effective through which a firm can obtain competitive advantage. References Brindley, C. (2004). Supply chain risk. Burlington: Ashgate Publishing, Ltd. Coase, R. H. (1937). The nature of the firm. Economica New Series 4(16), 386-405. Costinot, A., Vogel, J., & Wang, S. (2011). An elementary theory of global supply chains. NBER Working Paper No. 16936, 1-47. Denisia, V. (2010). Foreign Direct Investment theories: An overview of the main FDI theories. European Journal of Interdisciplinary Studies 2(2), 104-110. Han, J. (2008). 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