This paper examines the concept of flexibility within global factory systems. While a global factory is generally associated with higher levels of flexibility, the forms, and sources of this have not been clearly articulated. We offer a simple conception which links three forms of volatility with three sources of flexibility. We suggest that locational and governance differentiation characteristic of global factory systems offers more than lower cost and the benefits of specialisation. Differentiation also facilitates the pursuit of flexibility, a critical attribute for a customer-focused organisation operating in a volatile environment. Differentiation helps to mitigate many of the costs associated with pursuing labour flexibility enhancing strategies including conflict, commitment, learning, adverse reputational effects, and innovation.

Segmentation within the global factory may be based on task or activity, but it creates opportunities for accessing less regulated locations, for risk sharing, and for applying distinct management styles and practices. A domestic business, lacking these options, faces greater challenges when seeking increased flexibility. While mult-iplant operations do imply higher coordination costs, this is an area where the global factory enjoys competitive strength.

Our discussion has interesting implications for management within global factory systems. It highlights the importance of the focal firm in setting the intention of the business and shaping partner strategy around the overriding goal of customer satisfaction. The focal firm, drawing on the inputs of a multiplicity of contributor firms, needs to ensure crossfunctional and cross-hierarchical coordination. What it does not need to do is engage in operational matters within partner organisations. Here, a strategy of minimal critical specification—focusing on cost, quality, and timeliness—may be the optimum approach.

The importance of flexibility also helps to explain a number of interesting characteristics of global firms. One is locational stickiness in the face of rising costs. For example, commentators have suggested that China could experience disinvestment if costs, particularly wage costs, continue to rise. We would argue that China’s attractiveness to international busi?ness is built on much more than labour cost. Its relatively unregulated operating conditions, specialist suppliers, and fungible workforce bring advantages of flexibility which could offset declining cost competitiveness.

We acknowledge that our discussion is just a starting point in this important topic. More work on articulating how locational and governance choices influence flexibility is needed. This work needs to be embedded in the contextual reality of multiplant, cross-border operations rather than the firm- or plant-centric focus of labour dualism studies. Network studies, while providing useful insights, need to incorporate the directive role of lead firms within global factory systems. Research that considers regulatory and industry differences would be helpful. Industry characteristics seem to matter with, in some cases, idiosyncratic strategies being well established. An example is provided by ‘industry crunch’, the intensive work schedules expected before a product launch, apparently widely accepted in industries such as gaming.

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