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International Business : The Challenge of Global Competition, 8/e
Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American
Global Operations Management: The Third Industrial Revolution

E Learning Session

  1. Sourcing globally PowerPoint (37.0K)
    1. Reasons for sourcing globally PowerPoint (32.0K)Concept Check
      • To obtain lower prices
      • Product or component availability
      • Firm's worldwide operation and attitude
      • Advanced technology available from foreign sources
      • Higher-quality product available from foreign sources
    2. Global sourcing arrangements
      • Any of the following can provide foreign products
        1. Wholly-owned subsidiary
        2. Overseas joint venture
        3. In-bond plant contractor
        4. Overseas independent contractor
        5. Independent overseas manufacturer
    3. Importance of global sourcing
      • Strong relationship between global sourcing and ownership of foreign sources
      • Proportion of purchased components in finished goods is increasing
      • Components are more complex and technologically oriented
      • Trend to focus on core competencies suggests to outsource components
    4. Finding global sources
      • Many information sources discussed in chapter 17
      • Many countries have programs to promote industries
    5. The increasing use of electronic purchasing for global sourcing
      • Internet has made potential source more widely accessible
      • Many firms have set up e-procurement exchanges
      • Trend among American businesses is to see purchasing as a strategic force
      • Only know are firms really beginning to seek more efficient process for purchasing
    6. Options for global electronic procurement
      • Most basic electronic transaction is catalogue purchase
      • Standard style bid/quote processes can be carried out electronically
    7. Benefits of global electronic procurement systems
      • Costs savings can be substantial for large companies
      • Smaller companies also benefit as new markets are opened to them
      • Business-to-business (B2B) Internet is predicted to rapidly increase during the next five years
      • B2B can help optimize the supply chain across a network of companies
    8. Problems with global source PowerPoint (32.0K)
      • Global sourcing is standard for US firms with greater than $10 million in sales
      • It does have problems
        1. Lower price may not be lower price after all costs such as transportation, duties and taxes are calculated
          1. International freight, insurance, and packing (10-12%)
          2. Import duties (0-50%)
          3. Customhouse broker's fees (3-5%)
          4. Transit or pipeline inventory (5-15%)
          5. Cost of letter of credit (1%)
          6. International travel and communication costs (2-8%)
          7. Company import specialists (5%)
          8. Rework of products out of specification (0-15%)
        2. Explanation of added costs
          1. To be certain of projected costs, freight, insurance and packing should be quoted CIF port of entry
          2. Unless shipment is to duty free location, duty must be added
          3. Costs for inventory in pipeline will vary according to exporter's delivery promise
          4. If importing is significant company it may set up a group of specialist employees to handle the complicated processes
      • Other disadvantages
        1. Fluctuating currency exchange rates
        2. Many e-procurement systems were developed as separate organizational entities and as a result failed to have the support needed to be successful
        3. Security is an issue of concern for e-procurement
        4. Standards across countries are concern for global procurement
    9. US firms that have returned
      • Some firms have returned overseas manufacturing to the US
      • Reasons include speed to market for products
  2. Manufacturing systems
    1. Advanced production technology
      • Japanese have philosophy of reducing stock inventory
      • Japanese realized that economic growth was dependent on export
      • Products would have to be high quality and low cost
    2. Japanese efforts to lower costs and improve quality
      • Lower costs
        1. Eliminating inventory reduces costs by 40% Concept Check
        2. To operate without inventory the following conditions are required
          1. Components had to be defect free
          2. Parts and components had to be delivered to production when and were needed (just-in-time)
          3. Flexible production processes that allowed meeting customer needs
          4. Reduce process time
          5. Flexible manufacturer allows rapid modification of products to meet needs
          6. Manufacturers had to have cooperation of suppliers
          7. To lower costs, improve quality, and reduce production times, all functions had to work as a team
          8. Team cooperation allowed standardization of parts more plausible
      • Improve quality
        1. The Japanese adopted total quality management as an approach to improve employees to increase quality
        2. One type of team used for decision making is quality circles
      • Problems with implementation of Japanese JIT system
        1. American managers trying to copy Japanese would only incorporate parts of the total Japanese approach
        2. Total system (Big JIT) is important and includes management of people, materials, and relations with suppliers
        3. American manufacturing processes based on Scientific Management (Frederick Taylor) of specialized work processes
          1. System is contrary to Quality circles' concepts of (1) participative management and (2) problem-solving capabilities of workers
          2. Americans pressured for quick work were disappointed that QC didn't return immediate solutions
        4. Failure to train and integrate suppliers resulted in problems
    3. Advanced production techniques-United States
      • Problems with JIT
        1. JIT is restricted to operations that produce the same parts repeatedly because it is a balanced system
        2. Because JIT is a balanced system, if one operation stops, the entire production process stops
        3. Achieving a balanced system is difficult because production capacities differ among various classes of machines
        4. JIT makes no allowances for contingencies, so every piece has to be defect free to meet delivery schedules preventive maintenance, done according to plan, not when the machine creaks down, is critical
        5. Much trial and error was involved in implementation
      • Synchronous manufacturing PowerPoint (33.0K)Concept Check
        1. Sometimes called the theory of constraints, a scheduling and manufacturing control system that seeks to locate and eliminate or minimize any constraints to greater production output
        2. The system's output is determined by and limited to the output of the slowest operation (bottleneck) that is working to full capacity
        3. TOC seeks to balance product flow
        4. TOC allows for excess in non bottleneck areas to cover in the event of defective parts
      • Soft manufacturing
        1. Software and labor have become more important than machines
        2. Makes plants extremely agile
        3. Helped US regain lead in manufactured exports from Japan and Germany
      • European production technology
        1. Recognize the need to make substantial not incremental improvement in process technology
        2. German producers have been forced into reengineering, a radical redesign of business processes to achieve dramatic improvements in critical measures of performance
        3. Germans also use delayering, removal of levels of management to reduce costs
        4. EU has allowed European manufacturers to consolidate production for cost reduction
    4. Comparisons of production and competitiveness
      • Governments need to make structural changes
        1. To combat high unemployment structural changes in taxes, deregulation, and less rigid work laws must be made
        2. European companies have not gone through the same type of downsizing as US companies
      • Europe has fallen father behind
        1. Recent studies show Europe falling father behind in competitiveness
        2. Failure to structure economies to face global competition is attributed as reason
    5. International effort to improve quality and lower costs
      • Western firms are succeeding
        1. Many US companies have incorporated TQM and synchronous manufacturing
        2. Human resources actions improved employee morale and productivity
        3. Concurrent engineering has reduced time for new product introduction
        4. European companies now beginning to adopt asynchronous manufacturing
    6. Reasons for global standardization of manufacturing systems PowerPoint (32.0K)Concept Check
      • Standards help ensure that materials, products, processes, and services are appropriate for their purpose
      • Standards have been developed across product lines
      • American Society for Testing of Materials (ASTM) is US developer of standards
      • ISO 9000, International organization for Standards (ISO), has been used in Europe for decades and is now becoming world standard
      • Standards compliance provides purchasers with assurances of product quality
      • Organization and staffing
        1. Simpler and less costly when standardized
          1. Increases headquarters effectiveness in keeping production specifications current
        2. Logistics of supply
          1. Costs can be realized if organizational production is melded into a single supply system
          2. Standardization of processes allows for standardization of machinery reducing repair parts and maintenance costs
        3. Rationalization
          1. Manufacturing rationalization, the division of production among a number of production units, thus enabling each to produce only a limited number of components for all of a firms' assembly plants
          2. Product mix must first be rationalized, the firm must opt to manufacture goods for global distribution
        4. Purchasing
          1. Central buyers purchasing for global subsidiaries allows for economy of scale in costs
          2. When small quantities are need sometimes costs are increased because of the out-of-usually purchase
      • Control
        1. Quality control
          1. When production equipment is similar, home office control over process is easier
          2. Reports from various subsidiaries are parallel and permit easy identification of unusual situations
        2. Production and maintenance control
          1. A single standard also make the task of maintenance and production control
          2. Deviations are from people and site specific factors
      • Planning
        1. When a new plant can be built that is a duplicate of those already functioning, planning and design is simpler and quicker
        2. Design engineers need only to copy the drawings already in files and lists of materials
        3. Vendors will be expected to furnish equipment that they have supplied before
        4. The technical department can send the current manufacturing specifications without alteration
        5. Labor trainers experienced in operation of the machinery can be sent to the new location without special training
        6. Reasonably accurate forecasts of plant erection time and output can be based on experience with existing facilities
    7. Impediments to globalization of manufacturing facilities
      • Environmental forces
        1. Economic forces
          1. Most significant is wide range in market sizes
          2. Designers can select from capital-intensive, incorporating machinery, or labor-intensive, incorporating people
          3. Third possibility is computer-integrated manufacturing
          4. Consideration is cost of production
            • Automation tends to increase productivity per worker
            • But if machines are only a small part of production and are down the remainder of the time, the high costs may result in excessive production costs
            • Engineers might suggest backward vertical integration, establishing facilities to manufacture inputs used in production of a firm's final products
        2. Cultural forces
          1. In developed country environments, skilled labor is generally available
          2. In developing countries, skilled workers are rare in which case any machinery might be specialized because attending these machines requires less training than general machine tool
          3. Absenteeism is a cultural artifact that can affect production output
        3. Political forces
          1. When establishing new plants in developing countries, designers are faced with an unusual paradox
          2. Country needs new jobs, but governments insist on latest technology
      • Some design solutions
        1. Hybrid design
          1. Common in developing country plant design is to use a hybrid system of capital-intensive considered essential to ensure product quality and labor-intensive-processes to take advantage of an abundance of unskilled labor
        2. Intermediate technology
          1. Developing country governments are realizing they need to do something between high and low tech
          2. Intermediate technology creates more jobs, but creates high quality
      • Appropriate technology
        1. Production methods-intermediate, capital-intensive or labor-intensive (or a mixture)-considered most suitable for an area according to its cultural, political and economic situation
    8. Local manufacturing system
      • Basis for organization
        1. Local manufacturing organization is usually as scaled-down version of the parent company
      • Horizontal and vertical integration
        1. Local manufacturing is rarely integrated to the same extent as parent company
        2. Some vertical integration is traditional
        3. Some countries prohibit vertical integration
        4. Some countries require that a percentage of the final product be comprised of parts made locally
        5. Horizontal integration is much less prevalent in foreign subsidiaries
    9. Design of manufacturing systems
      • A manufacturing system is essentially a functionally related group of activities for creating value
      • Factors involved include
        1. Plant location
          1. Significant for production and distribution costs
          2. Gain of government incentives may influence choice
          3. Governments may prohibit specific locations to control growth
          4. Export processing zones a areas specific and limited into which imported components may be brought for further processing; the finished product must be reexported to avoid payment of import duties
        2. Plant layout
          1. Building design should be made to optimize product production flow
          2. Should achieve maximum utility while allowing for future expansion
        3. Materials handling
          1. Careful planning for materials handling improves productivity and reduces costs
          2. Poor handling can result in delayed customer shipment and damaged goods
        4. Human element
          1. Effectiveness of manufacturing process depends on people
          2. Poor working conditions impair effectiveness of employees
          3. Additional tools, different instructional signage may be required, especially in developing country sites
          4. Provisions made for cultural characteristics such as bicycle riders or walkers
      • Operation of the manufacturing system
        1. Manufacturers activities
          1. After installation and training of operators machines are expected to produce at a level to support costs
        2. Obstacles to meeting manufacturing standards Concept Check
          1. Low output
            • Raw materials suppliers may fail to meet delivery dates or supply material out of specification
              1. Purchasing people make suppliers aware of the implications
            • Poor coordination f production scheduling slows delivery
              1. Teaching employees about the importance of what they do improves employee productivity
              2. Attitudes toward authority and differences in educational levels create gulf between managers and employees
              3. Attempts by employees to please everyone and aversion to long-range subvert efforts to improve productivity
            • Absenteeism
              1. Significant problem in bottleneck areas
              2. Low morale results sometimes from management's efforts to deviate for cultural norms such as attempts to get employees to participate in decision making
              3. Too often expatriate managers accept the high absenteeism and low productivity as norm and do not make attempts to correct
          2. Inferior quality
            • Good quality is relative, what's good quality in one place may not be seen as quality in another
            • Marketers have responsibility to determine the cost/value characteristics appropriate to specific markets
            • Trouble arises when home offices require quality levels of subsidiaries that are equal to domestic (developed country) production
          3. Excessive manufacturing costs
            • Any costs that exceed budget costs are excessive costs
            • Low output may be cause
            • Overoptimistic sales forecasts may be cause
            • Delivery problems with raw materials
            • Over stocking raw materials can lead to excessive costs
          4. Supportive activities
            • Purchasing
              1. Procures raw materials, parts, supplies, and machinery
              2. Costs affect selling price of produced goods
              3. Purchasing personnel seek out needs
              4. Balance of time, cost, and quantities
              5. Using home country or host country personnel for purchasing is hot debate
              6. Each has advantages
            • Maintenance
              1. Maintenance management ensures acceptable level of manufacturing
              2. The removal of inventory as a buffer for production in JIT systems has made maintenance more critical
              3. Maintenance may be planned maintenance or preventive maintenance with objective to prevent failure of processes
              4. Breakdown maintenance has objective to get machines back into production
              5. Concern is that breakdowns can be very costly to production
              6. Developing countries have cultures that sometimes do not embrace the idea of maintenance
            • Technical function
              1. Technical department provides manufacturing with specifications
              2. Usually responsible for checking quality of inputs and finished products




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