15 Managing International Operations Copyright © 2014 Pearson Education, Inc.

15 Managing Managing International International OperationsOperations

Copyright © 2014 Pearson Education, Inc.

15 - 2Copyright © 2014 Pearson Education, Inc.

Chapter ObjectivesChapter Objectives

• Identify the elements that are important to

consider when formulating production strategies

• Identify key considerations when acquiring

physical resources

• Identify several production matters that are of

special concern to managers

• Describe the three potential sources of financing

and the main financial instruments of each


ToyotaToyota

• Produces, designs, and sells globally• Has solely- and jointly-owned facilities• Planning and financing are vital

• Produces, designs, and sells globally• Has solely- and jointly-owned facilities• Planning and financing are vital


Reflects overall firm strategy

Low-cost leadership

Focus

Differentiation

Essential to achieving objectives

Production StrategyProduction Strategy


Capacity PlanningCapacity Planning

Assessing a company’s ability to produce enough output to satisfy market demand

Work shifts

Labor laws

Facility capacity

Subcontracting


Facilities Location PlanningFacilities Location Planning

Selecting a location for production facilities

Resources,conditions

Labor costs,productivity

Servicecustomer needs

Factory tomarket distance


Location EconomiesLocation Economies

Key:

Each production activity generates

more value in a particular location

than could be generated elsewhere

Economic benefits derived from locatingproduction activities in optimal locations

Economic benefits derived from locatingproduction activities in optimal locations


Centralized production Low-cost leadership Global strategy Transportation costs

Decentralized production Differentiation / Focus Multinational strategy Buyer preferences

Centralized vs. DecentralizedCentralized vs. Decentralized


Process PlanningProcess Planning

Deciding the process that a companywill use to create its product

Low-cost leadership Large scale Efficiency

Differentiation / Focus Skills Flexibility


Standardized or AdaptedStandardized or Adapted

Low-cost leadership

Standardized

Large batches

Automated

Differentiation / Focus

Adapted

Higher cost

Small scale


Facilities Layout PlanningFacilities Layout Planning

Deciding the spatial arrangement ofproduction processes within facilities

Reflects business strategy

Geography may be a factor


Discussion QuestionDiscussion Question

What is the concept of location economies and how important is it to facilities location planning?


Answer to Discussion Answer to Discussion QuestionQuestion

Location economies are the economic benefits derived from locating production activities in optimal locations. In other words, each production activity generates more value in a particular location than could be generated anywhere else. Location economies are essential to location planning because of their strategic importance for the long-term success of a firm’s operations.


Make-or-Buy DecisionMake-or-Buy Decision

Questions:Questions:

Raw materialsRaw materials

Intermediate componentsIntermediate components

Facility availabilityFacility availability

Cost considerationsCost considerations


Decision to MakeDecision to Make

Vertical integration

Extend control over inputs (backward integration)or outputs (forward integration)

Reasons to make

Lower cost

Greater control


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


Materials and AssetsMaterials and Assets

Raw materials Quality Quantity

Fixed assets Existing Facility Greenfield



When a company extends control over additional stages of production, either inputs or outputs, it undertakes __________.

a. Outsourcing

b. Capacity planning

c. Vertical integration


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


Other Production IssuesOther Production Issues

Importance of cost containment

Shippingcosts

Shippingcosts

Just-in-timemanufacturing

Just-in-timemanufacturing

Inventorycosts

Inventorycosts


Decision to Reinvest or DivestDecision to Reinvest or Divest

REINVEST

Promising outlook Growing market Highest return

DIVEST

Unprofitable outlook Social unrest



What are some of the considerations that underlie the reinvest-versus-divest decision?



A firm reinvests when it wishes to: (1) reinvest in a market with a long payback period, (2) maintain its market share and competitive position, (3) reinvest in a market growing rapidly, and (4) reduce its international competition.

A firm divests when it wishes to: (1) avoid a low return on investment, (2) avoid high country risk, and (3) invest in more profitable opportunities elsewhere.


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:


Borrowing LocallyBorrowing Locally

Difficulties:

Exchange-rate risk

Currency inconvertibility

Restricted capital flows


Back-to-Back LoanBack-to-Back Loan


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


Culture Matters:Culture Matters:Financing Business from Financing Business from

AbroadAbroad

Business school international programs

Your country’s commerce department

Leverage your contacts

Industry events in other countries

Hire an intermediary to find capital

Exploit Facebook, Twitter, LinkedIn, etc…


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


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


Mix of equity, debt, and internal funds used to finance activities

Capital StructureCapital Structure



A certificate that trades in the United States and represents a specific number of shares in a non-U.S. company is called a(n) __________.

a. Back-to-back loan

b. Foreign Capital Receipt

c. American Depository Receipt

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.

Printed in the United States of America.

Copyright © 2014 Pearson Education, Inc.

15 - 35

15 Managing International Operations Copyright © 2014 Pearson Education, Inc.

Documents

Transcript of 15 Managing International Operations Copyright © 2014 Pearson Education, Inc.