Externa integration and the need for manufacturing competence

Abstract: For a number of years, manufacturers have increasingly focused on their perceived core competencies and outsourced activities not seen as such. In doing so there are an increasing number of competencies that fall outside the ‘core’ domain but are nonetheless required for effective product and process development. The proposed solution to this problem has been external integration with an emphasis on collaborative product or process development and also the wider concept of supply chain management. It is, however, not always easy to substitute internal competencies with customers’ and suppliers’ capabilities. Many authors have focused on finding the prerequisites for effective external integration and particularly on areas such as trust and power. This thesis contributes to the literature by extending the concept of absorptive capacity into the manufacturing domain and in the context of external integration. A conceptual framework is developed, where different streams of the literature have been merged into one coherent model. Integral parts of this framework are the concept of absorptive capacity as well as a model of competitive priorities. Competitive priorities have been taken into account as firms differ; what contributes to competitive advantage for one firm may be irrelevant for another. Three papers are included in the thesis. The first one uses survey data, from a representative sample of the Swedish manufacturing industry, in order to validate the concept of absorptive capacity in the manufacturing sector. The second paper also uses survey data but aims to shed some light on competitive priorities’ impact on both the extent and the outcome of internal and external integration. The third paper describes a case study of a first-tier supplier and aims to illustrate how absorptive capacity in a manufacturing firm may look in practice. The thesis concludes that the conceptual framework is indeed useful for understanding the challenges of effective external integration. Internal manufacturing competencies may allow a firm to integrate more effectively external sources, but the required competencies may vary from firm to firm. This implies a need for a fit between companies’ competitive priorities, external integration and absorptive capacity. It also implies that companies may struggle to achieve competitive advantage by utilising their customers and suppliers if they do not simultaneously develop appropriate competencies in-house.

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