Globalization of the Production Chain - Literature review Example

Introduction The supply chain is a critical management function of an organization and its efficiency directly affects the success of the organization. Globalization has enabled the most efficient and effective linkages with customers maximizing value for them. Today with globalization, efficient communication, the most cost effective use of resources, cheap labor and supplies are available. Hudetz (1998) says that with globalization a firm can buy from the cheapest supplier and give competitive prices to its customers building relationships and satisfying its customers. Globalization has opened a new horizon to the way business is conducted today. Technology has facilitated competence and the most efficient and cheap labor is hired due to globalization (Dowling 1999, pp. 27-43). With globalization the computer production has become global and its production is spread to over 40 countries. Dell, Microsoft, IBM etc. are brands known in every part of the world. Globalization has enabled such global brand recognition and brand awareness amongst the customers (Ding and Akhtar 2001, pp.946-65). Ding and Akhtar (2001), claim that this industry has had revolutionary changes because of globalization and all the giant players have production chains that are spread across major regions of the world. A focus on the market leader Dell reveals the influence globalization has had on the production chain and the human resource. Dedrick & Kraemer (2002), claim that the personal computer industry shows the impact globalization has had on the business world. However, Dell has shown remarkable growth and is the current market leader when it comes to reaping the advantages of globalization. Dell has been able to maintain its business model even in the globalizing industry through its smart planning and strategies in line with globalization. Dell made best use of its resources and has the most efficient supply chain and thus has been able to excel its competitors IBM and Microsoft (Rosenau and Earnest 2004). Influence of globalization on the management of production chain. Hudetz (1998) says that initially, supply chains of the PC industry were vertically integrated and required the firms to undertake the major tasks of product design, structuring, innovation, customer relation and operations internally. With such a production chain the costs were high and the process was time consuming (Ding and Akhtar 2001, pp.950-65). Even market leaders like Dell, initially produced complete systems and was based in United States while it outsourced some of the components from other manufacturers (Rosenau and Earnest 2004). According to Ardnt (2001), these were the initial phases of the PC supply chain at Dell and in the entire industry at large. IBM which was also a big brand at the time, also imported minor parts from other regions and had a relatively wide supply chain network. Gradually the industry realized that importing parts from other regions and countries cut down the costs and thus intermediary firms sprouted up which supplied such parts to the industry at competitive rates (Rosenau and Earnest 2004). Although Dell was technologically more advanced and had a strategy that would enable them to pierce the global market, they could not do so. This was because their costs were high when compared to the competitors like IBM who were outsourcing supplies from cheaper, developing nations and were more cost effective and were able to reap more profit (Dowling 1999, pp. 30-42). According to Rosenau and Earnest (2004) with globalization strategies, Dell and other MNC’s including the IBM and Microsoft set up their branches within other countries. In 1990’s Dell was the first to surge the global markets especially the developing countries like India, China, Pakistan and Malaysia, paving the way for the other big brands to follow in its footsteps (Rosenau and Earnest 2004). Globalization enabled them to get the cheapest rates and a competitive quality (Arndt 1997, pp. 695-707). With globalization and its policies of free trade, technological advancements and cheaper labor, Dell formed an entire value chain in which it broke down its procedures into specific tasks and these tasks were assigned to firms that specialized in making particular components rather than the entire system (Arndt 1997, pp. 700-707). Tasks that are labor intensive like manufacturing of PC bodies and plastics were assigned to comparatively unskilled labor of the Asia-Pacific region whereas more sophisticated work like developing picture tubes and flat screens are allocated to skilled workforce of the United States and Japan. This enabled Dell to utilize the skills of workers from different parts of the world and helped the company get cost efficiency. This was only possible with globalization (Dedrick & Kraemer 2002, pp.1-38). Studying the market leader closely, the effects of globalization on the supply chain can be assessed. As Friedman (2007) claims that, the integrated Supply chain was divided into four basic activities namely Product Development, Manufacturing, Purchasing and Sales/marketing. Each of these tasks was outsourced to different organizations in different parts of the world while the product design and marketing were retained by Dell. The supplying organizations are primarily located in Singapore, China, Taiwan and Malaysia and expertise in R&D to design, assembly, manufacturing, logistics, distribution, sales, marketing, service and support in the US. Singapore, Taiwan and South Korea in the meantime coordinated the production of handling more sophisticated manufacturing processes and produced picture tubes metal panels. Korea on the other hand has further taken the lead in providing high duty components such as memory chips and flat-panel displays alongside Japan (George 2006, pp. 29-40). As Arnold (1997) claims that, when the competitors witnessed how Dell reaped the benefits of globalization like this, they also followed suit. Dell was different in the industry as it did not assign the task of final assembly to its supply chain and maintained the authority to itself. Dell developed a new business model developing a new value chain retaining the strategic activities like design, final assembly and marketing etc. while contracting out non-tactical actions to contract manufacturers. Thus previously when Dell and others were manufacturing the whole product by itself, globalization has enabled it to trade with all these countries thereby getting the most cost effective supply of parts (Dedrick and Kraemer 1998). According to George (2006), Dell’s effective supply chain which is spread across different countries is managed through information technology as a virtual web based organization and forms an entire network through which Dell extracts the demand pattern of its consumers and then supplies products in parallel to the pattern. The efficient management of the customer demand is possible solely due to a precise supply chain. Also, since Dell has a comprehensive direct sales and customized delivery, effective manufacturing and logistics were developed with the help of technology that provided them with easy hands-on customer information. With this information available the customization of the systems helped the supplying firms in providing keyboards and other minor parts and enabled them to work at Dell’s pace thereby having an efficient logistic system to provide the company with components for final assembly when and where needed (Dedrick and Kraemer 1998). Dell was a step ahead in the industry as in spite of managing assembly plants it set up customer relationship offices in its foreign markets in order to tap the customer demands in those new markets (Ardnt 2001, pp.217-218). As compared to this, competitors such as IBM and Microsoft concentrated a great deal on provision of goods and services rather than assessing customer demand patterns thus they adopted the practice of setting up assembly plants only. Thus with globalization, Dell planned its supply chain with efficiency and was successful in manufacturing cost effective PCs and at the same time it closely monitored its customer needs with the help of technology tapping previously unreachable markets and getting ahead in the industry (Hudetz 1998, pp.2103-2107). Dedrick & Kraemer (2002), claim that this industry has been influenced by Dell’s trend of mass customization whereby customers are given the utility of build-to-buy option creating a greater demand for customized PCs. This trend has placed strains on the entire supply chain which needs to quickly respond to the changes in demands for peripherals and components. To maintain the quality of their products, Dell makes sure it assembles the final product itself. This enabled them to keep a check on quality which could be a major issue with manufacturing being conducted in different parts of the world (Ardnt 2001, pp.217-218). Ding and Akhtar (2001) say that Dell has changing demand patterns which meant varying requirements for components. Hence an efficient logistics system was vital to maintain good customer relationship and to manage continuous supply needs. Companies that supplied component parts are extremely important to Dell in trying to achieve its goal of providing more effective and affordable PC systems to consumers. Also, in order to manage these suppliers and to ensure that ethical ground and requirements are met, Dell laid down policies and requirements that are to be followed and fulfilled by all in order to maintain a healthy work relationship with Dell (Hays and Plagens 2002, pp. 327-348). Globalization dramatically altered the supply chain of Dell and others in the industry especially IBM and Microsoft giving them a chance to expand in every part of the world (Ardnt 2001, pp.217-218). Thus by importing semi assembled products from different countries Dell became very cost effective and reaped the opportunities posed by globalization. It got the most efficient supply chain which was monitored well by the use of technology. It built strong relationship with its customers catering them customized products. It also modified its strategies to suit the employees belonging to the different nations (Hays and Plagens 2002, pp. 327-336). Thus both the customers and employees were satisfied. At the same time the countries that Dell traded with also benefited with the foreign investment and employment opportunities. Impact of Globalization on Human Resource Globalization and increased competition has resulted in the increased competitiveness and freedom of economies. According to Arndt (1997), firms have thus been striving for low cost factors and one of the prime preferences has been low wage labor. This has been the major reason why Dell for example has directed its attention towards highly populated regions of India and China. According to Ardnt (2001), globalization has extensively affected the marketing strategies of the industry. Human resource is extremely important for the firms and it is evident that the best utilization of the human resource will result in most effective production. Thus the human resource is being increasingly managed and utilized. Technology has helped tremendously in monitoring and allocating the human resource so that the right person with the right skill is hired and is sent to the production unit where he is best fit. Such intricate allocation of resource would not be possible without technology. The major players in the industry like Dell have Decision Support Systems implemented in the various departments of the organization to retain the expertise of the employees and to effectively manage the human resource (Friedman 2007). According to Dowling (1999) however, globalization and technological advances have benefited only the ones who are skilled. The PC industry requires skills in all levels of production. Thus it provides growth and employment opportunities to those who are skilled. The PC industry employs workers from all over the world and employment opportunities are open for only the fittest. Also, such sort of global hiring gives a chance to the skilled workers. However, the unskilled workers have no place in this competitive industry (Friedman 2007). One major change that has occurred in the onset of globalization has been a change in the relationship of the employee with the company. According to Dowling (1999), flexibility levels have increased to accommodate rapid market changes these measures have given rise to options such as flexible working hours and increased ratio of part time work. Moreover a greater stress is being put on the quality of work and has thus offering employees a competitive environment as a result of increasing globalization. For example, Dell has its business in every part of the world. This means that employees come from different cultures, backgrounds and skill sets. It has set forward following policies with regards to the employees in the globalizing business (Friedman 2007). According to Dowling (1999) firms in the industry have to aim at developing team working capabilities in its employees round the world so as to extract diverse ideas. Brainstorming and idea generating communication are important elements of the firm’s way of handling their human resource. By this the firm also benefits as technological industry thrives on new ideas and innovations. Moreover realizing the cultural differences that exist amongst its workers in the different countries, Dell for example, has adopted their organizational structure in accordance with the market it operates in. Realizing the importance of employees in the global arena and the value of talent and increasingly integrated world, Dell offers its employees with greatest of opportunities and best of compensations it also provides them the utility to undertake progressive trainings and professional development (Friedman 2007). This is an important feature as the employees have to be technologically updated and continuously trained as there is stiff competition in the industry. However as Hudetz (1998) Dell has intelligently adopted a uniform set of business procedures in all its branches so as to bring about transfer of employees in areas where work load is high and to prevent from having idle and unemployed personnel. According to Ardnt (2001), with increasing globalization and the value attached to the human resource, Dell provides its employees with significant and quality associated work in a secure environment. Performance based reward system has been adopted by the company in order to encourage the employees to put in greater effort and to come to terms with the pressure of a global company. This is an important feature so that the firm can handle the human resource efficiently without creating disparities and the employees have a sense of self satisfaction. Also, with this, resources are utilized to their maximum (Friedman 2007). According to Ardnt (2001), Dell moreover has the tendency to create opportunities for underemployed and it works on the policy of maintaining certain employment levels at all centers to avoid underemployment in any region. This ensures job satisfaction amongst the employees and causes the employees to be loyal to their firm. According to George (2006), technology has greatly helped in managing such a huge workforce. Monitoring employees and their performances have become easy. Communication has become easier and the firms of the industry can now keep a close tab on the employees which ensures that efficiency is optimum. Dedrick & Kraemer (2002), claim that the Government laws and regulations have greatly enhanced and helped the hiring of foreign employees for the industry. There is now easy availability of employees from across the world as travel has become easy with work permits easily available to prospective workers. When firms previously could only hire expensive American workers, it now has the option of hiring from across the world. Even though the workforce is diverse and is in different parts of the world because of globalization, managing them is not impossible anymore. Technology has enabled efficient management of the human resource (Hays and Plagens 2002, pp. 327-336). Ethical implication with globalization on the production chain Globalization of the production chain has created a lot of opportunities for the skilled labors and countries with skilled labors. The PC industry is a highly technological industry and it requires certain skill sets. However, unskilled workers have little or no opportunities pen to them in this industry as it has become very competitive and survival is only for those who are the fittest. Thus the economic gap between the skilled and the unskilled is getting wider. Also, the opportunities that a country gave its unskilled sector are now taken away by foreigners who are much more skilled and resourceful. The poor are becoming poorer. The gap between the social classes has increased because of this (Arnold 1997). Also, the technological advancements have made the skilled workers more skilled and the unskilled redundant as technology is replacing them (Ackerman 2002, pp.1897-1915). As Rosenau and Earnest (2004), claim that such shuffling of human resource is possible with interdependence and interaction between people from different countries. This means that there has to be homogeneity in culture, production, trade and way of living if such interaction is to happen. With this cultural boundaries are diminishing and a new subculture is evolving and traditional cultures are dying out. To save the traditional cultural racial and cultural clashes are seen everywhere. With globalization we see that cultural and religious differences have only become prominent (Hays and Plagens 2002, pp. 327-348). Ackerman (2002) claims that the latest technology is not available in most parts of the developing countries. This means that the unskilled do not have the opportunities and the resources to get the desired training. Thus with every passing day their chances of getting better training and fitting into the globalized world are becoming less. According to George (2006), globalization has turned into a rat race where countries compete one another to be a part of the production team of industry giants. This competition is becoming fatal as it completely blocks chances of progression for the less resourceful. Laws and policies should cater to the global development and not regional development so that everyone can benefit from globalization. Conclusion The PC industry has undergone extensive changes with globalization especially the production chain. With globalization new job opportunities have been created and chances of development have increased for countries with potential. Foreign direct investments have taken place and economies have improved with globalization. The production chain of PCs has now become very sophisticated and intricate. The main manufacturer has contracted production of different parts of the PC to firms belonging to different countries. As Rosenau and Earnest (2004), claim that this has enabled the industry giants to get the most cost effective bargains on production. Also, skilled and efficient human resource is easily available which has really cut down the expense of labor. Dell which is the market leader was able to get to this level as it took the most advantage of globalization (Dowling 1999, pp. 27-43). Technological advancements have greatly enhanced the production chain and have facilitated monitoring of processes, employees and customers. Dell as compared to all the other competitors in the industry like the IBM, Compaq, Hewlett-Packard etc. has a business model that has been effectively designed to cut on costs. Despite being comparatively new its models success has been tremendous. But even with these aspects in mind it cannot be denied that the PC industry has been affected by globalization for over a long period of time and it is increasingly approaching the age of maturity. Globalization however has converted the PC industry supply chain into a value network which now reached the stage of consolidation (Ding and Akhtar 2001, pp.946-65). Globalization has however created and widened disparities between the skilled and the unskilled. This gap has to be filled by creating opportunities for the underdeveloped countries before it becomes too wide and difficult to handle. The world should ethically not promote something that is beneficial for only a select few and closes opportunities for the less developed world. . Bibliography The following is the list of Journals that will be referred to in the course of the research. Ackerman, R 2002, ‘Grand corruption and the ethics of global business, Journal of Banking & Finance, vol. 26, pp.1889-1918. Arndt S, W 1997, ‘Globalization and Trade: A Symposium’, The World Economy, vol.20 no.5, pp.695–707. Ardnt, S 2001, ‘Globalization of production and the value-added chain’, North American Journal of Economics and Finance, vol.12, no.3, pp. 217-218 (2). Arnold, W 1997, ‘Two major PC firms stand to save big in Malaysia’, The Asian Wall Street Journal. Volume: XVIII; Page: 35 Dedrick, J and Kraemer, L 1998, ‘Asia’s Computer Challenge: Threat or Opportunity for the United States and the World?’ New York: Oxford University Press. Volume: XXII; Page: 42 Dedrick, J & Kraemer, L 2002, ‘Globalization of Personal Computer Industry: Trends And Implications’, Research on Information Technology and Organizations, vol. 254, pp. 1-38. Ding, Z and Akhtar, S 2001 ‘the organizational choice of human resource management practices: a study of Chinese enterprises in three cities in the PRC’, International Journal of Human Resource Management, vol.12, no.6, pp.946-65. Dowling, J 1999, ‘Completing the Puzzle: Issues in the Development of the Field of International Human Resource Management’, Management International Review, vol.39, no.3, pp. 27-43 Friedman A, 2007, ‘Globalization Implications for Human Resource Management Roles’, Employee Responsibilities and Rights Journal, Volume: IX; Page: 487. George, R 2006, ‘Information Technology, Globalization and Ethics’, Journal of Ethics and Information Technology, vol.8 no.1, pp.29-40. Hays, W and Plagens, K 2002, ‘Human Resource Management Best Practices and Globalization: The Universality of Common Sense’, Public organization review Journal, vol. 2 no.4, pp. 327-348. Hudetz, W 1998, ‘Globalization of Industry’, Proceedings of the 24th Annual Conference of the IEEE, vol.4, pp. 2103 - 2107 Rosenau, J and Earnest, C 2004, ‘On the Cutting Edge of Globalization, Before and After 9/11’ International Studies Association. Volume: II; Page: 368 Read More