ib-3(global business operations)

8/3/2019 Ib-3(Global Business Operations)

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GLOBAL BUSINESS

Operations

The Global Shift Strategy


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Current Business Landscape &Changing Demand

1. Economic Power ShiftingThe focus of economic power is shifting to Asia and BRIC( brazil Russia Indiachina) in terms of investment and output. The question is how independent theBRIC markets will be in driving global growth and what the role of the Triadwill be.

2. Shifting Market LandscapeWhile developed countries will remain the largest consumer and industrialmarkets, the rise of a massive global middle class in rapidly developingeconomies (RDEs) will shift the demand landscape radically. The competitionfor these markets will be intense, but which competitors will succeed?

3. Changing Geopolitical and Security LandscapeGlobalization is driving new dimensions of power beyond military mightincluding economics, resources and technology. However, the new global

landscape is not stable: risks and nationalism are rising.4. Fracturing Global Social Fabric

Globally, the population is becoming older, more urban, more Asian and moremobile. At the same time, traditional social structures are fragmenting, shiftingnotions of personal identity. With demands for greater inclusion by previouslyisolated segments of society, dividesand associated tensionsare increasing.


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Current Business Landscape &Changing Demand: contd

5. Growing Stakeholder Demands on BusinessMore stakeholderspublic and privateare actively demanding transparencyand accountability from business. Corporations are seen as part of societysproblems. Can they also become critical contributors to required solutions?

6. Changing Consumer LandscapeIn more diverse and mobile societies and economies, new consumer groups areemerging. Consumer segmentation now requires new lenses, as new sources ofsimilarity and difference emerge. Consumers increasingly demand moreinvolvement in and customization of consumption experiences.

7. Changing Industry LandscapeBusiness models must become more flexible. Power is shifting along the valuechain and the competition to create and capture valueand profitsisintensifying. The emergence of BRIC multinationals means more intense

competition. Flexibility and innovation are critical to avoid being stuck in themiddle.

8. Changing Nature of CapitalGlobal financial flows are accelerating, with Asia increasingly funding the deficitspending of the U.S., partly, Europe, leading to global systemic risks now beingrealized as the current credit crunch redefines the global financial system. Newpower brokers are emerging, reshaping market dynamics and potentially raising

tensions.


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Current Business Landscape &Changing Demand: contd

9. Changing Labor LandscapeA raging global war for talent for both skilled and low cost jobs is increasing.Asia is increasingly important for all types of skills. Partnering and outsourcingis on the rise within and across borders.

10.

Growing Pressu

re on Natu

ral Resou

rc

esBasic resources are under threat, including water, energy, food andhabitats/climate. Consumption of critical resources is outpacing the rate that theplanet can sustain. Public and institutional activism is rising, demanding action.

11. Changing Technology LandscapeA global technology revolution is gaining pace, crossing national borders and

scientific disciplines. New technologies, including biotechnology andnanotechnology, will reshape industries and our daily lives.

12. ChangingEconomics of Information and KnowledgeExploding connectivity and channels for information are making knowledgecreation a global imperative. Networking is critical! Gaining an advantage inand protecting knowledge is difficult to achieveand even more difficult to

sustain.


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Global Competitive Pressures:

As discuss iced in class Time & Again

Read about Globalization and as networkedEconomy

Attached Reference reading:

Modulus\UNIT-1\world without Borders.pdf


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A great advantage of Globalization is theopportunity To source them from the bestsource of the world.

To take advantages Of Various technology ,Human capital, Quality, Costs, Raw Materials,and other sources advancements around the

Globe.

To take advantages of certain legal ,political,economical, and Social aspects Of trade.


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7

Globalisation of the Economy

Global Markets

New Technologies Protectionism

Tariff and Non-tariff Barriers

Easing Trade Barriers GATT, WTO and IFM

EU, NAFTA, APEC, ASEAN

Globalisation of the Economy

Global Markets

New Technologies Protectionism

Tariff and Non-tariff Barriers

Easing Trade Barriers GATT, WTO and IFM

EU, NAFTA, APEC, ASEAN


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8

Need Based Economy

Global Competition

Liberalized Economy

Compete or Perish


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9

How the company will compete in a changing competitiveenvironment?

How companies make money:

Raise PricesINCREASE REVENUE

Increase Volume

Reduce Cost of People (downsize)

DECREASE COSTS Reduce cost of process waste

Reduce cost of matls


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10

A Production-Distribution System

rawmaterialsinventory

finishedgoods

inventory

work inprocess

inventory

FACTORYA

FACTORY

B

(raw matl delivery:road, rail,sea, air or

pipeline) (customer serviceby wholesaleandretail outlets)

small industries

rapid tech.innovation

increasingglobal

comptn

globalisationof markets

Just-in-timeinventory

pressures onpricing

pressures ontime-to-mkt

shorter pdt.

life cycles

stress on

quality

Demandingdelivery sched.

rapid responsetime-to-market

Individual customized prodn.

Pressures/ Challenges faced by the Manufacturing Sector


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Research &

Development

Product

Design

Process

Development

Goods

Services

After-Sale

Raw

Materials

Labor

Technology

Infrastructure

Country A

Country C

Country B

Country D

The Global Supply Chain: Intra-Firm Coordination.


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12

Distributor Storage withCarrier Delivery Dell inventory

Factories

Customers

ProductFlowInformation

Flow

Warehouse StoragebyDistributor/Retailer


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Survey findings OnInternational Sourcing:

Modulus\UNIT-1\Survey trends inoutsourcing.docx


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International Economist Viewon Importance Of Sourcing:

Read Points on Sourcing By Different points onSourcing.

Modulus\UNIT-1\International EconomistView.docx


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The process (stages) of

Internationalization


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16

Stages

1. Domestic

2. Export

3. International4. Multinational

5. Global/Transnational


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17

Stages


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18

Market Entry Strategies

1. Exporting.

Direct Or Indirect Exporting

1. Licensing

2. Contract Manufacturing.3. Management Contract.

4. Assembly operations.

5. Fully owned Manufacturing facilities.

6. Joint venturing.7. Counter trade.

8. Mergers & Acquisitions.


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19

Market Entry strategies

10. Strategic alliance

11. Third country location.

12. Sourcing.

13. Collaboration.Licensing:

It is a method of overseas operation whereby a company in one country thelicensor) enters into an agreement with an company in other country(the licensee) to use the manufacturing, processing, knowledge, trade

secrets, mark , name, brand, patent, te

chni

cal assistan

ce, marketing orsome other skill provided by the licensor in exchange to the royalties,

fees ,profit sharing or income.


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Joint venture: In the widest sense, any form ofassociation which implies collaboration for morethan a very transitory period, is a joint venture.

Management contracts: under management contracting,the international marketer supplies managementknow-how for a company in a foreign country forwhich capital is provided by the investor of thec

ou

ntry in thec

ompany is loc

ated.


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Contract Manufacturing: Assembly operations

Under Contract manufacturing, the company engaged ininternational marketingcontracts with the firms in

the foreign country to manufacturer assemble itsproducts while retaining the responsibility ofmarketing and distribution etc of these products .


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Decision Criteria for InternationalOperations

1. Political risk

2. Market access

3. Factor costs and conditions

4. Shipping Considerations5. Country information

6. Foreign Exchange

7. Creating : Product- Market Profile

8. Market selection Criteria


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ALTERNATIVE STRATEGIESALTERNATIVE STRATEGIES

International

High

Glob

alCo-ordination

Integration

Low

Low High National differentiation, Responsiveness

Multi-

National

GlobalTrans-

National


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UNIT-2


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Basic Understandings onSourcing


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Global Sourcing:

Outsourcing has already become a well acceptedBusiness Strategy.

Every Small & big organizations isoutsourcing some of their products or part oftheir Products or the process involved in the

manu

fac

tu

re of a Produc

t.

The buzz Word Today is Global Sourcing


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Reasons for Global sourcing

To improve Productivity

To focus on Core Competencies

To inc

rease Flex

ibility in Operations To tap the best Resources around The globe

To Find out New avenues In Production &Markets

To Maximize the Profits and to minimize costs.

To integrate the best processes & Practices fromaround the world.


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Out sourcing:

Out sourcing is Contracting with anExternal firm for the ongoing management anddelivery of a defined set of products & services

to a prescribed Level of performance .


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Why outsourcing?

The economic rationales from the firms pointof view

More cumbersome non-core activity that requiressubstantial capital investment and other resourcesOf the firm to the third party could free up thoseresources for better deployment.

As the third Party service provider specialize inthe task, they tend to give better Quality &Cost than if the function were performed in house.


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Why outsourcing? Contd

Along with the cost reduction, quality alsoimproves as the outsourced service orproduct is provided by a supplier with thebest domain knowledge

A Fresh perspective to the gains ofoutsourcing is that Greatly increases &enhances the quality of the workforce- PeterDrucker

In some cases Outsourcing may increasethe costs but bring in bettereffectiveness


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Ou

tsou

rc

ing may Focu

ses on thec

orecompetences Of a firm and evolves fromtime to time as a competitive advantage.

Ou

t sou

rc

ing brings inA

mu

tu

al Benefic

ial& profitable For both the companies andcreates a win-win situation and also for theeconomy at large.

Companies have opted for out shoring toscale up services to their customers byoffering Quality, cost and timeadvantages


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Sourcing and few terms Oftenused in this context


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Global Strategy


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Read Global strategy Word file attached


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key factors related toeffective global sourcing.

These factors, have been organized as follows:

1. Global sourcing organization and focus, whichincludes the development of foreign logistics, globalpurchasing and supply chain management skills, and

integrated information systems2. Foreign language skills, which includes the ability to

send and receive correspondence and contracts in thesupplier's language, as well as a more generalinternational language capability

3. Global sourcing business capabilities, which includesknowledge of exchange rates, understanding offoreign markets and their opportunities, knowledge offoreign business customs and foreign supplierqualification methods, and development of methods todeal with foreign suppliers


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5. Top management support;

6. Developing communication skills;

7. Establishing long-term relationships;8. Developing the skills unique to international

sourcing.

9. Other factors purported to be important forglobal sourcing success include understanding

international business opportunities, knowledgeof foreign business practices, qualifying foreignsuppliers, and planning for internationalsourcing.

10. Top management commitment and support,global structures, international communicationskills, and global sourcing capabilities arecritical components of effective global sourcingstrategies.


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The Theory of Absolute Advantage --Adam Smith

Different countries produce some goods

more efficiently. This may due to differences

in factors such as climate, quality of land,

natural resources, labour, technology, capitalor entrepreneurship.

If each country specializes in the product for

which it has absolute advantage, each can

use its recourses more effectively.


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CULTURE

the way we do things arou

nd here.


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4

0

Outsourcingand

Offshoring

When is change necessary?

When the environment is undergoingfundamental change, and the organization has

always been highly value drivenAdvent of new technologies

Pressure on traditional business models

Globalization


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What does change look like?

Management

Risky

Critical

Time-consuming

Employees

Threatening

Confusing Insecurity

Positive

Excitement

Opportunity

Motivation

Negative

Resistance

Questioning trustGlorification of past


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4

2

Outsourcingand

Offshoring

Promote and manage change

ManagersArticulate objectives clearly

Lay out step-by-step plan

Align employee incentives with objectives Employees Participate directly in process

Coordinate and implement change

Communicate concerns constructively


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Ugra Raj Enterprises Privated Limited

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Order/ Product Flow through Supply Chain Functions

Order Management Channel A

Channel B Customer

Channel CProductDistribution

Manufacturing

Demand PlanningSupply PlanningPart Supply

Orders

Demand

Forecast

Component

Requirement

Parts ProductionPlans

Products Products

Orders

Products

Products

Orders

Orders


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TYPES & Hierarchal Levelssourcing of Business Functions


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Three types of sourcing deals

Relationship Complexity

Business

Value

Efficiency

Enhancement

Transformation

Cost Improvement

Focused

Operation performanceImprovement focused

Business Performance

Improvement Focused


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Value andDelivery Model

Four World Strategy


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Custom

Operational Outcome

Standard

Value

Delivery

Management

One-to-one

Fee forservice level

Optimization

One-to-one

Pay For businessPerformance

Creation

One-to-Many

Many-to-Many

Business Transaction

Priced

Access

One-to-ManyMany-to-Many

Pay forUsage


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The vertical axis: Value Axis

The vertical axis shows the value of service in termsof its direct impact on business Goals.

At Other bottom end are those services thatprovide operational outcomes. These are the

services that other services and processes are built,as such their direct impact on the businessoutcomes is hard to measure.

These Services tend to be measured or determinedor denominated in terms of process or servicemetrics.

The Focus of the management of these servicesovertime is on increasing productivity, reliabilityand performance or loweringcost or both


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The vertical axis: Value Axis

At the top end of the easily measurable in termsof ,for value axis is the business Outcome.

These are the services impact on business goals

is much more direct and easily measurable interms of, for instance, Brand dominance,revenue enhancement, Early mover advantageor Competitive advantage rather than being

measu

red in process effi

cien

cy,

These services are evaluated by their impact onthe business goals (e:g, customer satisfaction,Market share, revenue, Profitability)


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The Horizontal axis: DeliveryAxis

The horizontal axis describes how the service isdelivered.

At one end , are the services that are completelycustomized to a specific organization environment

The service may tap into standard processes andindustry or cross industry best practice, is adaptedto the idiosyncrasies of the organization- itsspecific work flows, forms, customs and culture.

A

t the other ex

treme end of the ax

is is tostandization, The more the recipients that use the standard

services, the greater the economies of scale andlower the cost of service.


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The Management Quadrant

This Quadrant describes a world in which the goalsare predictable and often decliningcosts andoperatio.nal efficiency and availability.

When the service is this quadrant are purchased from

an ou

tside provider, the financial model is based on afee, for a specific service level.

The cost of service will rises if the higher service levelsare desired, the cost of service declines if lower servicelevels are acceptable.

Ex-Internet service provider, when the service isoutsourced the organization expects little change in theway of services are delivered but expects to gain fromthe vendors expertise and competence and overtime,excepts these leverage points to lead to lower costs.


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The Access Quadrant

As in the management model , the value in theAccess model is an improvement in operationalefficiency.

Unlike the M-model, the A-model has theorganization accessing a utility- like service,

One instance of this service now common is theability to rent a band width for a limited periods

to meet peak demand Ex Power generators'

The organization pays for the capacity It uses.


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The Optimization Quadrant

In the upper quadrants , the service model moves froman operational focus to a Focus on business outcomesand business metrics.

The optimization quadrant is again one to one

delivery model, specifi

cto the re

cipient's enterprise

.

In the optimatization world, The recipient pays for thespecific performance levels that optimize the recipient'sBusiness model.

As a result, payment schemes often depend on specific

business outcomes such as Market -share growth,Reverence growth, profitability or entry into newmarkets, or are based on the service providers earningsa share of profit or revenue generated.

Because of the much larger share-risk component Of

suc

h relationships, they often involve equ

ity sharing.


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The Creation Quadrant

It named creation world because this approach tosourcingcan create new Revenue streams or newbusiness value.

Typical of the creation world is the emergence of newBusiness models, referred to as business Process For

application Utilities. Ex-SAP Application The service aims at Improving systems, Customer

Service and Sales productivity. The service recipient Does not purchase the complete

licenses for application or own the Underlyingtechnology infrastructure.

Importantly, by forging ownership and customizationof the application, the service recipient Gains speed Toimplement and greater control of costs, as the fees are

based on usage.


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Potential drivers for MakeOr Buy Decision


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Outsourcingand

Offshoring

What is a make or buy decision?

Sometimes it makes more sense to buy servicesrather than perform the task in-house The argument for outsourcing

Proficiency

Complexity

The argument against outsourcing Control

Flexibility The verdict

Either can make operational and financial sense

Arguments for, can become arguments against


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Outsourcingand

Offshoring

Deciding whether to make or buy

What do you want to accomplish?

How is it done now?

What can you do?

Make

Buy


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Outsourcingand

Offshoring

Set objectives

What? Improve quality

Reduce time

Cut costs Why? Rationale

Importance

When? Timeframe


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Outsourcingand

Offshoring

Needs assessment

Identify your needs The more crucial the task, the more details need to be

specified

Workflow and outputs Policies

Steps

Time increments

Staff and system capabilities

Classify your needs Long-term, medium-term, immediate

Low, medium, and high priority


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61Outsourcing and

Offshoring

Review options

Outsourcing

Availability of options

Competitor offeringsAppropriateness

(esp, offshoring)

Gains from technology

Interface issues

In-house

Core competencies

Competing

prioritiesCareer path

Skills to task

Supervision

Corporate culture


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Outsourcingand

Offshoring

The RFP process: a 5-point plan

1. Identify potential suppliers

2. Prepare and distribute the RFP

3. Evaluate proposals

4. Meet with finalist/s

5. Decide on supplier


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Outsourcingand

Offshoring

Prospective suppliers

IdentifyDirect and indirect competitors

Industry meetings and periodicals

Visit Web sites Pre-screen Experience

Interest

Time


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K

aufman-Wills Group64

Outsourcing and

Offshoring

Prepare the RFP: components

Stated objective

Organizational overview

Required deliverables Product specifications

Service expectations

Assumptions, agreement Start date, length of initial

term

Budget, costconsiderations

Ownership of data, code,etc.

Required proposal format Technical section Time-cost section Additional documentation

Submission Deadline Contact Basis of award of contract Award date

Send Targeted suppliers With sample materials Confirm receipt


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Kaufman-Wills Group65

Outsourcingand

Offshoring

Evaluate proposals

Decide on evaluation criteria Financial

Qualitative

Create summary grid/s Compare apples to apples

Involve stakeholders appropriately

Goal: good decision, perhaps not best decision

Select finalist/s


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Outsourcing and Offshoring

Evaluating alternatives

Make Buy1 Buy2

What it

meansPotential

benefits

Potential

drawbacks

Coststo

consider


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Outsourcingand

Offshoring

Meet the finalist/s

Presentation

Q&A

Meet and greet

Tour


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Outsourcingand

Offshoring

Decide on supplier

Decide on supplier

Notify all prospective suppliers

Enter into contract negotiation

Set timeline for completion

Business terms first

Legal sign off afterward

International policies:Easing


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International policies:EasingTrade Restrictions

General Agreement on Tariffs and Trade(GATT)

World Trade Organisation (WTO)

International Monetary Fund (IMF)

Multinational Market Regions (EU, NAFTA,A

PE

C, andA

SEA

N)


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Strategies In International context


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Read related topics in UNIT-2 folder , take ideas& Make points

Modulus\UNIT-2\Brochure_Epiq_Sourcing.pdf

Read Pages , take ideas & Make points


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Modulus\UNIT-5\ib97e0_-_global_sourcing_of_strategic_information_technology__mmba_.pdf

Read Page 5,6 & 7


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Gats

The creation of the GATS was one of the landmarkachievements of the Uruguay Round, whose resultsentered into force in January 1995.

The GATS was inspired by essentially the same

objectives as its counterpart in merchandise trade,the General Agreement on Tariffs and Trade(GATT): creating a credible and reliable system ofinternational trade rules;

Ensuring fair and equitable treatment of all

participants (principle of non-discrimination); Stimulating economic activity through guaranteed

policy bindings; Promoting trade and development through

progressive liberalization.

Is it true that the GATS not only applies to cross-border flows of


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Is it true that the GATS not only applies to cross border flows of

services, but additional modes of supply?

The GATS distinguishes between four modes ofsupplying services: cross-border trade,consumption abroad, commercial presence, andpresence of natural persons.

Cross-border su

pply is defined tocover servi

cesflows from the territory of one Member into the

territory of another Member (e.g. banking orarchitectural services transmitted viatelecommunications or mail);

Consumption abroad refers to situations where aservice consumer (e.g. tourist or patient) moves intoanother Member's territory to obtain a service;


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Commercial presence implies that a servicesupplier of one Member establishes a territorialpresence, including through ownership or lease ofpremises, in another Member's territory to providea service (e.g. domestic subsidiaries of foreigninsurance companies or hotel chains); and

Presence of natural persons consists of persons ofone Member entering the territory of anotherMember to supply a service (e.g. accountants,doctors or teachers). The Annex on Movement of

Natu

ral Persons specifies, however, that Membersremain free to operate measures regarding

citizenship, residence or access to the employmentmarket on a permanent basis


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Theories of InternationalTrade

The Theory of Absolute Advantage --


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The Theory of Absolute Advantage Adam Smith

Different countries produce some goods

more efficiently. This may due to differences

in factors such as climate, quality of land,

natural resources, labour, technology, capitalor entrepreneurship.

If each country specializes in the product for

which it has absolute advantage, each can

use its recourses more effectively.

Possible Product Outputs


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Possible Product Outputs(for certain resources & lab our)

Country A CountryB

Product X 20 10

Product Y 10 20

e eory o ompara ve


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Advantage -- David Ricardo

A country specializes in those products

that it can produce most efficiently than

other products without regard to absolute

advantage.

A country would focus on the product

with greatest comparative advantage or a

product with the least comparativedisadvantage

Possible Product Outputs


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80 80

Possible Product Outputs(for certain resources & labour)

Country A CountryB

Situation1

Product X 20 10

Product Y 10 20

Situation2

Product X 20 10

Product Y 30 20


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D f t i th th


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84 84

Defects in the theory UnrealisticAssumption of labour Cost.

Static nature of the theory

Neglect of transport costs.

Assumption of constant costs.

Factors Immobile Internally Unrealistic theory based on assumptions.

Inadequate explanation of comparative cost.

Demand conditions ignored.

Complete specialization is impossible.

Heckscher-Ohlin Theory of Factor


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Heckscher-Ohlin Theory ofFactorEndowment

Argues that comparative advantage arisesfrom differences in Factor Endowment.

Extent to which a country is endowed with such

resources as Land,labour and capital. Different nations have different factor

endowments and different factor endowmentsexplain differences in factor costs.

The more abundant a factor, the lower is thecost.


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Order/ Product Flow through Supply Chain Functions

Order Management Channel A

Channel B Customer

Channel CProductDistribution

Manufacturing

Demand PlanningSupply PlanningPart Supply

Orders

Demand

Forecast

Component

Requirement

PartsProduction

Plans

Products Products

Orders

Products

Products

Orders

Orders


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Economic Indicators

Module II: International Eco


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Module II: International Ecosystem

The eco system, economic indicators andcharacteristics of operating in North America

(USA), Europe (EU),

Asia (China),

Latin America (Brazil), Africa (South Africa) &

Middle-East (UAE).

f d f


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Drivers ofTrade Performance

Efficiency Responsiveness

Inventory Transportation Facilities Information

Supply chain structure

Drivers

Source: Chopra & Meindl/Logistics Strategy

E i I di


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Economic Indicator:

An economic indicator (or business indicator)is a statistics about the economy.Economic

indicators allow analysis of e

conomi

cperformance and predications of future

performance. One application of economicindicators is the study of Business cycles.


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ib-3(global business operations)

Documents