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Distributed under a Creative Commons Attribution 4.0 International License
Global and Regional Production Networks: A
Theoretical and Practical Synthesis
Farhad Norouzilame, Robert Moch, Ralph Riedel, Jessica Bruch
To cite this version:
Farhad Norouzilame, Robert Moch, Ralph Riedel, Jessica Bruch. Global and Regional Production
Networks: A Theoretical and Practical Synthesis. IFIP International Conference on Advances in
Production Management Systems (APMS), Sep 2014, Ajaccio, France. pp.108-115, �10.1007/978-3-
662-44733-8_14�. �hal-01387155�
Global and Regional Production Networks:
A theoretical and practical synthesis
Farhad Norouzilame
1,*
, Robert Moch
2
, Ralph Riedel
2,
Jessica Bruch
1
1
Mälardalen University, Department of Product Realization, Eskilstuna, Sweden
{farhad.norouzilame, jessica.bruch}@mdh.se
2
Chemnitz University of Technology, Department of Factory Planning and Factory
Management, Chemnitz, Germany
{robert.moch, ralph.riedel}@mb.tu-chemnitz.de
Abstract. The growth of research interest in networked production has brought
up numerous important concepts aimed at production networks. Still the actual
research object seems to be ambiguous, making the exact application of
findings insufficient. It appears that there are two main notions of the term
Production Network. The first meaning is derived by a single versus a multi-
organizational perspective while the second meaning comes from a regional
versus global view. Obviously indistinctness exists in this field of research and
clarification of terms and concept is required. The objective of this paper is to
give an overview of the existing theories in accordance with the industrial prac-
tice providing a model to bridge the academic theories to industrial practice.
Keywords: production network, literature review, case study
1 Introduction
The affects of globalization on manufacturing is indisputable. The fragmentation of
production processes and the international dispersion of tasks and activities within
them have led to the emergence of borderless production systems in shape of
sequential chains or complex networks commonly referred to as global value chains
[1]. Most middle sized and large companies are now creating an international market
and have to build and/or manage an international network of operations either due to
their organic growth or via M&A activities [2]. The rationale behind such action lies
principally within three main categories; (1) access to low-cost production, (2) access
to skills and knowledge, and (3) proximity to market [3]. Multinational companies
strive to acquire, create, and use technological assets across national borders [4].
The mentioned factors and the growth of developing economies in the world have
accelerated the trend of moving from stand-alone factories toward more globalized
production. The management of international networks remains an under researched
area [2], and networked production of multiple organizations is also moving into
focus of research [5]. To improve the competiveness of firms, not only the global
production network of one enterprise but also the interplay of locally linked
production of buyers and suppliers gains importance. These inter-organizational
relations are not only spotted by the discipline of Supply Chain Management which
discusses global versus domestic concepts without specifying their view on very pro-
duction-intrinsic challenges [6].
This paper provides an overall understanding of the production network concept by
presenting a brief summary of the related literature along with two cases as real-life
implications. The paper opens up with the introduction to the topic followed by the
research methodology. Later on, some concepts are elaborated in details under
reference framework section. Finally, the findings and conclusions are presented.
2 Research method
The methodology used in this study is a combination of literature review and a
multiple case study. The literature review is based on searching the keywords
production, manufacturing, network, global, international and the German equivalent
words along with combination of those terms on the databases Science Direct,
Scopus, Elsevier, and SpringerLink via different search engines. Totally about 200
articles have been analyzed in the first phase further reduced to 18 directly related to
the topic of production networks which are referred to in Table-1. The case study
approach is chosen since it allowed an in-depth study of the phenomenon in its
real-world context plus conformity to answer the how and why questions [7]. Case-A
is a global manufacturing company headquartered in Sweden with total number
employees of approximately 1250 with eleven production sites in six different
countries, four of them located in BRIC countries. The core business of the company
is the production of mechanical and electromechanical solutions for commercial
vehicles, construction and mining industries, and general industry. Case-B is a
network of seven companies including eight plants in total located in Germany. Six of
the companies are SMEs; the other is a large company. The network’s focus is to
produce gearboxes for energy industry. 14 semi-structured interviews have been per-
formed in total which of 10 were conducted at Case-A and four at Case-B.
2.1 Global Production Network and Regional Production Network
Global Production Networks (GPNs) and Global Value Chains (GVCs) are two
schools of Globalization studies, with their roots on Global Commodity Chains
(GCCs) having some common works, as well as some differences on concepts and
focus [8]. A global production network is a manufacturing network i.e. a network
consisting of wholly owned factories, i.e. belonging to the same company [9] on a
global scale.
A regional Production Network (RPN) is a cooperation of geographically close
companies to produce a certain product. The RPN can be developed by an addressable
strategic network or is formed through latent informal network structures of manufac-
turing enterprises [10, 11]. As long as the production cooperation is carried out, this
temporary network exists. Depending on its product portfolio, an enterprise can be
part of more than one RPN.
2.2 Supply Chain Management and Networked Production
Within business studies, networked value-adding processes are focused by the field
of SCM which aims to establish standard measurements, functions and reference
models to analyse, describe and manage networked processes. This approach is not
restricted to production and manufacturing, it is also involving e.g. marketing,
resellers and distributors [6]. Besides Business Studies discipline, there are also
approaches within the Mechanical Engineering and Production Management field.
One general approach describes the formation of Production Networks as “cross-
company cooperation” and clearly differentiates between Production Networks and
Supply Chains [12]. Another concept within the discipline of mechanical engineering
to describe, explain and manage networked production of different enterprises is the
competence-cell-based network approach. Among others [11] and [13] contribute to
this concept mainly aiming SME networks. Furthermore an inter-organizational proc-
ess model for networked production is the Extended Aachener PPS-Model
– production planning and control model of the RWTH Aachen University [14].
Completing these ideas of inter-organizational production networks, the concept of
Strategic Production Network is also defined as cooperation of different enterprises
[15, 16].
3 Findings
3.1 Literature Findings
To identify certain concepts and clarify their attributes, two main characteristics
were ascertained based on literature study. The first characteristic is ownership of a
network i.e. having one or multiple owners. The second characteristic is called
geographical reach, which describes the range of the concept from regional to global
scale. The summary of the findings are shown in table 1.
Table 1: classification of the literature review summary
Literature
Ownership
Geographical reach
[11], [13], [16], [17], [18], [19]
multiple-owner
regional/local
[12], [14], [15]
multiple-owner
regional/global
[3], [20], [21], [22], [23], [24]
single owner
global
[25]
N/A
regional/national/global
[26], [27]
N/A
global
Based on the literature study, two major streams and interpretations of the term
production network appear. One stream leans toward to the concept of GPN owned by
one organisation and being led globally. The other stream refers to the RPN concept
consisting of different companies with different ownership managed in a mutual man-
ner on the basis of certain regional closeness and production dependency.
3.2 Reflections from the case studies
Networks on a global level
Global production networks are supposed as fully owned factories branding the
mother company which are able to supply the customers with locally-produced
products but to a global standard of quality. They provide some advantages beside the
challenges mainly due to the global environment summarized in table 2. One example
of such networks is demonstrated in figure-1 along with one global customer in order
to depict the structure of such networks.
Figure 1- GPN of the case-A along with a major global customer’s plants
Foreign-exchange rate variations affect the development of costs and
consequently the global production network. From the global profitability
prospective, companies have to make sure that over time, the investments pay off
otherwise they might be urged to move the business to other locations.
Local cost of capital interest rates in one hand is the value of the local currency; on
the other hand is the inflation and interest rate cost. This must be considered as it
could affect the production costs in the respective country.
Understanding the global customers’ strategy: by knowing about the
end-customers’ demands, production companies (especially contract manufacturers)
could see the trend and the increase/decrease in the volume.
Culture: despite having a global standard to run production, the local culture will
be a part of the “total”. So, it must be initially defined how much of the core values of
the mother company could be implemented locally. Apparently, there would always
be a sort of local variants due to the local culture. Thus, it would be useful to have
resources, people in specific, to carry the core values of the mother company.
Local legislations and regulations such as import/export regulations or the salary
system in certain countries have great impacts on GPNs.
Custom duties This is also affecting as the duties could affect the network
especially when it comes to importing equipments and machinery to the host country.
Global managers who travel around the system are required to make sure that the
plants continue over time to maintain the core values of the mother company and not
inventing their customized system.
LEAXGroup’s GPN along with customer’s GPN
Rezekne
Riga
Falun
St. Petersburg
Köping
Tidaholm
Falköping
Detmold
Mezökövesd
Beijing
Curitiba
Chennai
Supplying today
Case company Production Plant
Customer plant
Sao Paulo
Angers
Zwolle
Opglabbeek
Kunshan
Figure- 2
A global production network of a multinational contract
manufacturer within automotive sector along with a major
global customer’s plants
Södertälje
Bangalore
St. Petersburg
Åmål
Networks on regional level
RPNs which are comprised of SMEs, continuously struggle with their production
costs due to not having the potential to decrease it through mass production.
Furthermore, relevant production steps on the network are distributed among diverse
partners, thus, planning, controlling and coordinating the processes becomes intricate.
Beside, SMEs involved in RPNs strongly depend on network partners’ quality and
delivery performance. They also face too much logistic processes and the challenge of
integrating IT solutions to all network partners for managing the information flow.
Figure 2- RPN of case-B contained of different plants and owners
Beside the mentioned difficulties, there are advantages of SMEs within RPNs such
as the capability to co-develop with the customers in a one-to-one manner because of
the regional closeness and manageable number. This leads to sophisticated products,
with exact fulfillment of functions and quality. Furthermore, an individual project
management from the design stage to service can be realized. Additionally the
production processes become flexible by adjusting the production system by means of
changing the cooperating partners (Figure-2). The challenges and opportunities of the
two types of production networks are summarized in table-2 resulted from the
interviews performed in both case companies.
Table 2: The challenges and opportunities concerning RPN and GPN
Challenges
Opportunities
Foreign-exchange rates (Currencies)
Local cost of capital interest rates
Understanding the global customers’ strategy
Culture
Local legislations and regulations
Custom duties (toll)
Global managers (people)
Using the global redundancy for achieving volume flexibility
Competence transfer reduces R&D costs on development and
minimize risk
Global sourcing perspective achieved by global footprint
Economy of scale due to the glocal presence
One production system within the whole network
Local presence gives easier logistics for local market
Regional Production Network (Germany)
Zwickau A
Nossen B
Chemnitz A
Chemnitz B
Nossen A
Nossen C
Steel Rods and
Steel Sheets
Standard Screws
Tempering
Design Engineering, Milling, Boring,
Grinding, Gear Cutting, Welding
Painting
Assembling, Testing
Figure- 4
A regional production network within environmental
engineering sector contained of 8 different plants with 7
different owners
Schweinfurt
Standard Bearings
Zwickau B
Crack detection
Parts and semi finished products
Different regional owners
Higher production costs
Intricate coordination of required production
steps within supply chain / production network
Dependency on network partners quality and
delivery reliability
High amount of logistic processes
Difficult to apply inter-organizational IT stan-
dards for cooperation partners
Sophisticated product development with possibility to gener-
ate individual product functions and variations due to close-
ness to customers
Exact quality accordance to customers’ requirements and
individual project management due to a lower amount of
customers compared to larger companies
Flexible adjustment of production to market needs due to
changeability of cooperation partners
4 Conclusion
The article presents two main streams of interpretation out of the term Production
Network which are found in literature and also represented by two cases. Figure 3
sums up both concepts in one theoretical model linking global and regional produc-
tion networks with our given definitions.
Figure 3- proposed model synthesizing GPN and RPN concepts
Regarding this model a scenario could be supposed; an enterprise in one location
and an existing regional network decides to start a new production site in another
country. Starting the business in a new location triggers the formation of a new
regional production network to produce the desired product. Therefore, concerning
the terms regional and global, two questions arise; (1) how large a “region” could be?
And (2) how small “global” could be?
There should be no difference in the concept of RPN even if some suppliers are not
located within a certain geographical region. Also if new locations of one company
spread only over one continent, the concept of GPN would still apply. Therefore, the
naming of those two concepts can be misleading and can cause confusion as well.
However, the naming of those concepts which points out their actual structure will
facilitate further research within this discipline. For future work the dependence of
those concepts on geographical location should be reconsidered.
Defining the boundaries for the usage of the term “region” and “global” can affect
the definition of those concepts. Thus, we suggest keeping the boundaries of the
Model of Global Regional Production Network
Location 2
RPN 1
Figure- 5
A model of a production network with 4 factory sites of
one owner globally spread and with regional production
networks at each location
Location 1
Location 3
Location 4
Information and material
Parts and semi finished products
One global owner
Different regional owners
RPN 2
RPN 3
RPN 4
region and global open and not limited it to the geographical borders whether a
country or a continent, but still having a directing definition:
RPNs are comprised of multiple production plants in a specific geographical area
with certain closeness shaped by different owners with a common product. GPNs are
entirely owned production plants spread over a certain reach of distance to capture
foreign markets.
Enterprises should be aware of the usage of those concepts to apply research
findings concerning their own interests and objectives. Besides, there are a lot of
potentials in linking the concepts of RPN and GPN. This can support enterprises with
their important decision making processes, for instance when starting a new
production facility during an expansion phase to be able to start an effective produc-
tion cooperation network. Also, what instruments could be applied, not only to control
and compare the performance of the production sites within a GPN, but also monitor
and manage the involving RPNs within GPN.
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