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

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Presentation on theme: "15 Managing International Operations Copyright © 2014 Pearson Education, Inc."— Presentation transcript:

1 15 Managing International Operations Copyright © 2014 Pearson Education, Inc.

2 Copyright © 2014 Pearson Education, Inc. Chapter 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

3 Copyright © 2014 Pearson Education, Inc. Toyota Produces, designs, and sells globally Has solely- and jointly-owned facilities Planning and financing are vital

4 Copyright © 2014 Pearson Education, Inc. Reflects overall firm strategy Low-cost leadership Focus Differentiation Essential to achieving objectives Production Strategy

5 Copyright © 2014 Pearson Education, Inc. Capacity Planning Assessing a company’s ability to produce enough output to satisfy market demand  Work shifts  Labor laws  Facility capacity  Subcontracting

6 Copyright © 2014 Pearson Education, Inc. Facilities Location Planning Selecting a location for production facilities Resources, conditions Labor costs, productivity Service customer needs Factory to market distance

7 Copyright © 2014 Pearson Education, Inc. Location Economies Key: Each production activity generates more value in a particular location than could be generated elsewhere Economic benefits derived from locating production activities in optimal locations

8 Copyright © 2014 Pearson Education, Inc. Centralized production  Low-cost leadership  Global strategy  Transportation costs Decentralized production  Differentiation / Focus  Multinational strategy  Buyer preferences Centralized vs. Decentralized

9 Copyright © 2014 Pearson Education, Inc. Process Planning Deciding the process that a company will use to create its product Low-cost leadership  Large scale  Efficiency Differentiation / Focus  Skills  Flexibility

10 Copyright © 2014 Pearson Education, Inc. Standardized or Adapted Low-cost leadership Standardized Large batches Automated Differentiation / Focus Adapted Higher cost Small scale

11 Copyright © 2014 Pearson Education, Inc. Facilities Layout Planning Deciding the spatial arrangement of production processes within facilities  Reflects business strategy  Geography may be a factor

12 Copyright © 2014 Pearson Education, Inc. Discussion Question What is the concept of location economies and how important is it to facilities location planning?

13 Copyright © 2014 Pearson Education, Inc. Answer to Discussion Question 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.

14 Copyright © 2014 Pearson Education, Inc. Make-or-Buy Decision Questions: Raw materials Intermediate components Facility availability Cost considerations

15 Copyright © 2014 Pearson Education, Inc. Decision to Make Vertical integration Extend control over inputs (backward integration) or outputs (forward integration) Reasons to make Lower cost Greater control

16 Copyright © 2014 Pearson Education, Inc. Reasons to buyOutsourcing Decision to Buy Buying from another company a good or service that is not central to a company’s competitive advantage Greater flexibility Market power Lower risk

17 Copyright © 2014 Pearson Education, Inc. Materials and Assets Raw materials Quality Quantity Fixed assets Existing Facility Greenfield

18 Copyright © 2014 Pearson Education, Inc. Discussion Question When a company extends control over additional stages of production, either inputs or outputs, it undertakes __________. a. Outsourcing b. Capacity planning c. Vertical integration

19 Copyright © 2014 Pearson Education, Inc. Answer to Discussion Question When a company extends control over additional stages of production, either inputs or outputs, it undertakes __________. a. Outsourcing b. Capacity planning c. Vertical integration

20 Copyright © 2014 Pearson Education, Inc. Quality Improvement Total Quality Management (TQM) ISO 9000 Continuous quality improvement to meet or exceed customer expectations through quality-enhancing processes Certification a firm gets when it meets the highest quality standards in its industry

21 Copyright © 2014 Pearson Education, Inc. Other Production Issues Importance of cost containment Shipping costs Shipping costs Just-in-time manufacturing Just-in-time manufacturing Inventory costs Inventory costs

22 Copyright © 2014 Pearson Education, Inc. Decision to Reinvest or Divest REINVEST  Promising outlook  Growing market  Highest return DIVEST  Unprofitable outlook  Social unrest

23 Copyright © 2014 Pearson Education, Inc. Discussion Question What are some of the considerations that underlie the reinvest-versus- divest decision?

24 Copyright © 2014 Pearson Education, Inc. Answer to Discussion Question 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.

25 Copyright © 2014 Pearson Education, Inc. Financing 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:

26 Copyright © 2014 Pearson Education, Inc. Borrowing Locally Difficulties:  Exchange-rate risk  Currency inconvertibility  Restricted capital flows

27 Copyright © 2014 Pearson Education, Inc. Back-to-Back Loan

28 Copyright © 2014 Pearson Education, Inc. American 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

29 Copyright © 2014 Pearson Education, Inc. Culture Matters: Financing Business from Abroad 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…

30 Copyright © 2014 Pearson Education, Inc. Emerging Stock Markets Poor regulation Poor regulation Extreme volatility Extreme volatility Hot money Liquid investments that can be quickly withdrawn Hot money Liquid investments that can be quickly withdrawn Patient money Holdings of factories, equipment, and land that cannot be quickly withdrawn Patient money Holdings of factories, equipment, and land that cannot be quickly withdrawn

31 Copyright © 2014 Pearson Education, Inc. Equity, debt, and fees Revenue from operations Subsidiaries financed by parents who are later rewarded financially Money earned from sales is the lifeblood of every company Internal Funding

32 Copyright © 2014 Pearson Education, Inc. Mix of equity, debt, and internal funds used to finance activities Capital Structure

33 Copyright © 2014 Pearson Education, Inc. Discussion Question 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

34 Copyright © 2014 Pearson Education, Inc. Answer to Discussion Question 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

35 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


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