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1 Chapter 9 Global Operations. 2 R & D Procurement Manufacturing Marketing Sales Stage model of international development EXPORTLOCALISATION GLOBAL Agent.

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Presentation on theme: "1 Chapter 9 Global Operations. 2 R & D Procurement Manufacturing Marketing Sales Stage model of international development EXPORTLOCALISATION GLOBAL Agent."— Presentation transcript:

1 1 Chapter 9 Global Operations

2 2 R & D Procurement Manufacturing Marketing Sales Stage model of international development EXPORTLOCALISATION GLOBAL Agent Local distributor Local distributor Marketing subsidiaries Marketing subsidiariesSubsidiaries WOS JVs Assembly Buying Office Assembly Components Sourcing Local Plant Local + Regional + Global Plants Subsidiaries Adaptation Development ISD 2 MULTINATIONAL Time Number of countries Buying Office Buying Office Buying Office

3 3 Global configuration of the value chain R & D ProcurementManufacturingMarketing General Management GLOBAL CENTRES REGIONAL CENTRES LOCAL UNITS

4 4 Research Development Sourcing Production Marketing Customer Services Global Regional Local - Central R & D - Technology Strategy - Core technology - Core products - Technology conferences - Technological intelligence - Regional product development - Regional intelligence - Regional seminars - Local laboratories - Global factories - Global materials flow - Process engineering - Central sourcing - Regional factories - Regional sourcing - Local production - Local sourcing - Global marketing strategy - Global communication - Global product management FinancesH.R.M - Policies - Procedures - Information system - Regional customers support - Logistics - Maintenance - After sales services - Corporate Finance - Global Treasury - Control - Regional Debt financing - Regional Control - Local borrowing - International H.R.M - Regional careers - Training - Local careers - Local Components of a global value chain - Regional accounts - Regional bidding - Distribution - Promotion - Sales

5 5 Local for Local production Production of goods or services internal to the company in internationally dispersed sites for serving local markets Local for Local outsourcing Sourcing of goods or services with external local domestic suppliers serving local operations Local for Global production Production of goods or services internal to the company in internationally dispersed sites for serving local markets Local for Global outsourcing Sourcing of goods or services with external international suppliers serving global operations Offshoring Objectives Offshoring Modes Offshore Production Offshore Outsourcing For market For global competitiveness

6 6 Source: OECD Economic Globalisation Indicators OECD © 2010

7 7 Setting-up global operations (The 3 Ls) Localisation Why? Location Where? Linkage How? Why do we set up an operational facility outside existing locations? What is the preferred geographical site for setting up the operation? What is the role of this operation in the global network and how does it link with other operations and what is its degree of autonomy?

8 8 Localisation Competitive Forces Growth Opportunities Physical resources Intellectual and support resources Costs Physical proximity to markets ( time and responsiveness dimensions ) Customers intimacy Learning Legislation ( local content) Why set up an operational facility outside existing locations?

9 9 Intellectuel and support resources Location Where? Physical Resources Costs Physical proximity to market Customers’ intimacy LearningLegislation Criteria Key Capabilities Costs/ benefit What is the preferred geographical site for setting up the operation? Access to resource Quality and costs of resources Human capital Legal and technical cluster Efficiency Volume Quality Labor Prooductivity Infrastructure Overheads Speed Responsiveness Geographical distance Telecom Communications Transport Customization relationships Customer base Market culture Innovation Competitors & related industries information Local content Economies of scale Importance of market

10 10 Source : UNCTAD, 2005

11 11 Made in ????? Idea for product generated in Singapore Concept design in Singapore Concept approved in Houston Engineering design in Taiwan Final assembly in Australia, China, India and Singapore HP ProLiant ML150 server

12 12

13 13 AT Kearney – Offshore Location Attractiveness High Quality Low Quality People skills And Business environment Costs LowHigh Australia Turkey Vietnam Thailand Philippines India Czech Rep. Singapore Malaysia ChinaBrazil Canada Ireland

14 14 Costs advantages of offshore sourcing and manufacturing

15 15 Linkage How? What is the role of a particular operation in the global network and how does it link with other operations and which degree of autonomy? Source Offshore Lead Outpost Contributor Server Access to Low cost production Access to skills and knowledge Proximity to market Site Competence Global hub Supply global markets Product development Multi products improvement Process development` Process improvement Procurement and local logistics Maintain process Production only Different Roles for International Factories ( Source : Ferdows) High Low Source: Ferdows

16 16 Evolution of Production Centres Global Hub Supply Global Markets Product Development Multi Products Improvement Process Development Process Improvement Procurement and Local Logistics Maintain Process Production only Plant Competencies Primary Strategic Reason Access to low Production costs- Access to Skills and knowledge Proximity to market OUTPOST OFFSHORE SERVER SOURCE LEAD CONTRIBUTOR Source: Ferdows

17 17

18 18 Service Provider Service User Service User Service User Service User Service Provider Service User Foreign Affiliate Service Provider Model 1 Direct acquisition of services: ie, On-line education, Model 3: Detachment: the provider detach personnel to perform the service: Medical, legal, consulting, education… Service Provider Service User Service User Service Provider Detac h Travel Model 2 Consumption of Service abroad: ie, Medical Service, education Model 4: Inward FDI: the provider set up an affiliate to provide service aboad: Banking, Consulting, Hotel, etc.. Model 5: Outsourcing: the user outsource a service to a foreign provider: Buying, BPO, ICT… Model 6: Offshoring: the user sets-up an affiliate that provides the service abroad: R and D, BPO, ICT, Call centres… COUNTRY ACOUNTRY B Internationalization of Services Detac h Service Provider Foreign Affiliate Service Provider Foreign Affiliate

19 19 Degree of centralisation of procurement decisions Degree of vertical integration of the procurement function Outsourced Procurement Internal Procurement Centralised Procurement Decentralised Procurement Outsourced central procurement Outsourced dispersed procurement Central internal procurement Dispersed internal procurement One global purchasing agent takes care of sourcing needs Ex:Li & Fung Local purchasing agents take care of sourcing needs according to global specifications Central purchasing department sources globally Ex :major airlines Local subsidiaries source locally according to Global specifications Ex :Mc Donald, Carrefour

20 20 Product Design Supplier identification Contract negotiation Quality Control Consolidation Logistics Solution selling Helps customer to manage its risk Manages the whole supply chain CUSTOMERS Retail chains for Textile, Toys FASHION Products: Cyclical Volatile difficult to predict Speed is important Reliability of delivery Quality and costs Minimize risks (overstock,..) GLOBAL NETWORK of 3000 suppliers Product Specialists (account managers) OFFICE ACROSS THE WORLD

21 21 International Project Management Pre Feasibility Feasibility Basic Engineering Detailed Engineering Tendering Start-up Project definition Basic economics Basic market forecast Basic technology definition Geophysical survey Business plan Cash flows Risk analysis Definition of technical specifications Drafting of specific specifications used for tendering Contract negotiations with suppliers Expetition Reception Construction Civil engineering Works on site Training Tests Production Training 7

22 22 Construction Risk  Cost overruns or construction delays Technology Security Penalties for Delays  Supporting Industries Qualified contractors and supporting services  Logistics and Red tape Customs clearance and transport Operating Risk  Supply of inputs  Market  Throughput (efficiency of operations)  Operating costs  Disruption (e.g. strikes)  Force majeure: Environmental disasters, Wars, Terrorism Sovereign Risk  Expropriation Direct and Creeping  Legal Lack of law enforcement  Convertibility and transferability  Foreign exchange  Price control  Inflation Risks in Projects

23 23 Internet and Global Operations Source:

24 24 Source:http://www.realiteq.com

25 25 Effects of the Internet on globalisation Market globalisation Increases global commonality in customer needs and tastes (facilitates customized standardization and strengthens appeal of global brands Enables global customers and global channels (facilitates global sourcing) Supports global marketing (enhances global brands and standardises search) Makes global products more rapidly visible Cost reduction Exploits differences in country costs and facilitates competition from low-cost small-scale companies from emerging markets Enhances global sourcing Speeds up global logistics Reduces product development costs Foster global competition Makes competitive comparisons easier Increases the number of potential global suppliers by reverse auctions Puts new rivals in the global competitive arena Weakens government barriers to open trade Makes it easier for customers to by-pass customs and tax levies Puts pressure on government to harmonise standards and policies Gives customers more incentives to lobby their governments to align with more customers friendly regulations Source: Yip (2000).


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