In my musings on possible ways in which higher education might globalize, I have often referred to the modularization process that has been at the core of much of the globalization of industry. A key component of this process has been to turn from vertical integration of companies to a focus on core competencies with an evolved supply chain. A recent article on Economist.com entitled Moving on up: Is the recession heralding a return to Henry Ford’s model? looks at how these supply chains have held up during the current economic downturn. Turns out many of these supply chains have had a lot of troubles as partners were unable to cope with the economic problems and went out of business. This is leading some to yearn for the good old days of vertical integration. The article reminds us of multiple reasons why vertical integration is not well suited for today’s world, but wisely rules nothing out in today’s unsettled conditions.
Most interestingly, the article points out that there is a “third way” to approach this problem:
A company can gain some of the benefits of vertical integration without full ownership. Consider Toyota, a motor company that has been a byword for decent management in a way that General Motors has not been. Toyota rigorously screens its suppliers for quality and financial health, and then spends time and money to ensure their efficiency and survival, sometimes taking minority stakes.In the 1980s, when Toyota chose Johnson Controls to supply seats, it blocked the supplier from expanding its facility, fearing that the additional cost would harm Johnson's profits and effectiveness. Instead, Toyota’s engineers worked with Johnson to streamline production, rearrange the factory floor, and cut inventories, ultimately showing that expansion wasn’t needed after all.
This approach creates:
a supply chain with the stability and efficiency of vertical integration but with some of the flexibility of looser networks of suppliers. The approach is also far cheaper than the traditional vertical method of owning suppliers outright, a virtue at a time when cash and credit are rare.
I will need to reflect a bit in order to see how this information might fit into my thoughts about the future of globalization of higher education. At a minimum, however, It provides a reminder that, in searching for optimal modularization, it is important to look at possible reasons that some of the partners might fail to perform. Working with them in advance to strengthen their weak points may be in everyone's interest.
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