The previous three chapters described how managers of an MNC choose a mode of entry to the international market (PARTICIPATION STRATEGY) and then design the appropriate organizational structure (ORGANIZATION STRATEGY) and financial strategy (FINANCIAL MANAGEMENT STRATEGY). At that point the MNC is ready to begin its main function: transforming raw materials into marketable products. This process is called production.
The aim of the present chapter is to study the process of securing the necessary inputs to the production process and delivering the resulting outputs to the marketplace. The production strategy-setting process goes beyond the customary function of the production department. Thus it would be more appropriate to call the production strategy the "supply strategy," as some authors do. The term "supply strategy," however, has recently acquired a specific meaning because of the Reagan administration's economic policy, known as "supply side economics." For this reason the more conventional term "production strategy" will be used here.
Issues addressed in the production strategy-setting process range from sourcing and subcontracting for parts and components to distributing the final products to the world markets. In between these two basic functions of providing for input acquisition and output delivery are the tasks of determining plant location, plant layout, and plant operations. Thus, the main function of the international production department of an MNC is to organize and coordinate the production functions of all of its plants around the globe so as to guarantee a worldwide supply of the goods and/ or services that the MNC has contracted to deliver.
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