Business Linkages: Lessons, Opportunities, and Challenges

Abstract

For large firms, globalization has generated both new markets and new competitive forces. Constant pressure to reduce costs, shorten lead times, and focus on core competencies has driven firms to change their supply chain management strategies. Most large manufacturing companies now buy significant percentages of their inputs of both goods and services from other firms, with some spending as much as half of their revenues this way.' Managing the supply chain for an optimal mix of cost, quality, flexibility, and strategic advantage (such as access to innovation) is becoming an increasingly important source of competitive advantage. In addition, many firms have become highly transnational, with increasing presence in developing countries. The 77,000 transnational corporations identified by the United Nations Conference on Trade and Development now count more than 770,000 foreign affiliates which, in 2005, ""generated an estimated $4.5 trillion in value-added, employed some 62 million workers, and exported goods and services valued at more than $4 trillion.""? More and more of this activity is taking place in developing countries. Foreign direct investment (FDI) in these countries reached ""the highest level ever recorded"" in 2005 - $334 billion.' In the 10th annual CEO survey conducted by PricewaterhouseCoopers (PwC) for the World Economic Forum, 35% of respondents indicated that more than 10% of their value chains were sourced from, or located in, low-cost countries.