TOPIC 8: International Business Functions (Global Supply Chains, Marketing & Human Resources) Show
Introduction to Topic 8 Discussion NotesThe Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes. Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly. In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future. Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course. Chapter 17: Global Production and Supply Chain Management Learning objectives
This chapter focuses on two major activities—production and supply chain management, and attempts to clarify how when they are performed internationally, the cost of value creation can be lowered, and how value can be added by better serving customer needs. The choice of an optimal manufacturing location must consider country factors, technological factors, and product factors. Foreign factories can improve their capabilities over time, and this can be of immense strategic benefit to the firm. Managers need to view foreign factories as potential centers of excellence and encourage and foster attempts by local managers to upgrade factory capabilities. An essential issue in many international businesses is determining which component parts should be manufactured in-house and which should be outsourced to independent suppliers. The chapter also discusses the contributions of information technology to these activities. This is especially important in the era of the Internet. The opening case explores technology giant Apple’s successful supply chain management strategy and its effect on the company’s bottom line. The closing case explores clothing retailer H&M’s use of supply chain management to source quality, low cost materials and keep production costs low. LECTURE OUTLINE The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. Slide 17-2 Production Issues For Firms Where should foreign production be located? How should a globally dispersed supply chain be managed? Slides 17-3 and 17-4 Strategy, Production and Supply Chain Management Firms need to identify how production and supply chain management can be conducted internationally to:
Slides 17-5 and 17-6 Improving Quality To increase product quality, most firms today use the Six Sigma program which aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. Another Perspective: To extend the discussion on TQM and Six Sigma go to {http://www.ge.com/en/company/companyinfo/quality/whatis.htm} to see how GE has incorporated the concept. Slide 17-7 Where to Produce? Three factors are important when making location decisions: 1. country factors 2. technological factors 3. production factors Slides 17-8 and 17-9 Country Factors Country factors that can affect location decisions include:
Another Perspective: The United States Central Intelligence Agency maintains a “country profile” on each country in the world. The country profiles provide useful information to companies contemplating doing business in a particular country. The country profiles {https://www.cia.gov/library/publications/the-world-factbook/index.html} are available to the public. Students can use the reports as a basis for comparing different production locations. Another Perspective: For additional information about a particular country, Yahoo provides an easy-to-search bank of linked sources that provide information about almost every country in the world. The site {http://dir.yahoo.com/government/countries} is useful to make quick comparisons between countries to gauge their relative attractiveness as production locations. Slide 17-10 Think Like a Manager: Offshoring Product Development Slides 17-11 through 17-13 Technological Factors The type of technology a firm uses in its manufacturing can affect location decisions. Three characteristics of manufacturing technology are of interest: 1. The level of fixed costs 2. The minimum efficient scale 3. The flexibility of the technology Slide 17-14 What Should a Firm Do? When fixed costs are substantial, the minimum efficient scale of production is high, and/or flexible manufacturing technologies are available, the arguments for concentrating production at a few choice locations are strong. Slide 17-15 Production Factors Two product factors impact location decisions: 1. The product's value-to-weight ratio 2. Whether the product serves universal needs Slide 17-16 Locating Production Facilities There are two basic strategies for locating manufacturing facilities: 1. Concentrating them in the optimal location and serving the world market from there 2. Decentralizing them in various regional or national locations that are close to major markets Slides 17-17 through 17-19 The Strategic Role of Foreign Factories The strategic role of foreign factories and the strategic advantage of a particular location can change over time. Foreign factories can have one of a number of strategic roles or designations, including:
Firms need to be aware of the hidden costs of foreign production. These costs can include high employee turnover, low productivity, poor workmanship, and poor product quality. Slide 17-20 Outsourcing Production: Make-or-Buy Decisions Should an international business make or buy the component parts to go into their final product? Make-or-buy decisions are important factors in many firms' manufacturing strategies. Slides 17-21 and 17-22 The Advantages of Making Products 1. lower costs 2. facilitates investments in highly specialized assets 3. protects proprietary technology 4. facilitate the scheduling of adjacent processes The benefits of manufacturing components in-house are greatest when:
Slides 17-23 and 17-24 The Advantages of Buying Products Buying component parts from independent suppliers:
Slide 17-25 Factors Influencing the Make-or-Buy Decision Slide 17-26 Functions of the Global Supply Chain: Logistics Logistics is the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing. The core activities performed in logistics are: 1. Global distribution center management 2. Inventory management 3. Packaging and materials handling 4. Transportation 5. Reverse logistics Slides 17-27 and 17-28 Functions of the Global Supply Chain: Purchasing Purchasing is the part of the supply chain that involves worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services. The core activities performed in purchasing include development of an appropriate strategy for global purchasing and selecting the type of purchasing strategy best suited for the company. Slide 17-29 The Role of Just-in-Time Inventory The basic philosophy behind just-in-time (JIT) systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process, and not before. Slide 17-30 The Role of Information Technology Web-based information systems play a crucial role in materials management. They allow firms to optimize production scheduling according to when components are expected to arrive. Slide 17-31 Coordinating Global Supply Chains Global supply chain coordination refers to shared decision-making opportunities and operational collaboration of key global supply chain activities. To achieve operational integration and collaboration, six operational objectives should be addressed: 1. Responsiveness 2. Variance reduction 3. Inventory reduction 4. Shipment consolidation 5. Quality 6. Life-cycle support Another Perspective: Stanford University’s Graduate School of Business maintains a website that is a forum for the dissemination of research and practical advice in the area of global supply chain management. The site supplies current information that can help extend a lecture on global materials management. The site is available at {http://www.gsb.stanford.edu/scforum}. Another Perspective: One company that specializes in global supply chain management is EPIQ Technologies. To get a better idea of the issues in global supply chain management, students may want to go to the company’s web site {http://www.epiqtech.com/supply_chain-Global-Management.htm} and explore some of the services that the company provides. Slides 17-32 through 17-36 Interorganizational Relationships Interorganizational relationships range from those requiring a low degree of coordination (with vendors or buyers, for example) to those requiring a high degree of coordination (such as those with partners or clients). Benefits of relationships with vendors (upstream) and buyers (downstream) include those typical of a transactional exchange: costs equal to quality for the goods bought, but not necessarily for the best goods in the marketplace. Benefits of relationships with suppliers (upstream) and customers (downstream) is that the firm will receive all the favorable characteristics that the raw materials, component parts, and/or products have relative to the next best alternative in the global marketplace. Benefits of relationships with partners (upstream) and clients (downstream) include the one or two points of higher quality for the raw materials, component parts, and/or products whose improvement will yield the greatest value to the customer for the foreseeable future (quality greater than cost). Another Perspective: Many small- and medium-sized U.S firms work closely with suppliers in foreign markets to ensure they meet the needs of their customers. To learn more, go to {http://www.businessweek.com/managing/content/oct2010/ca20101026_400846.htm}. Chapter 18: Global Marketing and R&D Learning objectives
The focus of this chapter is on how marketing and R&D can be performed so they will reduce the costs of value creation and add value by better serving customer needs. A global marketing strategy that views the world’s consumers as similar in their tastes and preferences is consistent with the mass production of a standardized output. By mass-producing a standardized output, the firm can realize substantial unit cost reductions from experience curve and other scale economies. But ignoring country differences in consumer tastes and preferences can lead to failure. Thus, an international business’s marketing function needs to determine when product standardization is appropriate and when it is not, and adjust the marketing strategy accordingly. Similarly, the firm’s R&D function needs to develop globally standardized products when appropriate as well as products that are customized to local requirements. A critical aspect of the marketing function is identifying gaps in the market so that new products can be developed to fill those gaps. Developing new products requires R&D; thus, the linkage between marketing and R&D. Marketing dictates to R&D whether to produce globally standardized or locally customized products. The opening case explores Marvel Studios’ global brand strategy for marketing the superhero films Iron Man and Avengers. Hiring recognizable actors and taking advantage of cross-promotional opportunities made the movie franchises incredibly successful. The closing case describes the efforts of Domino’s Pizza to capture the market in Japan and India. LECTURE OUTLINE The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. Slide 18-2 The Marketing Mix The marketing mix (the choices the firm offers to its targeted market) is comprised of product attributes, distribution strategy, communication strategy, and pricing strategy. Slides 18-3 and 18-4 The Globalization of Markets and Brands Culture and consumer tastes drive the need to localize. Globalization seems to be the exception rather than the rule in many markets. Slides 18-5 and 18-6 Market Segmentation Market segmentation involves identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Segments can be based on geography, demography, socio-cultural factors and psychological factors. Slides 18-7 and 18-8 Product Attributes A product is like a bundle of attributes. Products sell well when their attributes match consumer needs. While there is some cultural convergence among nations, Levitt’s vision of global markets is still a long way off. Consumers in highly developed countries tend to demand a lot of extra performance attributes, while consumers in less developed nations tend to prefer more basic products. Differences in product and technical standards may require the firm to customize products. Slides 18-9 through 18-13 Distribution Strategy A firm’s distribution strategy (the means it chooses for delivering the product to the consumer) is a critical element of the marketing mix. There are four main differences in distribution systems: 1. retail concentration 2. channel length 3. channel exclusivity 4. channel quality Slide 18-14 Choosing a Distribution Strategy The optimal strategy depends on the relative costs and benefits of each alternative. Slide 18-15 Communication Strategy Communication channels available to a firm include direct selling, sales promotion, direct marketing, and advertising via different media. Slides 18-16 through 18-18 Barriers to International Communication The effectiveness of a firm's international communication can be jeopardized by cultural barriers, source and country of origin effects, and noise levels. Another Perspective: The class can be stimulated to think of some positive and negative source effects (German autos vs. German wine, Italian cuisine vs. British cuisine). Slides 18-19 through 18-21 Push versus Pull Strategy Firms have to choose between two types of communication strategies:
The choice between push and pull strategies depends upon product type and consumer sophistication, channel length, and media availability. Slides 18-22 and 18-23 Global Advertising Standardized advertising makes sense when it has significant economic advantages, creative talent is scarce and one large effort to develop a campaign will be more successful than numerous smaller efforts, and brand names are global. Standardized advertising does not make sense when cultural differences among nations are significant, and country differences in advertising regulations block the implementation of standardized advertising. Slide 18-24 Pricing Strategy There are three issues to consider price discrimination, strategic pricing and regulatory influence on prices. Slides 18-25 through 18-27 Price Discrimination Price discrimination occurs when firms charge consumers in different countries different prices for the same product. The price elasticity of demand is a measure of the responsiveness of demand for a product to changes in price. Slides 18-28 and 18-29 Strategic Pricing Strategic pricing has three aspects: 1. predatory pricing - involves using the profit gained in one market to support aggressive pricing designed to drive competitors out in another market. 2. multipoint pricing - a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market. 3. experience curve pricing - price low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially. Slide 18-30 Regulatory Influences on Prices A firm’s ability to set its own prices may be limited by: 1. antidumping regulations 2. competition policy Slide 18-31 Configuring the Marketing Mix Differences in culture, economic conditions, competitive conditions, product and technical standards, distribution systems, government regulations, and the like may require variation in product attributes, distribution strategy, communications strategy, and pricing strategy. Another Perspective: Fun sites to visit with students include Nestle {http://www.nestle.com} and Kraft {http://www.kraftfoodsgroup.com/home/index.aspx}. Both companies sell their products in many countries around the world, and by clicking on the various country locations, students can get a feel for which elements of the marketing mix have been standardized, and which have not. Slide 18-32 Think Like a Manager: Adjust the Marketing Mix Slides 18-33 and 18-34 the Role of International Market Research International market research is defined as the systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company. International market research may be performed in-house or by external companies. The basic data that companies want collected in international market research include: 1. Data on the country and potential market segments (geography, demography, sociocultural factors, and psychological factors) 2. Data to forecast customer demands within specific country or world region (social, economic, consumer, and industry trends) 3. Data to make marketing mix decisions (product, distribution, communication, and price) Slide 18-35 International Market Research Steps The process for conducting international market research typically includes defining the research objectives, determining the data sources, assessing the costs and benefits of the research, collecting the data, analyzing and interpreting the data, and reporting the research findings. Slide 18-36 New Product Development Firms today need to make product innovation a priority. This requires close links between R&D, marketing, and manufacturing. Slide 18-37 The Location of R&D New product ideas come from the interactions of scientific research, demand conditions, and competitive conditions. Slides 18-38 Integrating R&D, Marketing, and Production A firm’s new product development efforts need to be closely coordinated with the marketing, production, and materials management functions. Slide 18-39 Cross-Functional Teams Effective cross-functional teams should be
Slide 18-40 Building Global R&D Capabilities To adequately commercialize new technologies, firms need to integrate R&D and marketing. Chapter 18: Global Human Resource Management Learning objectives
Human resource management is key to the competitiveness of international firms. HRM refers to those activities undertaken by an organization to effectively apply its human resources. These activities include human resource strategy, staffing, performance evaluation, management development, compensation, and labor relations. Firm success requires that HRM policies are congruent with strategy and with formal and informal structure and controls. Strategies like “think globally and act locally” sound good, but their implementation requires effective HRM policies. The opening case explores how Mary Kay Inc. developed a global workforce model to help solidify the company’s worldwide reach and motivate employees. The closing case describes the development of a global employee database at IBM that helped the company identify workforce requirements and effectively match employee skills to client needs. LECTURE OUTLINE The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide. Slide 19-2 What Is HRM? Human resource management (HRM) refers to the activities an organization carries out to utilize its human resources effectively. The four major tasks of HRM are
Slides 19-3 through 19-5 The Strategic Role ofInternationalHRM Firms need to ensure there is a fit between their human resources practices and strategy. Slides 19-6 and 19-7 Staffing Policy A firm’s staffing policy is concerned with the selection of employees who have the skills required to perform a particular job. Slides 19-8 through 19-11 Types of Staffing Policy Three staffing policy choices at the international level are: ethnocentric, polycentric, and geocentric. 1. The ethnocentric approach to staffing fills key management positions with parent-country nationals 2. The polycentric staffing policy recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters 3. The geocentric staffing policy seeks the best people, regardless of nationality, for key jobs Slides 19-12 through 19-16 Expatriate Managers Expatriate failure is the premature return of an expatriate manager to his or her home country. Expatriate failures impact the company, as do near-failures. Another Perspective: Until the advent of the Internet, expatriates often felt isolated. Today numerous sites exist where expatriates can communicate with each other and share their experiences. One example of this type of site is {http://www.expatexchange.com/}. Students can explore the site, or it can be an in-class activity to see some of the issues facing expatriates. Four dimensions that predict expatriate success are:
Slide 19-17 Think Like a Manager: Expatriate Selection Slide 19-18 The Global Mindset A global mindset may be the fundamental attribute of a global manager. Slide 19-19 Training and Management Development Training focuses upon preparing the manager for a specific job. Management development is concerned with developing the skills of the manager over his or her career with the firm. Slide 19-20 Training for Expatriate Managers Cultural training (seeks to foster an appreciation for the host country's culture), language training (an exclusive reliance on English diminishes an expatriate manager's ability to interact with host country nationals), and practical training (helps the expatriate manager and her family ease themselves into day-to-day life in the host country), all help reduce expatriate failure. Another Perspective: Numerous companies offer expatriate training services. One great example is Kwintessential {http://www.kwintessential.co.uk/cultural-services/articles/expat-cultural-training.html}. The company’s web site includes a wealth of information on the expatriate process, country profiles, and even an online quiz on cultural awareness. Consider using the site in-class, or asking students to explore it on their own. Slide 19-21 Repatriation of Expatriates HRM needs to develop good programs for re-integrating expatriates back into work life within their home country organization once their foreign assignments are over and for utilizing the knowledge they acquired while abroad. The benefits from foreign assignments can be lost by firms if they are not careful in the repatriation of the expatriates. Slide 19-22 Management Development and Strategy Management development is often used as a strategic tool to build a strong unifying culture and informal management network, both of which are supportive of a transnational and global strategy. Slide 19-23 Performance Appraisal Evaluating expatriates can be especially complex. Typically, both host nation managers and home office managers evaluate the performance of expatriate managers. Both types of managers are subject to unintentional bias. Slide 19-24 Guidelines for Performance Appraisal Firms need to seek ways to reduce bias in performance appraisals. Slide 19-25 Compensation Should executive pay in different countries reflect the standards in each country or be equalized on a global basis? How should expatriates be paid? Slides 19-26 and 19-27 National Differences in Compensation Slides 19-28 through 19-30 Expatriate Pay An expatriate’s compensation package is made up of: 1. base salary 2. a foreign service premium 3. various allowances 4. tax differentials 5. benefits Slide 19-31 International Labor Relations The key issue in international labor relations is the degree to which organized labor is able to limit the choices available to an international business. Another Perspective: The International Labor Organization (ILO) supports worker issues throughout the world. To see some of the issues the ILO is currently involved in, go to {http://www.ilo.org/}. Slide 19-32 The Concerns of Organized Labor The bargaining power of unions comes from their ability to threaten to disrupt production by striking or protesting. Slide 19-33 Strategy of Organized Labor Organized labor has responded to the increased bargaining power of multinational corporations by:
However, none of those efforts has been very successful. Another Perspective: India’s issues strict policies regarding labor have implications for multinational companies. To learn more, go to {http://www.businessweek.com/news/2011-01-11/lingerie-beats-boxers-in-india-as-laws-discourage-manufacturers.html}. Slide 19-34 Approaches to Labor Relations Many firms are recognizing that the way in which work is organized within a plant can be a major source of competitive advantage. Copyright © 2017 McGraw-Hill Education. Adapted for MBA BUSS 5251 International Business for the purpose of individual study and course preparation. Which of the following is an advantage for a firm that buys component parts from independent suppliers?Which of the following is an advantage for a firm that buys component parts from independent suppliers? It allows a firm to maintain its flexibility by switching orders between suppliers.
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 are the type of decisions about whether a firm should makeA make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier. Make-or-buy decisions, like outsourcing decisions, speak to a comparison of the costs and advantages of producing in-house versus buying it elsewhere.
Which of the following is an advantage of engaging in inLower Management Costs
Producing your product in-house can avoid a lot of management costs associated with outsourcing.
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Which option is a benefit of buying component parts or complete products from independent suppliers?
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