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Flexibility, Labour Utilisation, and the Global Factory

Peter Enderwick


A growing number of global industries are experiencing significant changes in organisational and ownership structures as environmental change increases both volatility and governance options. In essence, the traditional internally owned and managed structures characteristic of international business in the 1960s and early 1970s are being eclipsed by a growing reliance on partnership or network-type structures. These organisational forms have been termed the global factory (Buckley, 2014) refining a concept first coined three decades ago (Grunwald & Flamm, 1985). The global factory describes a network of organisations providing input services for a set of products or services. These services are typically collated across national borders from organisations under different ownership, coordinated by a lead firm through the global factory network.

P. Enderwick (h)

Faculty of Business, AUT University, Auckland, New Zealand © The Author(s) 2017

S. Kundu, S. Munjal (eds.), Human Capital and Innovation, DOI 10.1057/978-1-137-56561-7_2

While progress has been made in understanding the core principles of the global factory (Buckley, 2014) and how such systems differ from more traditional multinational enterprises (Enderwick & Buckley, 2015), there remain important elements that are poorly understood. The global factory has evolved to deal with increasing uncertainty within the global marketplace. A growing pace of innovation, new sources of competition, rising consumer expectations, and technological convergence all encourage the adoption of flexible organisational forms and strategies. When we examine the competitive advantages of the global factory, we see it is well placed to compete in a demanding global environment. Its core advantage is its cross-border coordination or ‘interface competence’: the ability to manage a geographically dispersed value chain. This is coupled with superior skills in governance: to know what activities should be undertaken internally and what should be outsourced. At the same time, the focal firm or lead multinational enterprise in the global factory system, has to invest in and maintain its critical firm-specific advantages in technology, branding, and supply chain management. The consumer provides focus for the global factory, with all activities directed to satisfying customer needs. It is also apparent that an implicit strength of the global factory is flexibility: the ability to survive volatility and respond rapidly to changing circumstances. Despite its obvious importance, there has been very little analysis of flexibility within the global factory model.

In response to this gap, this chapter examines the importance, role, and sources of flexibility within global factory systems. It contributes to our understanding in a number of ways. First, it examines the importance of flexibility within global factory systems, highlighting the impact of a key driver in location and governance decisions. Second, our discussion is firmly embedded in the context of the global factory, an international cross-border network of service providers differentiated by location, ownership, and purpose. We consider flexibility in broader terms than simply resource or system flexibility. We suggest that the very structure of the global factory bestows the organisation with significant advantages when pursuing a strategy of enhanced flexibility. Third, we extend existing concepts of flexibility beyond that of primarily labour market flexibility and from the level of the establishment to networks, and in particular, directed networks. Fourth, we develop a simple schematic conception of flexibility within global factory systems that highlights the diverse forms of flexibility that are available to such organisations. Finally, the discussion highlights some of the costs of pursuing enhanced flexibility and how many of these can be mitigated through a global factory network.

The discussion is organised around five substantive sections. Following this introduction, we consider the importance of flexibility to the global factory, highlighting its centrality in managing volatility. Section three discusses the sources and forms of flexibility and the considerable literature that has developed in this area. Building on this literature, and firmly embedding our discussion within the context of the directed network, we offer a simple conception of flexibility within global factory systems. In section four, we consider some of the traditional costs associated with increased flexibility, in particular, transaction costs, conflict, commitment, learning, innovation, and the links between flexibility and firm performance. We show how the global factory is able to alleviate many of these costs. The final section offers concluding comments.

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