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The role of operational flexibility in the expansion of international production networks
Author(s) -
Fisch Jan Hendrik,
Zschoche Miriam
Publication year - 2012
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.1999
Subject(s) - flexibility (engineering) , extant taxon , production (economics) , industrial organization , sample (material) , quality (philosophy) , value (mathematics) , investment (military) , diversity (politics) , work (physics) , business , economics , operations management , microeconomics , computer science , engineering , philosophy , anthropology , law , chemistry , sociology , biology , management , epistemology , chromatography , evolutionary biology , machine learning , political science , mechanical engineering , politics
Volatile factor cost developments urge manufacturing firms to increase production efficiency by building up facilities in multiple countries. Differing from previous work that examines the quality of individual locations for investment, the study evaluates the net present value, the growth option value, and the operational flexibility value of the existing production network to predict the establishment of a new site. The results on a sample of 352 German manufacturing firms suggest that the direction, uncertainty, and diversity of labor cost movements in the extant locations influence the propensity to set up a new production subsidiary. Analyzing the international production network after the expansion shows that the new location increases the value of the network regarding these dimensions. Copyright © 2012 John Wiley & Sons, Ltd.