When the whole network is too broad and the single company is too narrow, we need subnetworks in multinational enterprises

Author: Paolo Carminati (Ph.D. Candidate at the University of Bergamo)

Hello “Young SCholars”, pleased to meet you!

I’m Paolo, and I have recently completed my PhD experience at the Department of Management, Information and Production Engineering of the University of Bergamo. In the last three years, I had the privilege to be part of the PhD in Technology, Innovation and Management, a joint program between the University of Bergamo and the University of Naples Federico II.

The main research topic was the analysis of production into multinational companies, the so-called International Manufacturing Networks (IMNs), i.e., intra-firm plants and facilities located in different countries but mutually connected. The theme is part of the broader topic of global manufacturing management.

In recent decades, many companies started looking for opportunities worldwide and undertaken offshoring and outsourcing of production. The numbers concerning multinational companies in the last decades are precise: while 7000 international companies were counted in 1970, they were about 38,000 in 2000 and above 82,000 in 2008 (UNCTAD, 2010), and the trend is continuously growing; nowadays, international companies account for about one-third of global GDP (De Backer et al., 2019). This overview is enough to understand the direction of worldwide diffusion and the importance that multinational companies have on the global economy.

In their expansion, corporations establish a web of factories to best serve their customers according to a manufacturing network strategy. These types of companies with dozens of plants globally distributed are subject to considerable complexity due to multiple factors: economic development, product differentiation by geographical area, technology, process digitalization, sustainability, different and counterbalanced trade agreements, etc. It becomes fundamental to connect the decisions about the manufacturing network’s structure to long-term corporate competitive strategies without being guided by opportunistic short-term choices. To better understand manufacturing strategies, adequate tools and methods are required.

Therefore, my research’s goal was directed towards a simplification and optimization of the management of international networks. The idea of simplifying such complex structures has given me incredible inspiration for the last three years. Instead of the traditional focus on single plants, IMNs need to adopt a broader vision that considers the two main characteristics of the network: the geographical dispersion (“network configuration”) and the relational aspects and interdependent relationships among sites (“network coordination”). For this reason, the research focus has been placed on both these macro-drivers, aware that configuration and coordination are strongly related, despite being usually presented separately.

On the one hand, the research concerned the possibility of dividing an international network into groups of plants with common characteristics. Production networks can be studied from the individual plants, groups of plants, or the entire network. While a too broad perspective, related to the whole network, can be complex and unfocused, a too narrow perspective, oriented to the single facility, hampers the visibility of problems and processes associated with the entire flow. Despite this, little attention has been given to the analysis of sub-groups of plants (sub-networks) clustered together according to ad-hoc criteria: the manufacturing roles of the plants, the business units, the type of goods manufactured, the geographical area covered, etc. Thus, the focus has been dedicated to clusters of plants with common characteristics in terms of products manufactured and processes used. The underlying idea is that sets of plants with similar traits should have similar management models and organizational approaches; a proper segmentation also allows more effective governance and administration. This deconstruction of large production networks into more harmonious and narrowly focused entities makes it possible to study the single plant’s role when engaged on multiple manufacturing missions. This also brings evidence of operating practices in multi-product and multi-process contexts.

On the other hand, the research aimed at aligning the corporate strategy with the global network configuration. For the integration of these two aspects, there is a need of connecting the design of the manufacturing part to the other functional units within the global value-chain: multinationals today have an incredibly complex supply chain, with thousands of suppliers, customers, stakeholders, and are represented by several R&D labs and commercial offices worldwide distributed. Although the management and core business are still strongly linked to the headquarters and countries of origin, an increasing amount of value is added in globally dispersed sites. Modern networks need flexibility and focus. For these reasons, my studies also explored the conditions in which different network configurations (for example, higher or lower aggregation of sites or higher or lower cross-functional integration among manufacturing, commercial, and R&D networks) are more likely to occur. It then categorized the different scenarios found according to the strategy followed.

But why does this research have a practical value? The pace of change is exponentially increasing, especially in global contexts. Managers must be conscious that adapting to external situations becomes essential to continue working in a highly competitive environment. While a poorly managed network reduces the company’s growth and can result in a considerable loss for the company, a well-designed manufacturing network becomes a necessary condition in today’s market. That’s why I think there is so much space for additional research on global production networks: indeed, a wide-ranging topic, already analyzed by excellent academic contributions, but still full of opportunities for anyone interested in getting into it!

See you soon!

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