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International manufacturing and location decisions: balancing configuration and co-ordination aspects
Bert Meijboom and Bart Vos
Tilburg University, Tilburg, The Netherlands
Introduction Today, many companies have global operations. This means that the elements of the supply chain (for instance, purchasing, manufacturing, distribution) are not restricted to one particular country or region but take place on a worldwide scale. This paper is concerned with location decisions for production facilities within internationally operating companies. Discussions on international manufacturing and location decisions are often structured around Porters[1] distinction between configuration and coordination. Configuration indicates the location of facilities and the interfacility allocation of resources along the value chain. Co-ordination refers to the question of how to link or integrate the production and distribution facilities in order to achieve the firms strategic objectives. Gregory, Steele, Shi and Grant[2] state that, Nevertheless, although studied extensively as separate issues, location, coordination and planning are still inadequately addressed in combination. The international business literature recognizes that location choices can be decisive for successful international operations. The configuration issue in particular is frequently addressed, but it is approached as an international investment decision[3]. This is a result of the economics/marketing/finance perspective of these studies. Therefore, in this literature the configuration dimension is mainly related to market pressures (cost, proximity) and internalization (protection, competitive advantage). The operations management literature also examines location decisions. The main focus is on logistical problems at the tactical and operational levels. Hence, this stream of literature is particularly concerned with co-ordination rather than configuration. Although qualitative studies on location decisions often reveal certain strategic variables (see [3]), the mathematical-programming based location models frequently found in operations management seldom incorporate any of them[4]. As noted by Canel and Khumawala[5], in spite of the

International Journal of Operations & Production Management, Vol. 17 No. 8, 1997, pp. 790-805. MCB University Press, 0144-3577

The authors are grateful to John Bell, Job de Haan and Hans Voordijk for helpful suggestions and comments on earlier drafts of this paper.

extensive modelling work done on facilities location, little modelling research exists on international facilities location. Contributions from manufacturing strategy, the part of the operations management literature explicitly concerned with strategic consequences of investments at the operational level, rarely mention international configuration issues[6]. In summary, research on international location decisions rarely balances configuration and co-ordination questions. This paper aims to develop ideas for more integration between the two dimensions. This is accomplished by combining concepts from international business and manufacturing strategy. In the next section manufacturing strategy, in general and at the international level, is discussed. Then an international business perspective on location decisions is presented. We continue with some preliminary ideas towards an integrating framework, which are further elaborated in the experiences of Dutch investors locating plants in Thailand. Manufacturing strategy Skinner[7] was the first to observe that a companys manufacturing function could do more than simply produce and ship the products. Manufacturing strategy generally refers to exploiting certain properties of the manufacturing function as a competitive weapon. In the literature, manufacturing strategy is seen as that part of the operations management area that focuses on the strategic consequences of investments at the operational level. Berry, Hill, and Klompmaker[8] speak of the choice of a firms investments in processes and infrastructure that enable it to make and supply its products to chosen markets. The crucial question preceding any decision on manufacturing investments is: how do products qualify and how do they win orders in the marketplace? In addition to price, quality and product features, there is also the matter of delivery speed and dependability, design, technical support and after-sales support. These are all aspects that influence location decisions on production and distribution facilities. We will now discuss these issues for companies with international manufacturing activities. Global markets Publications on manufacturing strategy do not generally deal with concepts associated with international business. One exception is De Toni, Filippini and Forza[9], who present a framework for discussing and classifying a number of problems, decisions and opportunities occurring in the global market. The discussion is centred on the operation value chain, consisting of four phases: design, purchase, production and distribution. Three groups of strategic decision categories are distinguished: organization and management; management systems, and technologies, each of which has implications for the value chain. It should be noted that the conceptual framework itself does not designate features specific to globally operating companies. Only in the clarification of the category organization and management are global issues addressed. The

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competitive advantages of configuration and co-ordination are mentioned rather than defined and analysed. A further observation is that, in fact, only co-ordination is discussed in any detail, specifically in the context of centralization/deconcentration of activities in the global value chain. With reference to the operation value chain, De Toni et al.[9] state that the co-ordination of decentralized units is crucial in obtaining competitive advantages. These advantages relate more to how the company manages the various activities than where they are located. For example, coordination among development centres (design phase) allows for an exchange and increase of know-how, while co-ordination in the purchase of materials makes it possible to obtain economies of scale. The transfer of experience can also be considered a form of co-ordination. Finally, in the discussion of technologies, the authors mention that modern information and communication systems enhance greater integration among phases of the operation value chain and more efficiently operating decentralized units. In general, the article by De Toni et al.[9] is concerned with manufacturing strategy in global markets, although the framework they propose does not have international features. Second, the discussion addresses co-ordination rather than configuration issues. We now turn to a contribution by McGrath and Bequillard[10] in which international features are more easily discerned. The authors define international manufacturing strategy as the overall plan for how the company should manufacture products on a worldwide basis to satisfy customer demand. Moreover, they come up with an extensive number of issues together referred to as the international manufacturing infrastructure. However, the proposed issues are interrelated and sometimes even (partly) overlapping. They can be regrouped, and summarized, as follows: (1) International supply/demand management. The complete order process, including inventory replenishment and production decisions takes place in an international environment. Customer service, capacity utilization, and inventory objectives must therefore be balanced internationally. How is this global pipeline managed? How are customer orders with international multi-plant requirements scheduled? How is interplant demand scheduled? (2) Global versus local purchasing. The inputs of a factory, manufactured goods as well as raw materials, can be procured abroad or from a source close to that factory. What are the trade-offs between global and local (perhaps just-in-time) purchasing? And how should international procurement take place, centrally or by specialized plants? (3) Decomposition of overall manufacturing strategy. The international manufacturing strategy of the company as a whole must be broken down and translated into specific goals for each of the factories. Which aspects of manufacturing (for instance, applied production processes) need to be standardized across international plants? What is needed to

maintain consistency within the overall international manufacturing strategy? How should product development and introduction be organized on a worldwide basis? These topics are co-ordination oriented: they refer to the question of how to link or integrate production facilities. Together, they embody a framework for international co-ordination, which will be applied later on, in the practical part of the paper. The next section is devoted to international business, in which the configuration dimension of international manufacturing and location decisions is presented. International business The international business literature usually treats location choice in the context of international production. Examples are [11-13]. For the purposes of this paper, it is important to consider a number of why, how, and where questions regarding international expansion. When considering how to serve a foreign market, a company can choose between several modes of entry such as export, licensing or foreign direct investment. For instance, in the case of foreign direct investment, the firm may decide to establish its own production and distribution facilities in the host country, based on certain capabilities (why). Clearly this decision has a locational dimension (where). At the same time, the choice for foreign direct investment and not licensing requires an answer on how issues: certain knowhow and value-adding activities remain internalized. More generally speaking, in an international setting, it is better not to isolate locational issues (where) from internalization (how) and ownership (why) issues. Below, we review an influential theory that simultaneously deals with these why, how, and where questions. Subsequently, a contribution by Ferdows[14] is discussed which focuses on factories in international manufacturing settings. The eclectic paradigm of international production This paper aims to improve the international content of the field of manufacturing strategy, particularly international location decisions, by using insights from international business. An important theory in this regard is provided by Dunning[15], who developed an eclectic paradigm of international production. His paradigm argues that firms will engage in international activities on the basis of ownership-specific, internalization-incentive and location-specific advantages: Ownership-specific advantages (O). These refer to the property of certain intangible assets that give the company a competitive advantage. Examples include specific properties of the production management, the presence of particular organizational and marketing systems, innovatory capacity and know-how. Internalization-incentive advantages (I). These result from extending value-added chains (or adding new ones) within the firm rather than

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outsourcing the corresponding activities. (More generally, these advantages are elaborated within transaction cost economics[16] and internalization theory[17].) These include advantages gained by control over supplies or over market outlets. (Control of market outlets is an example of the notion of complementary assets, as added by Teece[18] to the standard transaction cost framework.) In other situations, internalization yields economics of interdependent activities. A third possibility is higher quality intermediate or final products. Location-specific advantages (L). Here, typical advantages are more attractive inputs in terms of price, quality or productivity. Lower international transportation and communication costs also fall into this category. Furthermore, reducing physical and psychic distance and the economics of centralization (R&D, production or marketing) can be mentioned. Decisions to locate a particular plant are based on location-specific variables which may favour a particular (region within a) country. In the development of his paradigm, Dunning adds O and I aspects, arguing that all three of them are interrelated. The final decision on where a firm should locate its production will depend on the character of its O advantages and the extent to which one location helps to internalize intermediate product markets better than another. A well-known drawback of the eclectic paradigm is that it is an industrylevel rather than firm-level theory[12]. However, Dunning[15, Table 4.2] also gives some tips for applying the paradigm at the firm level. Particularly, the O and I dimensions provide links with the strategic behaviour of individual firms. Thus, the eclectic paradigm helps to place international location decisions in a strategic perspective. It mainly addresses the configuration aspects of the decisions. No explicit attention is paid to how co-ordination between plants should be accomplished. Strategic roles of factories An international network of factories increases a firms strategic options. In order to provide insight into how such a network should be organized, Ferdows[14] introduced the concept of the strategic role of a factory, which transforms the O, I and L advantages mentioned above to the level of individual companies. It is based on two variables: (1) The primary motive for establ ishing the factory. In principle, he distinguishes among three commonly reported primary location motives, namely: access to low cost input factors; use of local technological resources; proximity to the market. (2) The extent of technical activities at the site. These are a selected set of activities which go beyond simply producing the goods, for instance,

process engineering and improvement, product customization, aftersales service, decision making on procurement and distribution and, ultimately, product development. The combination of the two variables leads to six generic roles for an international factory, as illustrated in Figure 1. Ferdows[14] uses these roles for tracking patterns of change in the strategic role of a factory. He describes a natural evolution of plants in the direction of increasing level of technical activities. The upgrading of a plants role in global manufacturing networks requires systematic managerial attention. Van der Meer, Gudim and McLaughlin[19] applied these ideas in a case study of a clothing company. The factors used in defining strategic roles for factories are very similar to ownership and internalization-incentive advantages as included in Dunnings[15] eclectic paradigm for international production. Furthermore, Ferdows[14] theory and the eclectic paradigm are mainly configuration oriented. We will now proceed with some thoughts on how configuration and co-ordination aspects may be better integrated.

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High

Source

Lead

Contributor

Level of technical activities

Low

Off-shore Access to low cost input factors

Outpost Use of local technological resources

Server Proximity to market Figure 1. Generic strategic roles of foreign factories

Source: [14]

Integrating configuration and co-ordination aspects In this section we return to McGrath and Bequillard[10] and Ferdows[14], who focus on co-ordination and configuration, respectively, but offer opportunities for integration. In this way, we will show how concepts from manufacturing strategy and international business can be combined. We have seen that McGrath and Bequillard[10] discuss co-ordination issues extensively. Second, they provide differentiated insight into international manufacturing by defining different variants of global manufacturing strategies. They mention coordinated global manufacturing as the classic strategy for taking advantage of low cost local resources. In addition, these

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authors distinguish home country manufacturing (a centralized strategy with almost all of the manufacturing operations conducted in the home country), regional manufacturing (a strategy that segments manufacturing operations into major markets) and combined regional & coordinated global manufacturing. This classification clarifies that companies may have different reasons for going abroad and acquiring an existing (or building a new) factory in a foreign country. Stated differently, for a factory within an international network, various roles exist. McGrath and Bequillard[10], however, do not elaborate on this aspect. Ferdows[14], on the other hand, discusses configuration aspects. His concept of the strategic role of a factory provides insight into how an international network of factories should be organized. Furthermore, he claims that his perspective can also help in the choice of an appropriate communication system and the organizational design of a firms international factory network. However, he does not elaborate on this, in fact, he is not very explicit on how to coordinate the various types of factories. Thus, McGrath and Bequillard[10] mainly address co-ordination problems and define several international manufacturing strategies without identifying the implications for the individual plant. Ferdows[14], in contrast, is more configuration oriented, focusing on individual factories without discussing the links between them. Elements of the two approaches can be combined as follows: (1) Co-ordination issues as raised by McGrath and Bequillard[10] should be used in the description of how to co-ordinate the types of factories as distinguished by Ferdows[14]. For instance, what is the relationship between the factory types and the degree to which manufacturing is standardized worldwide? (2) Conversely, Ferdowss[14] factory roles may be used to enrich McGrath and Bequillards[10] description of international manufacturing strategies by investigating what kind of factories will be prevalent in each variant. For instance, a factory in a certain country may have to serve the consumers of that country. In another setting, a factory performs just one phase of the production process very efficiently while the following phase is done in a factory in another country. As noted earlier, the notion of the strategic roles of factories transforms the ownership and internalization-incentive advantages of Dunnings[15] eclectic paradigm for international production to the level of the individual firm. We have conceptually outlined integration possibilities between representatives from manufacturing strategy and international business, respectively. In the next section the interaction between configuration and co-ordination will be clarified from a practical point of view. Practical relevance In this section, the interaction between configuration and co-ordination will be addressed in terms of the experiences with plants in Thailand. First, the method

of information collection is presented, followed by some general insights on locating plants in Thailand by Dutch investors, including location motives and level of technical activities. Four cases are then presented in more detail to demonstrate the interaction between configuration and co-ordination. Method The companies to be discussed are derived from a study by Vos[20] on the experiences of Dutch companies with investment projects in Thailand. The survey focused on the following issues: (1) Why did the companies decide to locate a manufacturing plant in Thailand? The information gathered on this issue provides insight into the configuration dimension. (2) How do the Dutch investors control the operational performance of their plant in Thailand? A number of co-ordination issues are raised concerning the international supply chain, as well as the transfer of knowledge. To gather the information, on-site interviews were conducted in 1994 and 1995. In-depth interviews were held with the management team of Thai subsidiaries, providing data on the key determinants of location choice and the subsequent experiences with the new manufacturing and logistics structure. In most cases, the responses were obtained from a Dutch expatriate manager. A semistructured questionnaire was used as a guide to ensure that similar information was gathered during the interviews. The guide was based on the relevant literature regarding international configuration and co-ordination design[10,1315,21]. To ensure the quality and validity of the responses, the managers of the companies interviewed were asked to verify the data in their respective interview reports. Locating plants in Thailand: general findings Thailand still has the advantage of low labour costs, but is also attractive in terms of market opportunities. Furthermore, attempts are being made to upgrade the quality of their inward investment by promoting more capitalintensive and technologically sophisticated industries[22]. The original study[20], from which the four case companies are derived, covers a broad variety of manufacturing operations, both in terms of product range and turnover. It contains subsidiaries of renowned multinationals competing in industries like fast-moving consumer goods, dairy products, consumer electronics and chemicals, as well as investment projects initiated by individual Dutch businessmen, for example manufacturers of mosquito nets and shoes. The nature of the ownership advantage (recall [15]) that these pioneers aim to exploit, is quite different from that of the large multinationals[13, p. 129]. Their advantages primarily come down to entrepreneurial skills to exploit local opportunities, supplemented with

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experience and know-how in manufacturing their specific products, which are sold in niche markets. Often market access was the decisive locational determinant for manufacturers of a variety of consumer goods and products aimed at industrial markets. A minority of the companies in the study conformed to the stereotype of (labour) cost motives in establishing a plant in countries like Thailand. Although larger multinationals usually have a long history in the ASEAN region, the major investments in the overseas subsidiaries have been made in the past decade. Many Dutch investors decided to apply state-of-the-art technology, initially or as part of a plant modernization strategy, usually supplied by the parent company to meet global quality standards. Only a minority reported the use of second-hand machinery in their overseas plants. In-depth discussion of four case companies The practical relevance of simultaneously investigating configuration and coordination questions in international location decisions will be demonstrated by discussing four companies in the Vos study[20] in more depth. The companies we focus on are designated as Soap, Brakefluid, Airchair, and Shoes. The common characteristics of these companies are: they are all production plants; they mainly require bulk, non-perishable goods as input; their headquarters are elsewhere (Sydney in the case of Shoes, The Netherlands in all other cases). Some specific characteristics are the following. Shoes manufactures speciality shoes which are global products with market emphasis on, in decreasing order of importance, the USA, Europe, Australia and Asia. Though the companys only factory is located in Thailand, the headquarters is in Sydney. Leather and fabrics are the main purchased materials. Airchair produces metal equipment for aircraft. They have several international plants, two of them in Thailand. Design and sales take place outside Thailand. Input is mainly aluminium and various small parts. Brakefluid and two rival companies are active on the local Thai market. Chemicals in drums are the main purchase. The majority of them are supplied by the parent company in The Netherlands. Soap produces soap, perfume, ice-cream and tea for the local Thai market. The factory belongs to a big multinational company whose markets include the products just mentioned. The inputs (e.g. chemicals, milk powder, palm oil, and flavours) are almost all purchased locally. Configuration For the four case companies, market focus and primary motive for establishing the plant are summarized in Table I. The third reason for establishing a foreign plant (recall[14]), namely access to local resources (such as technology, skilled employees), was not mentioned by

any of the companies. Nevertheless, it is interesting to classify the four companies according to Ferdowss[14] method of combining primary location motive with the level of technical activities. (see Figure 1). The position of the Thai plants in Figure 2 can be clarified as follows. The production processes of Airchair and Shoes are not sophisticated: they are traditional and labour intensive. For certain inputs, Airchair is dependent on local suppliers of which there are very few alternatives to choose from. Moreover, the Thai suppliers do not perform at a sufficiently reliable level in terms of time and quality. Therefore, Airchair has more responsibilities than Shoes with respect to input quality control. This explains why Airchair scores somewhat higher than Shoes on the vertical axis level of technical activities.

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Cheap labour Industrial Consumer Airchair Shoes

Market proximity Brakefluid Soap

Table I. Market focus and primary location motive for Thai plants

Brakefluid applies the same kind of simple technology used by companies all over the world producing this product. Soap, belonging to a big multinational, possesses a modern R&D division for developing and producing shampoo and other hair products. In this way, information/knowledge, for instance, on popular local scents and specific requirements for the Asian hair type is generated locally. Consequently, product improvements are initiated locally as well. Figure 2 demonstrates that international location decisions are not just a matter of minimizing operating costs, even in Thailand with its cheap-labour
High Soap

Level of technical activities Airchair

Low

Shoes Cheap labour

Brakefluid Market proximity

Figure 2. Configuration: strategic role of Thai plant

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image. Moreover, it shows that how (vertical axis in figure) and why (horizontal axis) questions have to be taken into account simultaneously. This insight adds to the arguments in the more conceptual discussion on how manufacturing strategy can benefit from international business concepts, i.e. Dunnings[15] eclectic paradigm. Better understanding of international production and location decisions requires the incorporation of ownership (why) and internalization-incentive (how) advantages. Having discussed the locational aspects, we now turn to the functioning of the case plants within their respective international networks. Co-ordination The question of linking or integrating facilities worldwide will be dealt with in the same framework as international co-ordination, derived from [10]. The international supply chain, particularly global versus local purchasing, and topics related to the decomposition of the overall manufacturing strategy will be discussed. Maintaining a reliable flow of the crucial inputs in terms of quality and lead time appeared to be the major concern of the managers of the case companies, rather than availability of low-cost materials. The choice between imported and locally purchased materials is in order. Local purchasing reduces lead times which creates more flexibility to respond to changes in demand. Often, however, local supply is reported to be unreliable in terms of quality. This leads to undesirable, usually expensive, adjustments in manufacturing. On the other hand, if import of materials is preferred, expensive safety stocks are required to remain flexible. Altogether, the decision whether to source locally or globally can be seen as a trade-off between quality and lead time (see Figure 3). For instance, strict quality requirements usually imply global purchasing and thus a relatively long lead time. The direction of the arrow indicates an increasing share of global purchasing. The positioning of the Thai plants in Figure 3 can be clarified as follows. The inputs of Shoes and Brakefluid are generally purchased globally. They seldom have quality problems but have to deal with long lead times. As a matter of fact, they report that unpredictability of the market and lack of demand forecast, rather than unreliable (lead-times of) suppliers cause supply problems. Therefore, Brakefluid occasionally purchases locally if there is an unexpected demand. About 65 per cent of Airchairs raw materials are delivered by the parent company in The Netherlands. Airchair, therefore, purchases a substantial part of its inputs (35 per cent), locally. Indeed, besides lower lead-times, they appear to have some quality problems with these inputs. This is generally caused by a lack of process control in the factories of their Thai suppliers. However, changes in suppliers are seldom made, because other suppliers are not necessarily better and considerable time and effort has already been spent building the co-makership relation. Internationally, there are also few alternatives, partly owing to the strict regulations for obtaining a certification of airworthiness.

Low

Brakefluid Shoes

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Quality problems

Soap

Airchair

High Figure 3. Co-ordination: local versus global purchasing implies trade-off between lead time and quality

Short (local) Leadtime

Long (global)

Note: Direction of arrow represents increasing share of global purchasing

Soap, finally, does most of its purchasing locally. As a result, one would expect even more problems with quality than a plant like Airchair and hence a position in the lower-left corner of the figure. However, Soap has developed a vendor rating programme, where suppliers are rated on aspects such as product quality, delivery, technical service, documentation, price and plant capabilities. In the near future, quality control will be done by the suppliers themselves, as part of Soaps plans for implementing just-in-time service. The company reports that continuing efforts in the selection and evaluation of local suppliers pays off in terms of reliable supplies. From this discussion, it follows that one way to avoid local quality problems is to purchase globally. Then, the internationally operating parent company is required to co-ordinate the supply of their subsidiaries. For instance, they decide on the flows of critical components and materials as supplied by sister plants in the parent companys global network. In addition, Brakefluid reports that central procurement planning is desirable for obtaining discounts on input prices. Co-ordinated global purchasing maintains consistency within the overall international manufacturing strategy. More generally, this brings us to the coordination issue of how to decompose the overall manufacturing strategy into specific goals for the individual plants. In Table II, the four case companies are compared in terms of standardization of production processes, input quality control and R&D. Soap has an R&D division of hair products responsible for developing suitable products for Asian hair types. This increases the responsiveness to

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country-specific needs. Soaps R&D division also functions as a source of information for sister plants elsewhere in the world. Still, most of the know-how is generated in Europe, because the basic research activities are executed by the parent company, which Soap has access to. This also applies to the production technology of other plants in the network. Shoes, on the other hand, is strongly controlled by the parent company, who is in charge of quality control and ordering raw materials.

Company Shoes Table II. Co-ordination: decomposition of overall manufacturing strategy Airchair Brakefluid Soap

Production processes standard 1 plant worldwide No; each plant different products Yes; uniform equipment Access to technology of all other plants

Input quality control Headquarters Local Not crucial Local; sometimes even by supplier

Research and development Headquarters Headquarters Local R&D division on hair products

For example, samples of leather are checked centrally, in Sydney, prior to shipment to the Thai plant. Similarly, headquarters controls the shipping of the finished products to distribution centres in the USA, Europe and Australia. Airchair is a bit more autonomous: for local inputs, quality control is performed in their Thai plant. These inputs are typically the materials that cannot be sourced via the parent company. Interaction between configuration and co-ordination Above, the co-ordination of the international factory network with respect to procurement, standardization of production processes, R&D and exchange of know-how was discussed. We noticed remarkable differences in local autonomy, for instance, in terms of purchasing practices and development capabilities. Soap clearly has a larger degree of freedom than Shoes and Airchair. The latter two are heavily controlled by their respective parent companies. Recall that the design as well as the sales and distribution of Airchairs products take place outside Thailand. Now let us return to the strategic role of the plants by considering the positioning of the case companies in Ferdowss[14] scheme (Figure 2). The companies that are relatively highly co-ordinated appear to have a lower level of technical activities. Apparently, an interdependency exists between the autonomy of the local plant, on the one hand, and its level of sophistication on the other. In Ferdows[14] configuration terms the way a factory is co-ordinated correlates with the strategic role of that factory. In principle, a configuration decision indicates an allocation of tasks and resources to a plant at a certain location, which includes the level of local

sophistication. From the comparison of the case companies it can be seen that a configuration decision, in turn, leads to a certain form of co-ordination. Or, stated differently, when describing the functioning of the plants in their respective international networks, it is difficult to separate configuration strictly from co-ordination aspects. A further point, and one which requires more empirical research, is whether certain problems in co-ordinating the international network result in modifications of the content and level of tasks of the local plants. Which coordination problems alter the initial configuration? Ferdows[14] introduced his notion of the strategic role of the factory to be able to describe specific patterns of evolution in this role, i.e. the changing configuration of the factory network. Increased local capabilities may reduce the need for co-ordination by the parent company. At least two questions arise from the detailed discussion of the four case companies: (1) Does a certain configuration determine the way the co-ordination is organized? (2) Can co-ordination problems alter the configuration? Conclusions and managerial implications Configuration and co-ordination aspects are addressed in different branches of the literature and are therefore seldom integrated. We have presented some ideas on how a higher level of integration can be achieved by proposing links between two representatives from each branch. This was further elaborated from a practical point of view by discussing the two concepts and their interaction in the context of Dutch investors locating plants in Thailand. The in-depth comparison of four case companies generates ideas for future research. For example, more information is needed about whether certain problems in co-ordinating the international network affect the content and level of tasks of the local plants. What co-ordination problems alter the initial configuration? And to what extent does a certain configuration determine how co-ordination is organized? It appeared that in analysing the functioning of the plants in their respective international networks, it is essential to mix configuration and co-ordination aspects. More generally, we expect that combining concepts from international business and manufacturing strategy will contribute to the understanding of international manufacturing and location patterns. Starting with manufacturing strategy, more attention is required to the way in which product quality, process flexibility, delivery dependability and manufacturing costs influence the firms international involvement (compare [3]). In terms of international business, a research approach would be to translate Dunnings ownership-specific, location-specific and internalization-incentive advantages to the tactical/operational level of the company, thereby focusing attention on co-ordination issues.

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Finally, some important implications for managers responsible for international location issues are derived from the experiences of the case companies: (1) Plants in emerging economies, like Thailand, should be treated not only as low-cost facilities, but also as potential sources of learning. The experiences of, for example, case company Soap demonstrate that local expertise is vital to customize products to the demands of specific markets. In this respect, foreign plants contribute to increasing a firms ownership advantage, a key building-block of Dunnings[15] eclectic paradigm of international production. An increased focus on Asias emerging economies by European multinationals requires a shift in their strategies. Presently, their supply chains are primarily oriented towards European circumstances. (2) It is recommended that co-ordination issues are explicitly considered in configuration decisions. The experiences of the case companies revealed that a failure to do so often resulted in unanticipated problems in operating their Thai plants. For example, suppliers should be able to guarantee a reliable flow of input materials in terms of both quality and lead time. The initial location study should include the question of whether local suppliers can meet these standards. A strict short-term policy to minimize material prices is likely to result in supply problems. Particularly the experiences of Soap illustrate that quality investments in, for example, vendor-rating programmes pay off in terms of increased supplier performance. (3) The time dimension is of vital importance in location decisions. Dynamic analyses are required to understand the sensitivity of foreign plant performance to changes in the values of key location determinants. These analyses should reveal the underlying forces affecting performance levels. Knowledge of the causes of, for example, lower labour productivity or disappointing supplier performance is useful to develop concrete measures to increase plant performance. In this respect, a multinationals previous experiences with establishing foreign plants is a valuable source of learning.
References 1. Porter, M.E., Changing patterns of international competition, California Management Review, Vol. 28 No. 2, 1986, pp. 9-40. 2. Gregory, M.J., Steele, A.P., Shi, Y. and Grant, E.B., International manufacturing capabilities: a framework to support the assessment, development and deployment, in Proceedings of 3rd International Conference of EurOMA, London Business School, London, 1996, pp. 267-72. 3. DuBois, F.L., Toyne, B. and Oliff, M.D., International manufacturing strategies of US multinationals: a conceptual framework based on a four industry study, Journal of International Business Studies, Vol. 24 No. 2, 1993, pp. 307-33. 4. Tombak, M.M., Multinational plant location as a game of timing, European Journal of Operational Research, Vol. 86, 1995, pp. 434-51.

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