A multinational company maximises its competitive advantage by Essay

A multinational company maximises its competitive advantage by controlling its own supply chain. Discuss - Essay Example According to Caves (2007) any business, which has showed potentiality of having varied number of chain stores located in different parts of the world is capable of achieving adequate economies of scale such as timeliness, humble use of global resources and market dominance amongst other aspects, which can only be relevant to the maintenance of supply chain. Globalization and FDI The globalization of commerce has a major impact on modern business (TOMAR, 2009). Globalization affects the way business is carried out and the geographical area where a business can operate. With globalization, even small businesses are able t operate in the global arena, which then leads to Foreign Direct Investment. Foreign Direct Investment affects and in turn is affected by the supply chain. It also affects the supply chain decisions which a firm is likely to make with regard to whether they are going to manage their entire supply chain or if they are going to outsource the supply chain to a third part. With regard to choosing a supply chain model, businesses look for the model which will offer them strategic edge over their competitors. It is therefore not a matter of choice, but it is a matter of choosing the most efficient way of survival in a marketplace that has been made even more competitive by the existence of globalization. Issues of competitive advantage simply entail an organization being able to dominate the market over other firms who trade in the same line of product. Firms that have numerous numbers of chain stores in different countries have got potentials of achieving increased sales volume. Besides proper choice of the location of an industry is the most practical way of distribution of production cost. Therefore, with very minimal cost of production a company can easily enjoy the competitive advantage. Moreover, with several advantages associated with supply chains, the company would be left with principal mandate of concentrating on other internal aspects of pr oduction, and this makes appropriate benefit to the maintenance of supply chain by an organization (working mother, 2001). The Coase Theory of Transactions Costs and Decisions Making The Coase theory postulates that in the absence of transactional costs, businesses would be able to share the property space without having to worry how resources are allocated (Jager, 2008). In regard to the supply chain, what this means is that if there are no negotiation costs between two firms which are at different levels in a single supply chain, the two firms would not mind continuing to depend on each other to complete the supply chain. The Coase theory was developed by Ronald Coase who tried to understand the free markets and why regulations are not necessary. According to the Coase theory, an organization would only then choose to control all its supply chain if there were costs of negotiating the terms of service with other firms in the supply chain. If these costs of negotiation do not exist , the costs of outsourcing some of the supply chain would not hinder a firm from outsourcing. In fact, according to the Coase theory, where transactions of negotiations do not exist, the two (or more) firms in a supply chain would naturally gravitate to the most efficient relationships with the most efficient supply chain. This implies that in the abs