15 Managing International Operations Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Reflects overall firm strategy Low-cost leadership Focus Differentiation Essential to achieving objectives Production Strategy

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Capacity Planning Assessing a company’s ability to produce enough output to satisfy market demand  Work shifts  Labor laws  Facility capacity  Subcontracting

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Facilities Location Planning Selecting a location for production facilities Resources, conditions Labor costs, productivity Service customer needs Factory to market distance

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Location 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

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Centralized production  Low-cost leadership  Global strategy  Transportation costs Decentralized production  Differentiation / Focus  Multinational strategy  Buyer preferences Centralized vs. Decentralized

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Process Planning Deciding the process that a company will use to create its product Low-cost leadership  Large scale  Efficiency Differentiation / Focus  Skills  Flexibility

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Standardized or Adapted Low-cost leadership Standardized Large batches Automated Differentiation / Focus Adapted Higher cost Small scale

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Facilities Layout Planning Deciding the spatial arrangement of production processes within facilities  Reflects business strategy  Geography may be a factor

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Make-or-Buy Decision Many questions to answer: Raw materials Intermediate components Facility availability Cost considerations

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Decision to Make Vertical integration Extend control over inputs (backward integration) or outputs (forward integration) Reasons to make Lower cost Greater control

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Materials and Assets Raw materials Quality Quantity Fixed assets Existing Facility Greenfield

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Other Production Issues Importance of cost containment Shipping costs Shipping costs Just-in-time manufacturing Just-in-time manufacturing Inventory costs Inventory costs

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Decision to Reinvest or Divest REINVEST  Promising outlook  Growing market  Highest return DIVEST  Unprofitable outlook  Social unrest

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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:

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Borrowing Difficulties:  Exchange-rate risk  Currency inconvertibility  Restricted capital flows

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Back-to-Back Loan

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 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

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Small Business Financing Tips for entrepreneurs to find funds: Contact business schools with strong international 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…

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall Mix of equity, debt, and internal funds used to finance activities Capital Structure