IBUS1101 Chap.10 MNE Strategy and Global Value Chains
MNE Strategy and Global Value Chains
This chapter disaggregates a value chain into activities and separates function, location, organisational ownership and timing. Offshoring changes geography, while outsourcing changes the firm boundary. The strategic task is to protect core capability, exploit activity-specific location advantages and reconnect dispersed work through governance, information and sequence.
Total system performance matters more than the cheapest isolated activity. A global value chain should be disaggregated by function before geography or ownership is chosen. Offshoring moves an activity abroad, while outsourcing moves it outside the firm; either decision can occur without the other.
The strategic issue is which activities protect distinctive capability, carry tacit knowledge or coordinate important interdependence. A specialist provider may add scale and flexibility while introducing monitoring, quality and knowledge risks.
Location advantage is activity-specific: routine processing may benefit from cost and time-zone differences, whereas research may require customer proximity, specialised talent and rapid tacit exchange. Direct price comparisons are incomplete because handoffs, inventory, delay, transition effort and disruption shape total system performance.
An activity can meet its local service target while damaging the learning loop that connects customer problems to design. Governance must therefore preserve data, escalation and knowledge return. Configuration should also remain revisable as automation, supplier capability, regulation and strategic priorities change. The strongest recommendation optimises the connected system rather than the cheapest isolated task.
Resilience is similarly activity-specific. Buffer stock may protect a predictable input, dual sourcing may suit standard components, and retained internal capability may be essential for knowledge-intensive work. The response should match the dependency rather than applying one resilience slogan to the whole chain.
A configuration map should show both formal transactions and the informal exchange of exceptions, expertise and customer knowledge across nodes.
What this chapter covers
- 01
Value-chain disaggregation
- 02
Core activities
- 03
Offshoring
- 04
Outsourcing
- 05
Location choice
- 06
Organisation boundaries
- 07
Coordination cost
- 08
Resilience and reconfiguration
Worked example · free
Redesign a sensor service chain
- +1Keep failure analytics inside for design learning.
- +1Outsource routine triage under service controls.
- +1Place customer-success staff near major clients.
- +1Create escalation and knowledge-return interfaces.
- +1Track resolution quality and retention.
Key terms
- Offshoring
- Moving an activity to another country while ownership may remain internal or external.
- Outsourcing
- Moving an activity to an external provider while location may remain domestic or foreign.
- Core activity
- Work retained because it protects distinctive capability, interdependence or difficult-to-contract knowledge.
MNE Strategy and Global Value Chains FAQ
Can an activity be offshored without outsourcing?
Yes. A company can perform an activity in its own foreign subsidiary, changing geography while retaining ownership. It can also outsource an activity to a domestic provider, changing the organisational boundary without moving the work abroad.
How should core activities be identified?
Look for work that protects a distinctive capability, carries tacit knowledge, coordinates important interdependence or faces contracting hazards. Current internal performance alone does not make an activity core, and the classification can change with technology and strategy.
Why can low-cost relocation disappoint?
Lower direct labour cost may be offset by monitoring, inventory, delay, handoff, quality and disruption costs. The right comparison uses total system cost and performance, including whether knowledge returns to the firm and whether the dispersed sequence remains coherent.
Assessment move
Take one business process and slice it into activities. For each slice, record location, ownership, dependency and the knowledge produced. Reconfigure one activity at a time and calculate the qualitative coordination burden. End with a trigger for reintegration, provider change or relocation so the design stays dynamic.
Draw a table with function, inputs, outputs, dependencies, current location, proposed location, ownership, capability risk and measure. Mark the activities that generate learning for another part of the firm. For each proposed move, compare internal domestic, internal foreign, external domestic and external foreign options rather than merging geography and boundary.
Calculate total system cost conceptually by adding transition, contract management, inventory, delay, travel, quality recovery and disruption to the direct price. Define service measures that capture the whole loop, such as first-time resolution, escalation quality, design insights and customer retention.
Identify the node whose delay controls the sequence and direct resilience investment there instead of duplicating every activity. For outsourcing, state how the firm could reintegrate people, data or routines if performance deteriorates. For offshoring, state how time zones and host regulation affect coordination. End with a pilot, decision threshold and review trigger.
This routine makes configuration, ownership and coordination visible as separate but interdependent choices.
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