Managing the value chain Case Study Example | Topics and Well Written Essays - 3000 words

Managing the value chain - Case Study Example American PC companies, by contrast, generate roughly 40-50 percent of their total production value in East Asia. Seagate, the current market leader for hard disk drives, is estimated to generate around 75 percent of its overall production value in East Asia, primarily in the triangle that comprises Singapore, Malaysia, and Thailand. European electronics multinationals have fairly high OPRs, but only in the last decade have major European electronics firms discovered East Asia (Lasserre and Schuette 1995). We estimate that during the early 1990s major European electronics firms generated roughly 15-20 percent of their total production value in Asia. The geographical location and other factors such as proximity to low cost labor markets dictate a different value chain for japanese companies. That is the reason why I have decised to focus on Sony and have a closer look on the supply value chain as well as customer value chain creation. The scope for centralized control at Sony diminishes with increasing distance; once Sony extends its value-chain across national boundaries, it is faced with complex coordination problems and the risk of abrupt disruptions.. While production-related disruptions decline with increasing product maturity, demand-related disruptions and abrupt changes in management decisions brought on by financial markets do not. Sony was faced with a very different challenge; they had hesitated too long in moving production of products to East Asia (Ernst and O'Connor 1992). Under the impact of the yen appreciation, Sony risked losing market share in the United States and Europe, especially to the aggressive new competitors from Korea. A quick response on a massive scale was required to roll back these new challengers. Production ramp-up had to occur quickly, and cost and quality had to be tightly controlled. Under such conditions, centralized management control was a perfectly rational choice. Developing local capabilities and linkages through "trial-and-error" would have been a time-consuming process, and thus had to be discarded. It is important to note that specific features of consumer electronics are important for the organization of Sony production networks. Lower end consumer devices have a variety of characteristics that are conducive for the establishment of global export platform mega-plants. They are homogeneous products with large economies of scale in which close interaction with customers is not required. They are characterized by a high divisibility. Different stages in the value-chain can be easily separated, and fundamental changes in design methodology and the shift from metallic to plastic parts have facilitated offshore production, even for relatively complex components such as drums, video heads, and small motors.2 With but few exceptions (such as picture tubes), most components and subassemblies are also characterized by low transportation costs, and can be easily moved between different locations.3 There is ample empirical evidence that Japanese firms in general are laggards in international production compared with their American and European counterparts. A survey conducted byJETRO (the Japanese External Trade Organization) in December 1995 found that the ratio of overseas