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This chapter discusses the global factory paradigm. We show how mainstream international business (IB) thinking, namely, internalization theory, can guide multinational enterprise (MNE) strategic decision-making in the context of a global factory network.

We identify the key assumptions made in the global factory paradigm about the fine slicing of economic activities and the related implications for the ownership status and location of each activity. In order to overcome the global factory paradigm’s relative lack of predictive capacity, as compared to internalization theory, we propose an asset-bundling approach. This approach uses a clear and unambiguous criterion, namely, the tradability of resources (and resource combinations) to determine which sets of activities can best be left to external market contracting or should on the contrary be internalized on the basis of efficiency considerations.

We describe the enhanced role of developing/transition countries in the functioning of the global economy and show that these countries represent an increasing share of worldwide economic activities. Given this macrolevel development, the global factory, as a complex organizational form governing both internal activities and contracts with external parties, is rapidly gaining in importance. We describe, at the conceptual level, the strengths and weaknesses of the global factory and propose a “decision dynamics” matrix to support global factory, senior managers’ strategies in the realm of ownership status and location.

Future research on the MNE should focus on in-depth analysis of firms that embody “global factory”-type characteristics in order to understand better the evolution of this type of company and to capture the close requisite links among the focal firm, external contracting parties, and the broader environment. Such research should also lead to a better understanding of innovative resource combination processes and the transferability of non-location-bound firm-specific advantages (FSAs) across the global factory network.

In the global factory, the MNE head office assumes the role of resource orchestrator and is responsible for key strategic decisions on ownership status and location. Here, the head office must assess critically the operations that are part of the MNE’s value chain and reflect on the firm’s international dispersion of economic activities on an ongoing basis, given a myriad of broad environmental changes and changes in external competitive pressures. Our “decision dynamics” matrix provides a simple but effective managerial tool supporting MNE ownership status and location decisions, but the head office’s capability to make these decisions should not be overestimated.

We explicitly link internalization theory with the global factory paradigm and explore unresolved issues in the relevant literature. Internalization theory prescribes the optimal ownership status and location for each economic activity considered. The theory focuses on the bundling of firm-level resources and complementary ones held by external parties, for each fine-sliced economic activity. It also considers explicitly the nature of the linkages among these activities.

This chapter analyses the rise of the ‘global factory’ – the globally integrated network centred on a focal multinational enterprise. This is a response to the increased volatility of the global economy and involves the creation of systems that allow flexibility in both the location and the control of increasingly ‘fine-sliced’ activities, the avoidance of monopoly and the evolution of new management skills. Foreign direct investment is only one strategy amongst several utilised by globally integrated multinationals.

We develop a concept of the global factory, first introduced by Buckley and colleagues (2004, 2009, 2010, 2011, 2014), as a stand-alone construct associated with significant predictive capacity, discuss dynamics of success of the global factory, and identify and analyze social mechanisms deployed by the lead firm head office.

We conceptualize the global factory as a form of a flagship network and augment internalization theory with insights from interorganizational networks research to explore the dynamics of the global factory’s origination and functioning.

We clarify under what conditions a global factory-type network is more likely to emerge and describe social mechanisms generated by the lead firm head office to help the global factory sustain itself and thrive. We argue that in order to benefit from potential efficiencies of the global factory, the lead firm head office must deploy combinations of social mechanisms. We further argue that the role of the lead firm head office is that of a joint value orchestrator and a social broker, in addition to the controlling intelligence function.

Future work on the global factory should include further conceptualization of social mechanisms deployed by the lead firm, exploration of operating mode heterogeneity within the global factory, and large-scale empirical research.

Lead firm managers should embrace the role of the joint value orchestrators and implement social mechanisms described in this chapter to facilitate smooth operation of the global factory.

Global factory governance further increases multinationals’ geographic reach and market power; yet, it is not a universal recipe for market success, and therefore global factories’ power to shape the global economy should not be overestimated.

By linking the global factory to networks literature, we have suggested a novel way to view the concept and articulated more fully its underlying assumptions. Further research on the global factory will help advance our understanding of the dynamics of the global economy and the role of multinationals, their head offices, and their managers in shaping the economy.

The purpose of this paper is to explore two specific areas pertaining to industrial networks and international business (IB). First, the authors look at how business relationships influence the internationalization in time, from the establishment of the first subsidiary in a foreign market to the following ones, and in space, that is, across different markets. Second, the authors investigate how an increasing external network dependence of subsidiaries in their internationalization may cause a detachment of a subsidiary from the mother company as its knowledge becomes insufficient to guide a subsidiary’s internationalization.

This paper utilizes an exploratory, longitudinal, single-case study of Loccioni – a manufacturer of measuring and automatic control systems for industrial customers – to illustrate the specific dynamics of the influences of industrial networks on the internationalization of subsidiaries.

The case study helps to elucidate the roles, entailing also free will and own initiative, of small suppliers’ subsidiaries which operate inside several global factories, and how “surfing” on many different global factories, by means of several local subsidiaries, actually supports these suppliers’ own international developments. This notion adds to our understanding of the global factory phenomenon a supplier focus that stresses how the role of suppliers is not merely that of being passive recipients of activities and directions from a focal orchestrating firm, but can also be that of initiative-takers themselves.

The paper contributes to the IMP tradition by providing a multi-layered and geographically more fine-grained view of the network embedding companies that operate on internationalized markets. This paper thereby sheds light on a less investigated area of research within the IMP tradition: the link between internationalization in different countries and the interconnectedness between the industrial networks spanning these countries. At the same time, this paper contributes to IB theories by showing how a late-internationalizing SME can enter highly international markets by “plugging into” several established “Global Factories” as a way to exploit further opportunities for international expansion.

This study aims to investigate the relationship between building smart factories in manufacturing small- and medium-sized enterprises (SMEs) and firm performance and the moderating effect according to product complexity and company size.

Data were collected from 206 companies selected in the list of SMEs, which had built smart factories, provided by the Smart Manufacturing Innovation Center in Korea. The collected data were analyzed using structural equation modeling (SEM) technique.

First, production automation and big data utilization are associated positively with productivity, but not significantly with export performance. Second, supply chain integration is associated positively with both productivity and export performance. Third, product complexity moderates negatively the relationship of productivity with each of production automation, big data utilization and supply chain integration while moderating positively the relationship between supply chain integration and export performance. Finally, company size does not moderate significantly the relationship between productivity or export performance with any of production automation, big data utilization and supply chain integration.

This study contributes theoretically to literature by demonstrating the usefulness of building smart factories and suggesting how SMEs build a smart factory to enhance productivity and export performance from a business perspective. Moreover, this study contributes practically by proposing that SMEs should put priority on supply chain integration over production automation and big data utilization and execute different strategies of building smart factories depending on product complexity.

This paper explores growth opportunities for a contract manufacturer (CM), which operates a global virtual manufacturing network (GVMN). The Swiss factory should play a profitable role in the holding's competitive strategy, in spite of lower-cost alternatives within its network.

The study applied a design science method over a period of two years of collaboration with the partner firm to complete three iterations of solution incubation and refinement.

The design artefact is a growth strategy for a CM with independently-managed, heterogeneous sites. A novel capability mapping tool reveals competitive advantage by deploying the GVMN as an order fulfilment system. Engineering and sales are integrated with production to project higher revenue streams in multiple locations including Switzerland.

The research expands the operations management (OM) focus on optimization and continuous improvement. Results indicate that local and global manufacturing capabilities can be configured to target network performance, implying that the smile curve flattens in certain GVMN configurations. The exploratory case study is limited by a lack of statistical generalizability and is specific to the contract electronics manufacturing industry.

Managing manufacturing as a network can restore feed-forward and feedback loops, which are disrupted by de-verticalization and externalization. The visualization positions a Swiss plant in an inimitable role, serving growth accounts, which require co-development. The order fulfilment strategy and capability maps can be adapted to other GVMNs.

The study presents an alternative to shuttering high-cost locations using performance improvements instead of protectionist interventions. This could have a material impact on de-industrialization in developed nations like Switzerland.

The strategy innovation originates in practice. Its synthesis drew on multiple disciplines to position OM as a strategic lever for competing in global value chains (GVCs). The author finds alternatives to the internationalization logic of cost arbitrage and adds to developed country studies. This is an OM contribution to the broader debate on globalization dominated by the social sciences.

In this chapter we chart the evolution of the theory of the multinational enterprise (MNE) from Buckley and Casson’s original depiction to Buckley’s conceptualization of the global factory. Within that context we consider the issues of risk and uncertainty which continue to challenge firms in the international context. Indeed, despite the explosion in access to greater wealth of digital sources of information and knowledge, risk, uncertainty, volatility, complexity, and ambiguity remain constraints on the ability of firms to function effectively in the international arena. Theoretical development around the nature of the MNE must deal with such enormities, but also other demands in the global context. The evolution of the global factory has been recognized as the disintegration of the MNE through the externalization of many of its previously core activities, including parts of production and marketing, but this form of the MNE will not be the end-game. Ultimately, it may be questioned whether the MNE is becoming, or has become, just a global super-manager of value activities orchestrating the internationalization of production.

Amidst burgeoning attention for global value chains (GVCs) in international business (IB), this paper aims to identify a clear “missing link” in this literature and discusses implications for research and corporate social responsibility (CSR) policy-making and implementation.

The paper combines an overview of relevant literature from different (sub)disciplinary fields, with insights from practitioner and expert interviews and secondary data.

Because IB GVC research stems from a focus on lead firms and their producing suppliers, it lacks attention for intermediary actors that may significantly impact the organization of production in general, and firms’ CSR commitments in particular. Import intermediaries are often “hidden” in GVCs. This paper indicates the emergence of GVC parallelism with “frontstage” chains managed by lead firms and increasingly exposed to public scrutiny following calls for transparency and CSR, and “backstage” ones in which buyers and intermediaries operate more opaquely.

This study points at salient yet little known practices and actors that influence the organization of production and the implementation of CSR policies in various ways, and therefore offers ground for reflection on the design of proper supply chain and CSR policies.

This study exposes a hitherto neglected category of actors in GVCs and broader IB research and discusses implications, relevance and areas for further investigation. An illustrative example explicates the importance of carefully considering this “missing link”. The study emphasizes the need for further study into ways in which both lead firms and intermediaries deal with contradicting demands of implementing CSR policies and offering competitive prices with short lead times.

Brand positioning based on the brand’s country of origin is at the centre of attention in international marketing. It is evident that global brands constitute critical intangible assets for businesses and places. However, it is not clear how they contribute to national economies. This paper aims to discuss the significance of brands as contributing to the value of their companies but also helping to leverage national economies. Although global brands can be produced and purchased in multiple countries, their influence on the economy of the country where their owner’s seat is located can be more meaningful than in other economies included in the “global factory”.

Based on 500 Brandirectory, the Most Valuable Global Brands 2011-2015 rankings powered by Brand Finance, the authors observed a spatial-economic autocorrelation which exemplifies the potential interdependency between gross domestic product (GDP) and brand value. This relationship has become a starting point for designing a spatial regression model.

The findings support the hypothesis that assumptive spatial dependencies have a significant influence on the examined relationship of brand value and GDP.

The presented study is the first to examine the potential interdependence between brand values and GDP of the countries of origin using a dynamic spatial approach.

The purpose of this paper is to review the key analytical principles of internalisation theory as a general theory of the multinational enterprise (MNE). It illustrates the vitality, relevance and flexibility of the approach in explaining the continued evolution of the MNE. As a grounded social science theory, it provides, in combination with history and economic geography, satisfying and novel explanations of the key phenomena of the modern globalising economy.

This paper examines the origins and principles of internalisation theory as the foundation theory of the MNE. It considers internalisation theory in the context of current and mainstream theories and concepts in the field of international business.

Internalisation theory is equally valid for the MNEs of yesteryear as it is for those today. The theory continues to have strong explanatory power for MNE activity. Current research areas, such as multiple embeddedness, fine-slicing of the value chain, etc., and other theories, such as dynamic capabilities and the resource-based view, either are subsets of internalisation and thus explained by the theory, or contain weakness and/or inconsistencies not found in internalisation theory.

This paper coherently synthesises internalisation theory, its origins and evolution. It shows how commonly held and current concepts and theories are related to internalisation theory or have weaknesses, thus making internalisation theory a superior theory to explain the MNE, and identifies potential applications of the theory to novel research areas in the field of international business.