Abstract
This paper aims to analyze participation by Spanish industrial firms in the marked process of international production modularity or fragmentation that is taking place on a global scale. It studies whether firms use offshoring (that is, transfer activities abroad), what type of activities are offshored, the type of offshoring used, the main target countries, the reasons for offshoring and the benefits it brings. Qualitative research into four Spanish business groups shows that they all use offshoring, mostly outsourcing manufacturing to international suppliers. When choosing offshore location, these groups aim to achieve not only cost savings but also advantages from the agglomeration of the agents with which they need to interact, as well as access to new markets and relevant resources (infrastructure, auxiliary industry, production capacity, technology and know-how).
Highlights
Globalization, coupled with the current dynamic nature of markets, fast technological change-especially in communications- and increasing competition from new international players— emerging countries with lower income and wage levels, is placing firms under great pressure, leading them to adopt changes in the organization and location of their value chains.On the one hand, globalization provides firms with opportunities to target a larger number of markets and suppliers of raw materials and components [1]
The purpose of this research is to analyze whether Spanish industrial firms are participating in this process of international production fragmentation by modifying the organization and location of some of the activities in their value chains
The analysis focuses on the following questions: Of all the activities involved in the firm’s value chain, which ones have been outsourced to foreign suppliers and which ones have been transferred to subsidiaries abroad? What are the main reasons why firms make these decisions? What benefits has the firm achieved by transferring activities abroad? What risks have been taken? Given these objectives, case study was adopted as the research methodology as this allows a phenomenon to be studied within its context, using multiple sources of information and analyzing a large number of variables3
Summary
Globalization provides firms with opportunities to target a larger number of markets and suppliers of raw materials and components [1]. Businesses can adopt a modular approach, breaking up their value chains, specializing in their core activities and transferring the rest to foreign countries which have more open markets in addition to unique resources and/or capabilities. In this way, firms are able to take up opportunities for cultural, administrative, geographic and economic arbitrage, making the most of differences between countries and searching for economies through international specialization [3]. The combination of modularity and offshoring, that is, of fragmentation and the use of resources outside the firm’s home country, is creating a worldwide panorama of value chains that are broken up into separate, specialized activities -innovation, component design, industrial design, logistics, manufacturing, sales and after-sales service, amongst others- which are carried out by different firms in different parts of the world, giving rise to international production networks
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