15 managing international operations copyright © 2012 pearson education, inc. publishing as...
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15 Managing Managing International International OperationsOperations
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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Reflects overall firm strategy
Low-cost leadership
Focus
Differentiation
Essential to achieving objectives
Production StrategyProduction Strategy
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Capacity PlanningCapacity Planning
Assessing a company’s ability to produce enough output to satisfy market demand
Work shifts
Labor laws
Facility capacity
Subcontracting
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Facilities Location PlanningFacilities Location Planning
Selecting a location for production facilities
Resources,conditions
Labor costs,productivity
Servicecustomer needs
Factory tomarket distance
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Location EconomiesLocation Economies
Economic benefits derived
from locating production
activities in optimal locations
Key Fact:
Each production activity
generates more value in a
particular location than could
be generated elsewhere
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Centralized production Low-cost leadership Global strategy Transportation costs
Decentralized production Differentiation / Focus Multinational strategy Buyer preferences
Centralized vs. DecentralizedCentralized vs. Decentralized
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Process PlanningProcess Planning
Deciding the process that a companywill use to create its product
Low-cost leadership Large scale Efficiency
Differentiation / Focus Skills Flexibility
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Standardized or AdaptedStandardized or Adapted
Low-cost leadership
Standardized
Large batches
AutomatedDifferentiation / Focus
Adapted
Higher cost
Small scale
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Facilities Layout PlanningFacilities Layout Planning
Deciding the spatial arrangement ofproduction processes within facilities
Reflects business strategy
Geography may be a factor
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Make-or-Buy DecisionMake-or-Buy Decision
Many questions to answer:Many questions to answer:
Raw materialsRaw materials
Intermediate componentsIntermediate components
Facility availabilityFacility availability
Cost considerationsCost considerations
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Decision to MakeDecision to Make
Vertical integration
Extend control over inputs (backward integration)or outputs (forward integration)
Reasons to make
Lower cost
Greater control
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Reasons to buyOutsourcing
Decision to BuyDecision to Buy
Buying from anothercompany a good orservice that is not
central to a company’scompetitive advantage
Greater flexibility
Market power
Lower risk
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Materials and AssetsMaterials and Assets
Raw materials Quality Quantity
Fixed assets Existing Facility Greenfield
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Quality ImprovementQuality Improvement
Total QualityManagement (TQM) ISO 9000
Continuous quality improvementto meet or exceed customer
expectations throughquality-enhancing processes
Certification a firm gets whenit meets the highest quality
standards in its industry
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Other Production IssuesOther Production Issues
Importance of cost containment
Shippingcosts
Shippingcosts
Just-in-timemanufacturing
Just-in-timemanufacturing
Inventorycosts
Inventorycosts
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Decision to Reinvest or DivestDecision to Reinvest or Divest
REINVEST
Promising outlook Growing market Highest return
DIVEST
Unprofitable outlook Social unrest
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Financing Business OperationsFinancing Business Operations
Pay operating expenses
Expand production capacity
Enter new geographic markets
Develop and reward employees
Invest in new projects
and so much more…
Financial resources needed to:
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BorrowingBorrowing
Difficulties:
Exchange-rate risk
Currency inconvertibility
Restricted capital flows
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Back-to-Back LoanBack-to-Back Loan
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American Depository ReceiptsAmerican Depository Receipts
Certificates traded in the U.S. that represent a specific number of shares in a non-U.S. company
No currency-conversion fees No minimum purchase amounts Attractive to U.S. mutual funds
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Emerging Stock MarketsEmerging Stock Markets
Poorregulation
Poorregulation
ExtremevolatilityExtremevolatility
Hot moneyLiquid investments that
can be quickly withdrawn
Hot moneyLiquid investments that
can be quickly withdrawn
Patient moneyHoldings of factories,
equipment, and land thatcannot be quickly withdrawn
Patient moneyHoldings of factories,
equipment, and land thatcannot be quickly withdrawn
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Equity, debt,and fees
Revenue fromoperations
Subsidiaries financed byparents who are laterrewarded financially
Money earned fromsales is the lifeblood
of every company
Internal FundingInternal Funding
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Small Business FinancingSmall Business Financing
Tips for entrepreneurs to find funds:
Contact business schools with stronginternational programs
Consult your country’s commerce department Leverage your contacts Attend industry events in other countries Consider hiring an intermediary Exploit Facebook, Twitter, LinkedIn, etc…
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Mix of equity, debt, and internal funds used to finance activities
Capital StructureCapital Structure