The aim of this essay is to look at the key factors that can influence multinational companies' (MNCs) strategic decisions about the design and location of their internal activities, as well as to discuss the impact of such activities on those decisions. The essay starts with background discussion about the value chain activities, and then the next section focuses on each internal activity and discusses the key factors surrounding the design and location of that activity. The essay furnishes the discussion with interesting cases from MNCs.
Porter (1985) defines value chain as a series of value-generating activities form the entire business system of an organisation. Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. According to Hill (2002), such activities are either primary (production, and marketing) or support activities (firm infrastructure, human resource management, research and development, and materials management).
According to Kotabe (1998), the competitive advantage of a firm influences the decisions as to what activities and technologies it should concentrate investment and managerial resources. The comparative advantages of various countries affect the company's decision on where to source and market, based on the lower cost of labour and other location factors.
Hill (2002) defines location economics as 'the economics that arise from performing a value creation activity in the operational location for that activity, wherever in the world that might be,' (p. 383). There are two impacts from location of a value chain activity in the optimal location for that activity. First, it can lower the cost s of value creation and help the firm to achieve a low-cost position. Second, it can enable a firm to differentiate its product offering from those of competitors. Therefore, 'a firm deploying...