EThames

Graduate
School,
APPLIED RESEARCH
PGBM
METHODOLOGIES
Ranjith Gadilla
Feasibility of multinational manufacturing organization setting up a new plant in a country in which
they have never operated
 Applied Research Methodologies

Table of Content

1. Introduction -------------------------------------------------------------------------------- 2
2. Research Aims and Objectives ------------------------------------------------------ 3
2.1 Aim --------------------------------------------------------------------------------------- 3
2.2 Objectives ----------------------------------------------------------------------------- 3
3. Literature Review ------------------------------------------------------------------------ 3
3.1 Understand feasibility of organisation in the new region ------------- 3
3.2 Constraints of setting up a new plant ---------------------------------------- 4
3.3 Understanding Supply Chain Issues ----------------------------------------- 7
3.4 Understanding people issue while setting up a new plant ----------- 8
4. Research methodologies ------------------------------------------------------------- 9
4.1 Types of research methods and data analysis -------------------------- 10
4.2 Reasons for choosing quantitative analysis ----------------------------- 10
4.3 Data collection techniques ----------------------------------------------------- 11
5. Ethical Issues ---------------------------------------------------------------------------- 11
6. Limitations of the research and Conclusion ---------------------------------- 12
7. References ------------------------------------------------------------------------------- 14

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1. Introduction

Starting a manufacturing unit in a new region involves lots of decision making and
understanding the feasibility of the organisation in the region. Some of this are obvious
and include digging around for market demographics, the strength of local economy and
many more (Edward, 2008). No matter what business or what investment the
organisation is going to make it is important that the organisation carry out research in
order to understand the feasibility of the business in the area (Arpita, 2009).

In the case of a multinational manufacturing organisation the primary objective of

carrying out a research is to understand the feasibility of the organisation within the new
environment. The organisation should also be aware of the constraints that they might
face while setting up a new plant. Similarly, supply chain and manpower is another
issues that the organisation should have a clear picture before investing on the plant.
Since, the region is new and the organisation has not operated there yet supply
understanding the supply chain requirement is crucial. Similar, is the case with the skills
and expertise required to carry out the process.

According to Sharp et al. (2002), “Research is seeking through methodical processes to

one’s own body of knowledge and to that of others, by the discovery of nontrivial facts
and insights.”. Research should be systematic, logical, empirical, reductive and
replicable. This research is done to describe a situation that is a situation when a
multinational organisation is planning to setup a new plant in a new country.

Understanding the current situation of the organisation an Aim and some Objectives are
framed in order to understand the feasibility of the organisation for the new
environment. Then a literature review is carried out with the aim of understanding the
objectives of this research as well as collecting secondary data required for data
analysis. This report also covers various types of research methodologies in practice
and how the data collected are going to be interpreted in order to give meaning for the
objectives framed. This report also highlights various ethical issues that the organisation
might face. The last section of the report covers the limitation of the research carried out
along with a conclusion and recommendation for the organisation.

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2. Research Aims and Objectives

2.1 Aim

Investigating multinational manufacturing organisations feasibility while setting up a new

plant in a country where they have never operated.

2.2 Objectives

1. Understand the feasibility of the organisation in the new region

2. Understand the constraints of setting up a new plant

3. Understanding Supply Chain issues of the new plant

4. Understanding people issue while setting up a new plant

3. Literature Review

This section analyses the research that has been undergone in the area of
manufacturing organisation setting up their plant in a new regions. Primary objective of
this chapter is to try and relate the previous studies in this area to the research
questions and objectives of this report.

3.1 Understand the feasibility of organisation in the new region

“The most important aspect of a manufacturing company, while setting up a new unit, if
it wishes to succeed, is experience within the industry. This is essential to ensure that
the owners and operators of the business are aware of the latest manufacturing and
production techniques and operating processes” (Lines, 2006). Researches show that
there are increasing evidences that a company’s reputation could be the basis for
valuable commercial competitive advantage (Leisinger, 2003). On the other hand,
matters of self-interest for the multinational companies regarding social and
environment aspects of the new region of operation could damage the reputation of the
organisation in that area (Leisinger, 2003).

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According to Barker (2000), “technology is the fundamental and necessary key to

development”. The core to this statement by Barker is the idea of sustainability that can
be achieved by an organisation, independent of its area of operation, for innovation and
development with the help of technological expertise the organisation posses. The
difficulty for applying this technology expertise relies with standards and specification of
technologies that the organisation might have to incorporate while expanding to new
regional territories (Drago, 2001). According to Drago (2001), “Technology, no matter
where it is applied, can only be understood and valued in relation to the social group
that creates or uses it, because every model of society and development conceives of
and uses a different kind of technology”. Drago (2001) also points out that, most
multinational organisations uses adaptable technologies which has well-defined guide
lines, clearly designed usage and thorough assessment for appropriate usage.

Senior Executives including CEO, CTO and CFO’s of major organisations like Fiserv,
Schumacher Group and several others who participated in a poll conducted by GRM
group highlighted Cultural Fit as a key factor that determines the feasibility of the
organisation in a new region (GRMGroup.com, 2009). (Reinhardt and Almasanm, 2009)
says that the multinational organisations setting up its units in other countries are
capable of threatening the identity of the country of operation. In an article written by
Caplan and Cowen (2004), they argue that global cultural competition is beneficial as it
gives opportunity for the people in the region to know what rest of the world has to offer
to their culture.

3.2 Constraints of setting up a new plant

According to Chaudari et Al. (2010), there are two main types of constraints while
setting up a new plant in a new region which are Constraints on Companies and
Constraints on Customers. Chaudhary et. Al. (2010) also says that the organisations
believe that they achieve process efficiency at the expense of customer efficiency and
vice versa. According to Chaudhary et Al. (2010), “Multinational companies try to
replicate their global practices in new markets find their efficiency limited to external
constraints, so they are left to serve only premium customers”. This could lose the
opportunity of serving larger customer segment.

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For Instance, Samsung Consumer Electronics developed premium positioning that

emphasised on the design and cutting-edge technology at price that was considerably
higher than the spending power of the region when they launched their product in India.
Concentrating on premium customers in a region like India could bring in only limited
profit. Hence, Samsung was forced to change their strategy in India and is clearly
evident from the statement made by Ravinder Zutshi, Samsung India deputy managing
director, “We are providing superior technology and differentiated products even for the
mass market. We are aiming at market leadership not only in the premium category of
products but also mass category like flat television” (Bansal, 2008). Fig 3.1 shows the
constraints on multinational organisation while setting up a new plant in a new region
(Chaudhuri, 2010)

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According to Schmenner and Swink (1998), in order to respond these constraints

organisations must try to achieve higher level of efficiency and responsiveness.
Schmenner and Swink (1998) developed a model to identify how they are moving
towards achieving this efficiency and responsiveness. Fig 3.2 shows the model to
identify the efficiency and responsiveness

Fig 3.2, Model for attaining cost efficiency and customer responsiveness (Schmenner and Swink,
1998; Chaudhary, 2010)

According to the research done by Schmenner and Swink (1998), “the companies
operating near the performance frontier should expect trade-offs. The companies that
operate away from the frontier have the potential to improve both efficiency and
effectiveness; the companies that operate at or close to optimal performance levels can
strive to shift their frontier through innovation and gain sustainable competitive
advantage”. For instance, from fig 3.2 if the organisations position is A and if the
organisation is moving away from the frontier it will improve the cost efficiency but at the
expense of customer responsiveness or vice versa. The best is to try and move the

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organisation to position B where they will be able to achieve both cost efficiency and
responsiveness.

3.3 Understanding Supply Chain Issues

Constant and ever evolving technologies in manufacturing have made it challenging as

well as difficult to manage the supply chain (Shobrys, 2003). Rapid innovation in
technologies and recent economic slowdown resulted in reduced demand and as a
result suppliers and customers took steps to mitigate the impact (Shobrys, 2003).
According to Shobrys, this has resulted in substituting inventory management policies,
raw materials, products and pricing. According to Shobrys (2003), “Change continues
as demand recovers and supply chain participants adjust to revived levels of demand.
These changes play out differently across different product lines, markets and
geographical locations”. Hence, it can be said that the while setting up a manufacturing
plant in a new location the organisation should seriously consider about the supply
chain issues that they are going to face.

According to a research conducted by APICS Educational and Research Foundation

and Michigan State University in 2009, following are the main five issues regarding
supply chain (Gerber, 2009)

1. Supply chain disruptions and risk

2. Leadership within the supply chain
3. Managing the timely delivery of goods and services
4. Managing product innovation by drawing on the capabilities of the supply chain
5. Implementing appropriate technology to enable seamless exchange of
information within the supply chain

Many businesses regard supply chain planning as system rather than a planning issue
and hence, planning in terms of supply chain is very important while setting up a new
plant (Mahler, 2003). According to Mahler (2003), supply chain planning can be made
through the acronym FAIL – without which the processes is likely to fail. FAIL stands for
Functionality Adaptability Integration and Leverage. Functionality is the basic building
block for functional excellence which includes all the supply chain functions like plan,

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source, make and deliver (Mahler, 2003). Adaptability refers to evolving according to
changing demands and Integration makes sure that all the elements are coordinated to
deliver the final result (Mahler, 2003). Finally, Leverage deals with synergy across
different businesses that includes adopting common practices, allocating resources and
exploiting economies of scale.

To successfully evaluate the supply chain (SC) a performance measurement method

should be adopted by organisations especially while expanding to new regional areas
(Sillanappa, 2010). Measuring performance of SC is comparatively difficult and
according to Hoek (1998), “Measuring the Unmeasureable – Measuring and Improving
performance in the Supply Chain Management”. There are several performance
measurement tools available for SC for example Gunasekaran et Al. (2001) developed
a metric to measure SC performance. Similarly, Toni and Tonchia (2001) presented
several indicators of internal and external time measurement methods for the same.
Another model was developed by Chan (2003) that performs qualitative and quantitative
measurements.

3.4 Understanding people issue while setting up a new plant

According to (Thomas, 2008), “Managing a workforce in India is fundamentally different

than in Indiana”. Different cultures produce employees with different values, attitudes
and motivations and hence, there is no global workforce with common values or
motivation. To meet this, the organisation must create a management team from
diverse backgrounds who will be able to interpret company goals and communicate
message across different cultures (Thomas, 2008).

Foreign investments by multinational organisations have the potential to create large

number of new job openings (Panos, 2001). This is very important in terms of world
economic liberalisation and many countries have seen large rise in unemployment and
underemployment due to mass lay-offs by state sector which in turn reduces
opportunities in the public sector (Currey, 2001). This situation of unemployment can be
overcome by setting up of a new plant in a country in where economic growth is higher
compared to labour force. For Instance, the economic growth in Argentina is on the

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higher side for past eight years and this has in turn resulted in dramatic rise in
unemployment (Panos, 2001).

On the other hand foreign investment on new plants by multinational organisations has
created job losses as these organisations give an unmatchable competition for local
enterprises and in turn squeeze them out of the marketplace (Panos, 2001). According
to Heintz (2010), “Changes associated with recent foreign investments have limited
labour demand relative to labour supply and this creates pressures leading to changes
in the structure of employment.” This will result in higher level of unemployment, growth
of informal employment, reduced bargaining power of workers, downward pressure on
the returns to labour and a redistribution of risk from capital to labour (Heintz, 2010). to
tackle the situation Heintz (2010) suggests that organisations should adopt strategies
that can take advantage of non-regular employment arrangements that are not subject
to regulatory oversight.

4. Research Methodologies

This chapter discusses about the research approaches by elaborating the procedures
used to collect data and the rationale approach used for this. For this research two
types of data can be collected for analysis namely primary and secondary data. From
literature review section it is evident that researchers have common opinions and
concerns when a multinational manufacturing organisation is setting up a new plant in a
new region. The common issues to be identified have been discussed in detail in the
literature review to address the objective of this research.

4.1 Types of Research Methods and Data Analysis

There are three main types of primary research methodologies namely quantitative,
qualitative and mixed research methods. “Quantitative research is asking people for
their opinions in a structured way so that you can produce hard facts and statistics to
guide your research” (Willis, 2009). Quantitative research usually includes (Hohmann,
2006).

 Surveys

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 Formal methods such as econometrics

 Numerical methods such as mathematical modelling

Qualitative research depends on qualitative data and according to Denzin and Yvonna
(1994), “qualitative research deals with study of things in their natural settings to
interpret phenomena in terms of people’s thoughts ”. Qualitative research involves
Denzin and Yvonna (1994)

 In-depth interviews
 Participant observation
 Field notes
 Open-ended questions

Mixed research relies both on quantitative as well as qualitative data. In this type of
methodology, researchers use quantitative methods for one phase and qualitative
method for another phase of the study.

4.2 Reason for choosing Quantitative analysis

Quantitative methodology is ideal for this research and can be carried out by preparing
a set of questionnaire for the key persons going to be involved in the setting up of new
plant as well as a separate set of questionnaire for manufacturing organisations that are
already established in the region. The reason for choosing quantitative method over
qualitative method is simply because this method has aims divided and defined clearly
and can be quantified easily. Only drawback of this methodology is that it lacks multi-
dimensional picture but this is a common disadvantage for qualitative research as well.
Moreover, qualitative method involves interviews and observing people at work which is
complex and is not particularly relevant for this study.

4.3 Data collection techniques

Primary and secondary data can be collected for this research. Secondary data is
collected from the existing studies by various academics over the year and is done
carried out in the literature review of this report. to attain primary data, we have to

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contact the people involved in the implementation and planning of setting up the plant in
the new region as well as some of the manufacturing organisations that have already
established their presence in the region. A survey questionnaire has to be prepared to
understand the objectives framed for this research. The research questionnaire should
be prepared to address the research objective as well it should be influenced by
previous studies already mentioned in the literature review.

5. Ethical Issues

Some of the main ethical issues that the multinational organisation might face while
setting up a new plant in a new country are regarding

1. Job Displacement – shift in skills and education required for higher-paying jobs,
loss of economic viability for communities in the region, increased competition
among policies of organisations involved in the supply chain
2. In developing world there are issues related to child labour and child abuse along
with issues related to mandatory overtime and dangerous and unhealthy
workplaces
3. Environmental issues – use of rural lands and development of sustainable
farming, climate change/global warming, biodiversity, deforestation and re-
growth, forest ecologies and environmental impacts due to setting up of the unit.

6. Limitations of the Research and Conclusion

Even thought the objectives of the research addresses the core issues and details that
required by the organisation before setting up a new plant in a new region, the research
lacks evidence on how these research actually used in organisations. Moreover, this
research is not able to identify how manufacturing units are operating in the region. A
clear understanding on the region and manufacturing organisations operating in that
region will provide a strong base for the research. Moreover, this could also provide a
stronger insight for the organisation on various aspects like ethical and environmental
issues that the organisation might face once the plant starts operating. Another
limitation of this research is that this research only uses quantitative method of data

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analysis. In order to get a clearer idea it is advisable to use mixed research

methodology which involves both quantitative as well as qualitative research methods.

This report looks into details of setting up of new plant in a new region. The
multinational organisation is in its stage of diversifying itself by setting up a new plant in
a new country where it has never operated. This report does a research on what all
issues they should consider before giving full commitment towards this initiative. The
literature review section of this report looks in to various aspects that are necessary for
addressing the objectives of the research. Literature review is the source for secondary
data for this study and primary data is collected by preparing questionnaire for people
involved in the setting up of new plant. Another questionnaire is prepared for employees
of manufacturing organisations that are already established in the region. After carrying
out this research and analysing the data obtained from primary research and combining
it with the secondary research done through literature review the objectives of this
research can easily be addressed.

Word Count - 2990

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