Presentation on theme: "International Business 7e"— Presentation transcript: 1 International Business 7e Show
2 Global Production, Outsourcing and Logistics
3 Introduction International firms must answer five interrelated questions: 1. Where should production activities be
located? 2. What should be the long-term strategic role of foreign production sites? 3. Should the firm own foreign production activities, or is it better to outsource those activities to independent vendors? 4. How should a globally dispersed supply chain be managed, and what is the role of Internet-based information technology in the management of global logistics? 5. Should the firm manage global logistics itself, or should it outsource the
management to enterprises that specialize in this activity? 4 Strategy, Production, And Logistics
5 Strategy, Production, And Logistics 6 Strategy, Production, And Logistics 7 Strategy, Production, And Logistics
8 Where To Produce Three factors are important when making location decisions: 1. country factors 2.
technological factors 3. product factors 9 Country Factors Firms should locate manufacturing activities in those locations where economic, political, and cultural conditions, including relative factor costs, are most conducive to the performance of that activity Country factors that can affect
location decisions include: the availability of skilled labor and supporting industries formal and informal trade barriers expectations about future exchange rate changes transportation costs regulations affecting FDI Management Focus: Philips in China Summary This feature describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical
equipment conglomerate, has been operating factories in China since By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its
output to the United States and elsewhere. Suggested Discussion Questions 1. What makes China such an attractive production location for Philips? Are there other locations that share the same characteristics? Discussion Points: Several factors make China an attractive production location for Phillips. Perhaps the most important factor is the country’s cheap wages. In addition, the Chinese workforce is well educated, the economy is strong, and many of the
company’s suppliers are doing business there. Most students will argue that at least at the moment, China is the only country that offers these particular qualities. While other countries like Mexico and India also have low cost workforces, they do not have the industrial base that is present in China. 2. Philips wants to eventually turn China into a global supply base from which its products will be exported around the world. Consider the advantages and disadvantages of this
strategy. Discussion Points: Students should recognize that using China as a global supply base from which to serve the world offers several advantages to Phillips. By having a single production location, the company can capitalize on costs savings that come from economies of scale as well as the low wages in China. However, if economic, political, or other types of problems arise in the country, Phillips could be in serious trouble if it has no alternate locations to fill
production gaps. Another Perspective: Students can explore the company in more depth by going to its homepage at { and clicking on “Visit Phillips Global”. 10 Technological Factors 11 Technological Factors
12 Technological Factors 13 Technological Factors 14 Technological Factors
15 Classroom Performance System 16 Technological Factors 17 Classroom Performance System 18 Product
Factors Two product factors impact location decisions: 19 Classroom Performance System 20 Locating Production Facilities 21 Locating Production Facilities
22 Classroom Performance System 23 Classroom Performance System 24 The Strategic Role Of Foreign Factories 25
The Strategic Role Of Foreign Factories 26 Outsourcing Production: Make-or-Buy Decisions
27 The Advantages Of Make Vertical integration (making component parts in-house) can: 1. lower costs - if a firm is more efficient at that production activity than any other enterprise, it may
pay the firm to continue manufacturing a product or component part in-house 2. facilitate investments in highly specialized assets - internal production makes sense when substantial investments in specialized assets (assets whose value is contingent upon a particular relationship persisting) are required to manufacture a component
28 The Advantages Of Make 3. protect proprietary technology - a firm might prefer to make component parts that contain proprietary technology in-house in order to maintain control over the technology 4. facilitate the scheduling of adjacent processes - the weakest argument for vertical integration is that the
resulting production cost savings make planning, coordination, and scheduling of adjacent processes easier 29 The Advantages Of Buy
Buying component parts from independent suppliers: 1. gives the firm greater flexibility By buying component parts from independent suppliers, the firm can maintain its flexibility, switching orders between suppliers as circumstances dictate This is particularly important when changes in exchange rates and trade barriers alter the attractiveness of various supply sources over time Management Focus: Outsourcing at the Boeing Company
Summary This feature focuses on the process of generating "make-or-buy" decisions at Boeing. The Boeing Company is the world's largest manufacturer of commercial jet aircraft with a 60 percent share of the global market. Due to decreasing demand for its aircraft and cost constraints on the part of its buyers, Boeing has been forced to find ways to become more price competitive. One strategy that Boeing has utilized is outsourcing. The feature describes Boeing's outsourcing
criteria, which involves making a determination whether it is better for Boeing to "make" or "buy" a particular component part. For Boeing this is serious business. On the one hand, Boeing does not want to take unnecessary strategic risks and become too dependent on outside suppliers for critical component parts. On the other hand, Boeing can outsource certain component parts and realize a substantial cost saving. The feature illustrates the nature of this dilemma at Boeing. Discussion of the
feature can begin with the following questions. Suggested Discussion Questions 1. Describe Boeing's criteria for determining whether a component part should be "outsourced" or whether it should be manufactured in-house. Are Boeing’s criteria appropriate? Why or why not? Discussion Points: Most students will probably argue that Boeing’s criteria for its make-or-buy decisions are appropriate. The company initially looks at the basic costs involved and whether
the component could be made more cheaply in-house or by an outside supplier. Next, Boeing considers the strategic risk associated with outsourcing. Then, the company considers operational risks, and finally, Boeing considers the potential for new orders if it outsources from a company located in a particular country. 2. What could go wrong with Boeing's strategy of outsourcing? Has Boeing taken the necessary precautions? Are there any hazards in the company's strategy?
Discussion Points: Boeing should be aware of the risks involved with outsourcing including receiving inferior components, delivery delays, and exposure to exchange rates. In addition, Boeing must ensure that it is properly protected when making outsourcing arrangements that require highly specialized assets. 3. In the future do you believe that Boeing will be doing more or less outsourcing? Justify your answer. Discussion Points: Most students will probably
suggest that the trend to outsource will continue. Given the cyclical nature of the business, it probably does not make sense for Boeing to develop in-house production capabilities for components that are readily available on open markets. Another Perspective: Boeing’s home page is available at { Students can click on “Select Country” to explore the company’s global initiatives.
30 The Advantages Of Buy 2. helps drive down the firm's cost structure
31 Trade-Offs The benefits of manufacturing components in-house are greatest when: highly specialized assets are
involved vertical integration is necessary for protecting proprietary technology the firm is more efficient than external suppliers at performing a particular activity 32 Strategic Alliances With Suppliers 33 Classroom Performance System 34
Managing A Global Supply Chain 35 The Role Of Just-in-Time Inventory
36 The Role Of Information Technology And The Internet Which option is a benefit of buying component parts or complete products from independent suppliers?The great advantage of buying component parts, or even an entire product, from independent suppliers is that the firm can maintain its flexibility, switching orders between suppliers as circumstances dictate.
What is an advantage of making rather than buying component parts?Cutting Current Costs
Other times, shipping costs, issues with raw material availability, or other considerations mean that it is currently more cost-efficient for a company to manufacture units itself.
What system has a drawback that leaves a firm without a buffer stock of inventory?Which of the following is a drawback of a just-in-time system? It leaves a firm without a buffer stock of inventory.
|