Academic journal article Asian Social Science

Strengthening Competitiveness of Multinationals through Relocation of Production to Asia

Academic journal article Asian Social Science

Strengthening Competitiveness of Multinationals through Relocation of Production to Asia

Article excerpt

1. Introduction

In today's globalized world, corporations require a progressive consideration to strengthening competitiveness. This article is based on the prevailing situation of several German multinational corporations that need to gain competitiveness following a broad handling of markets. Due to the limited growth potential in European markets, the focus has turned to emerging markets. According to a study by Oltmanns (2013), Western companies expect to achieve 70% of their future profits in these emerging markets. Especially the growth potential in the Asian region is of interest. Compared to developed markets, Asian emerging markets display divergent consumer behavior, different market conditions and different financial power. International exporting corporations from Germany manufacture products under the classification 'Made in Germany', and German engineering quality is seen as an important success factor (Ahlert, Backhaus, Berentzen, & Tegtmeier, 2007).

This research investigates an adapted sourcing concept for German multinationals that face growing competition in which disadvantages in product price, delivery time and transportation costs have been revealed. Therefore, the strategy of having a production site located in Germany can be seen as disadvantageous due to production cost factors (i.e., labor costs or facility costs) and distance to markets (i.e., transportation or taxation) (KPMG, 2014). Brunke, van Dongen, and Downey (2013) report that, especially in emerging markets, consumers prefer cheap and simple products. However, Ahlert et al. (2007) report that international customers have appreciated products being manufactured at German production sites and connect a certain level of quality with this origin. Therefore, the concept to pair the German quality identification with a local production can have great potentials to multinationals. Herewith, companies face a number of challenges in finding the right strategy, which should at least reflect customer needs and conditions. Thus, it is necessary to analyze both the potential market in Asia and customer needs in order to gauge to what extent production relocation into Asian markets is accepted, and to what extent there is a need to retain German engineering.

This research investigates existing negative aspects faced by several German multinationals in price and delivery in international markets, which are related to their prevailing sourcing concepts. The aim of this research is to present a customers' perspective to guide current sourcing strategies into an adapted concept to relocated the production to Asia. The emphasis of this research is placed on aspects of price for products classified as 'Made in Germany', particularly the importance of price as an influence on customers' buying decisions, transportation time, and delivery and importation costs. Furthermore, to reshape manufacturing to meet emerging market conditions, we consider the acceptance of local production and customers' expectations of lower prices when local production is accepted. This article is based on a comprehensive literature review following the main topics of consumer behavior, the classification of 'Made in Germany', competitive advantages, acceptance criteria to generate advantages through local production and the implementation by means of operations management. In order to enable the application of the results to long-term strategic decisions, customers' opinions and expectations represent a major focus. Through an empirical research study with a total response of N = 636 (100.0%), respondents from Asia n = 108 (17.0%) were asked about their willingness to accept the price of a 'Made in Germany' product, the importance of price, their opinion about delivery issues, and their acceptance of local production in Asia. The goal of this article is linked to a long-term profitability strategy with regard to production relocation that addresses decision managers with fundamental data about customers' acceptance and expectations. …

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