“Make or buy”: the potential subversion of corporatestrategy – the case of Philips

Abstract

Top managers of multinational enterprises are continuously confronted with “make‐or‐buy” decisions. These choices have to be made after corporate strategy has already been determined and the measures to realize the corporate aims have been taken. Elucidates why the decision to make components and/or production equipment in‐house, instead of buying them from professional suppliers, may more often than not be subversive of multinational corporations′ (MNCs) core activities. Relies on a case study at a research and development department of Philips International (The Netherlands). Illustrates how the decision to make production equipment in‐house evokes further decisions which are in conflict with the actual corporate strategy. The decision of a producer of consumer electronics to develop production equipment in‐house, instead of buying it in the marketplace, imposes on top management the need to decide whether or not to add this equipment to its consumer product range. The problem is that an affirmative decision may well give rise to a shift in the company′s core activities. Consequently, “make‐or‐buy” decisions are a potential threat to strategic core activities and top management would be well advised to be aware of this.