Suppose you are a firm in the U.S. where you produce and sells 1 million cameras
ID: 348638 • Letter: S
Question
Suppose you are a firm in the U.S. where you produce and sells 1 million cameras per year. However by producing this quantity of cameras per year, you are operating below your minimum efficient scale which is 3 million cameras per year.
Suppose you have come to the realization that producing in the U.S. is very constraining and if you stay here it will be unlikely that you reach your minimum efficient scale.So, you can decide to globalize your operations.
(i) if you decide to shift your full production process to Indonesia, What stage of Industry globalization would you be in ? provide the name of the stage.
(ii) instead of going to Indonesia, if you decide to make the camera lenses in South Korea, the displays in Japan, the body in Taiwan, and the assembly in china, What stage of Industry globalization would you be in ? provide the name of the stage.
(iii) If there are significant barriers to entry into the camera manufacturing industry and a high degree of concentration so that there are only a few global firms producing cameras, the industry then becomes a (n):
(iv) In such an industry, cost alone is no longer a driver of global strategy. what then drives global strategy of firms? Explain Briefly.
Explanation / Answer
i) if the decision is made to shift full production process to Indonesia then it means that industry is in second stage of globalisation that is Product Specialisation.
ii) if the industry decides to divide the production of the spare parts to different country for the and assemble at any one place then it is the third stage of globalisation in industry which is value chain disaggregation.
iii) if there are significant barriers to entry into the camera manufacturing industry and a high degree of concentration so that their are only a few global firms producing cameras then the industry becomes oligopolistic or monopolistic.
iv) it's obvious cost alone is no longer a driver of global strategy their are many :
Market drivers : sometime it's customer's who demand for the product and the industry has to globalize in order to cover that market and fulfill the needs of customers.
Competition drivers: In this era of such heavy competition now industry have to expand their reach and customers in order to survive and achieve success.
Political drivers : many times due to political reasons like less subsidy or minimized tax industry do globalize in nation where they can easily do business.