Changing Demands in the Market - Case Study Example

Essay Student name Course name Date Introduction The accelerating process of globalization in the economic arena has greatly influenced the structure of the global economic setup towards a much integrated and functionally interdependent through international trade. In this interconnection of the world systems, a brand new form of economic setup has cropped up (Coe et al., 2012). The global production network is a concept that brings together a number of economic agents which include firms, worker unions, the consumer as well as the nongovernmental organizations, in the cross boarder production of goods and services (Christiansen 2015). The national as well as the regional development in such an integrated economy can no longer be analyzed on the basis of the territorial boundaries of the countries under consideration. The GPN instead are platforms through which actors in the different national and regional arenas can cooperate and compete for a sizeable share of the market, and the receipt of valuable knowledge through their exchange of goods and services (Lee, 2003). This paper aims at developing an analysis of the global production networks of Smartphone as a product that describes the interconnection of the global economy’s economic development. It also looks the various forms of labor that go into creating the Smartphone, and how this work is globally distributed, how is the value captured at each stage of production distributed along the network and on what institutional arrangements that explain the structure of this GPN. The paper will specifically look at an analysis of Samsung’s management of their global production network of their Samsung Smartphone. The Global Production Network (GPN) of Samsung Smartphone. At the onset of the fierce competition and the ever dynamic demand in the phone market, any manufacturing firm must make sure that they employ all their efforts in improving the way in which they carry out their production activities (Riley, 2007). The main key to their corporate success doesn’t only depend on the technological innovations, but how the organization and management of production network is done (Christiansen 2015). Most of the smart phones have been produced by its Asian production network. As part of its production network, the production of Samsung smart phones is made a reality by an existing network of suppliers of components and parts. The heart of the production of Samsung smart phones is its production line back at home in South Korea (Varag, 2014). It has retained the production of most parts of their smart phone in their native South Korea situated specifically in Gyeongsang province (Hagel., et al 2016). Unlike some of its competitors, the company is in a unique position to produce most of the components of the smart phone starting from the screens, chips, software and the assembly, rather than sourcing them from some other third parties. All these components are however not produced in Korea, but in their conglomerates that are situated in Korea, Malaysia and China (Hagel., et al. 2016). The Samsung strategy of the production of smart phone components is making efficient its operations by situating their manufacturing facilities and research and development in the same plant (Varag, 2014). The important components that include the processors the screens are however are developed in the Samsung manufacturing factories and he research centers in China as well as the factories in China that produce in mass (Grobart 2013). Soon after the launch of the smart phone in 2010, the major assembling points of the company were in Korea, Vietnam and China, depending on the volume of the smart phones on demand at the respective regions. The rest of the world had the assembly point for the smart phones being situated in Vietnam and Korea while the Chinese market was served by an assembly point in China (Liu, 2014). For India, the smart phones have been assembled at a Samsung factory situated in Noida since 2011, though most of the phones assembled in India are sold in the domestic market rather than sold to other parts of the world. Samsung in 2014 was in talks with the Indonesian government to set up a manufacturing plant in Indonesia to serve the local demand for Samsung smart phones (Grobart 2013). Vietnam remains the highest assembly point for Samsung smart phones, owing to its proximity to an essential marine route connecting East Asia and south East Asia, China, Thailand and Malaysia where most of the phone components are produced and then brought together for assembly. It is also where labor is cheap, low cost production as well as very attractive tax incentives from the government (Miranti, 2012). Indonesia on the other hand is very far from Samsung’s market supply chain and it would serve the company well since it would avoid the logistical costs that would be associated with the movement of Samsung products to the Indonesian market (Liu, 2014). It would also avoid the Indonesian policy of levying tax on imported expensive gadgets like the Samsung smart phones if they are to set up a factory in the Indonesian market rather than to carry out a configuration of its global production network (Riley, 2007). Who benefits most from the structure of this GPN? The largest beneficiary of the Samsung smart phone is the company itself, by that we mean its shareholders. The company has grown to become a global leader in the production and the sales of smart phones since they embraced the concept of global production network that significantly reduced the cost of production, increased sales and consequently wealth maximization as a result of the profit maximization (Liu, 2014). The other beneficiary of the structure of this global production network is the governments of the host countries (Lee, 2003). The Samsung Company like any other company has an obligation of paying taxes in its areas of operation. The taxes they pay could run into millions of dollars from their profits as corporate taxes. It is these taxes that form part of the government revenue that is used in the procurement and the provision of the essential goods for its citizens (Varag, 2014). The citizenry is also set to benefit from the structure of the global production network. The company sources its labor force from the domestic labor market to make operational its production activities (Lee, 2003). The locals will therefore be provided with job opportunities that will give them a source of income. The society can also benefit from low cost products that are a result of the low cost of production on the part of the company. The company can also participate in the corporate social responsibilities that will definitely benefit the whole society (Klinger 2012). The various forms of labor that go into creating the product, and how this work is globally distributed Samsung electronics company has from time to time been accused by the human rights groups for violating the law on child labor. The labor requirement of the company varies depending on the task at hand as well as the nature of the component being produced (Lee, 2003). The production of the components relies on the technical staff while the assembly of the products is largely done by the semi skilled employees. The distribution of the source of labor also depends on the country under which the factory is operationalizing the production of the smart phones (Miranti, 2012). There are approximately ten thousand employees at their main factory at Gumi in South Korea, most of who are woman in their early twenties (Lee, 2003). Most of them are not married and live in dorms provided by the company, which have dining rooms, libraries, fitness centers and coffee bars (Riley, 2007). Workers at the Samsung factories are not an assembly line. Production is carried out on a cellular basis, requiring each worker to stand within a three sided workbench that has all the necessary equipments and components at their disposal the workers are then responsible for the complete assembly of the phone (Coe et al., 2012). As mentioned before, Samsung like any other company will always locate their business in areas they believe they can operate at low costs (Lee, 2003). That is the reasons as to why Samsung has a majority of its production facilities in Vietnam where labor is cheap. The production of the real components will be made in South Korea and China, where the skills required for the manufacture of the key components require skilled labor. The labor force will usually be sourced from the countries under which the production takes, with the number of employees depending on the volume of production that is required (Dicken 2007). The value captured at each stage of production distributed along the network The network of production of Samsung components is made up of the development of the key components, the assembly, and the buyers of the components as well as the suppliers of the Samsung smart phones as well as their parts (Coe et al., 2012). With an intention to give value to their customers, companies like Samsung would usually source components from other firms like apple and, at the same time sell their components to other companies. Each of these players in the production chain is expected to benefit in one way or another (Dicken 2007). The company is the biggest beneficiary in the initial stages of the production. This is due to the fact that the company produces most of its components at their factories making it unnecessary for the company to source components from third parties (Coe et al., 2012). It is true, however to mention that the other beneficiaries are the suppliers of the company and its distributors particularly Best Buy an electronic distributor who sell their gadgets who share into the profit margins of the company (Grobart 2013). Apart from Samsung and the suppliers as well as the distributors of the Samsung smart phones, the other beneficiaries are the employees of the company (Lee, 2003). The workforce is made up of individuals with varying skills and experiences that range from engineering to research specialists, who will benefit as a result of the expanding global network of production. The institutional arrangements that explain the structure of this GPN The global production networks structures are anchored on existing institutional frameworks. The institutional arrangement refers to the networks of entities and firms involved in the planning, supporting and the implementation of the company’s policies. The link could be at the local, international or a regional level, between the company and the business as well as the nongovernmental organizations (Grobart 2013). Samsung operates in a global economic set up that is run by institutional arrangements of different types. They include the markets where the Samsung smart phones are sold. These markets have rules and regulations that need strict adherence, ranging from the environment to fair competition as well us ethical corporate behavior (Christiansen 2015). The GPN also operates in states that have different policies on the development and manufacture of certain products. The company will always strive to set up a business in a location where the state provides favorable conditions for doing business (Grobart 2013). The company too is made up of corporate hierarchies that make up the decision making structure of the business. It stipulates who is to answer to whom and the manner in which the decision making is to be done (Lee, Lee and Heo, 2015). Samsung Company has its main office in Gomi, South Korea and some other conglomerates in china, India, Vietnam, China and Indonesia. Each of the factories has its own structure, but all answer to the main office in Korea (Christiansen 2015). Conclusion It can be concluded that with the ever changing demands in the market, no manufacturer can claim to have the capacity to develop each and every component they need to assemble their products. The cost could be too high or the policies too stringent to make it happen. Organizations like Samsung therefore opt for global production networks (Coe et al., 2012). The global production network is a concept that has enabled low cost and efficient way of doing business. Companies can now concentrate on products that they have a competitive advantage over their rivals then source the rest from third parties. These companies too have the privilege of serving other companies with the components that they are good at producing. The concept has now enabled organizations to locate their operations in countries that they can comfortably do business at the best terms and still be able to satisfy the global demand for their products with the help of a network of participants who get some value from the global network. Bibliography Varag, G 2014, ‘Billions served (in secret): How their mobile supply chains give apple and Samsung an edge’, Retrieved 27th April 2016 http://endeavourpartners.net/billions-served-in-secret-how-their-mobile-supply-chains-give-apple-and-samsung-an-edge/ Christiansen, B 2015, Handbook of research on global supply chain management, IGI Global, New York. 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