How Do Businesses Synchronize Supply & Demand on a Global Scale?
Responding to supply and demand issues on a global scale is both qualitatively and quantitatively different from domestic operations. Rules that might apply domestically do not globally. Yet, the basic vocabulary remains the same. In many respects, the concept of responding to supply and demand on a global scale can be reduced to what is called “supply chain” management. This is as much about demand as supply.
Other People Are Reading
-
Horizontal Integration
-
One of the more important goals that is satisfied by expanding business abroad is integration. Integration methods are common responses to the peculiar demands of investing globally. Horizontal integration is building many plants, some overseas, that produce the same product. This, among other things, makes responding to international demand easier, since having factories and plants located close to emerging markets makes logistical sense.
Vertical Integration
-
While horizontal integration leans towards satisfying demand issues, vertical integration is more about supply. Neither is exclusively demand- or supply-related, but they have a tendency to serve those specialized areas. Vertical integration deals primarily with controlling all aspects of the product. It tries to control the entire process of creating the product from the raw material acquisition to the sales and service to the public. A simple vertical scheme might be to buy up the major suppliers that provide the components of the product you manufacture. This makes supplying easier and keeps needed components away from competition. This becomes especially important in international business as supply chains are "longer" and more complex. Working with different suppliers living in 15 countries and speaking as many languages is much different than domestic supply chains.
-
Vertical Marketing
-
Vertical marketing is the same as vertical integration, except that it has to do with demand. In this case, a firm seeks to buy or control those firms that are involved in retail, advertising, service and distribution. The firm in question is trying to streamline the process of delivering products to customers internationally. Since these “distribution chain” issues are more complex internationally, uncertainty increases, especially if exchange rates are sharply fluctuating. Therefore, buying up the “distribution chain” is a means of controlling uncertainty in the crucially important areas of retail, distribution and service.
Local Issues
-
Firms can deal with international supply and demand issues through different means of “investing” overseas. The most common is foreign direct investment, where a firm, to keep close to supplies of markets, builds plants or distribution centers around the world. Transfer or license agreements is a method that does not involve directly investing. In this case, a firm in America can charge a firm in India for the rights to use its brand name, products, production methods and even trade secrets. This is a quick way to penetrate a foreign market and satisfy demand. Finally, there is the “franchise” method, where a firm can act as the controlling center of an international empire. A firm can permit foreign companies to set up local subsidiaries in the central firm's name. This is similar to a license agreement, except there is more local autonomy. McDonald's probably is the best known example of this.
-
