ABSTRACT

The increasing liberalisation of markets and the growing importance of intraand inter-firm collaboration agreements provide MNEs with increased opportunities to reorganise their value-added chain on a worldwide basis for reducing costs, increasing flexibility, sustaining a wider product portfolio and carrying out innovations and technical developments. Sourcing has become a key element in the global corporate strategy of MNEs and consists of a number of basic choices in the management of the flow of components in supplying their cross-border production activities. The sourcing decisions generally involve two fundamental questions, that is, where and how to source the major components for further processing or final assembly. The first question is related to the ‘import or buy local’ decision, that is, MNEs can procure components either locally (domestic sourcing) or from abroad (offshore sourcing). The second question is concerned with the choice between ‘make or buy’, for example, MNEs can either source components from the parent company or other subsidiaries of the group on an intrafirm basis or from independent suppliers on a contractual basis. The first type of

sourcing is known as in-house sourcing, while the second one is commonly referred to as outsourcing (Swamidass and Kotabe 1992; Beamish et al. 1994). In the case of an international JV, the intra-firm sourcing can also include procurement from the parent or subsidiary companies of the local partner. The combination of the above-mentioned spatial and contractual parameters lead to the formulation of the different sourcing modes as presented in Figure 8.1.