chapter 15 managing international operations

Chapter 15 - 1International Business 4e© Prentice Hall, 2008

Chapter 15 Chapter 15 Managing Managing

International International OperationsOperations

© Prentice Hall, 2008 International Business 4e Chapter 15 - 2

Chapter PreviewChapter Preview

• Identify the types of planning involved in production strategy

• List the reasons for making or buying inputs

• Explain several issues that are of special concern in production strategy

• Discuss problems of international debt financing

• Identify each source of equity financing available to international companies


Reflects overall firm strategyReflects overall firm strategyReflects overall firm strategyReflects overall firm strategy

Low-cost leadership Low-cost leadership

FocusFocus

Differentiation Differentiation

Essential to achieving objectivesEssential to achieving objectivesEssential to achieving objectivesEssential to achieving objectives

Production StrategyProduction Strategy


Capacity PlanningCapacity Planning

Assessing a company’s ability to produce enough output to satisfy market demand

1. Number of work shifts

2. Number of employees

3. Size of facilities

4. Subcontracting


Economic benefits

derived from locating

production activities

in optimal locations

Economic benefits

derived from locating

production activities

in optimal locations

Centralized production

tends to be well-suited

to global strategy

Centralized production


to global strategy

Locationeconomies

Centralized Decentralized

Decentralized production


to multinational strategy

Decentralized production


to multinational strategy

Facilities Location PlanningFacilities Location Planning

Selecting the location for production facilities


Process PlanningProcess Planning

Deciding the process that a company willuse to create its product

Deciding the process that a company willuse to create its product

Adaptation• Suits differentiation and focus

Standardization• Suits low-cost leadership


Facilities Layout PlanningFacilities Layout Planning

Deciding the spatial arrangement of production processes within facilities

• Reflects business-level strategy

• Location’s geography also a factor


Make-or-Buy DecisionMake-or-Buy DecisionMake-or-Buy DecisionMake-or-Buy Decision

Raw materialsRaw materialsRaw materialsRaw materials

Intermediate componentsIntermediate componentsIntermediate componentsIntermediate components

AvailabilityAvailabilityAvailabilityAvailability

Needed modificationsNeeded modificationsNeeded modificationsNeeded modifications

Cost considerationsCost considerationsCost considerationsCost considerations


Decision to MakeDecision to Make

Vertical integrationExtend control over inputs (backward integration)

or output (forward integration)

Vertical integrationExtend control over inputs (backward integration)

or output (forward integration)

Reasons to makeReasons to make

Lower costLower cost

Greater controlGreater control


Reasons to buyReasons to buyReasons to buyReasons to buyOutsourcingOutsourcingOutsourcingOutsourcing

Decision to BuyDecision to Buy

Buying from anotherBuying from anothercompany a good orcompany a good orservice that is notservice that is not

central to a company’scentral to a company’scompetitive advantagecompetitive advantage

Buying from anotherBuying from anothercompany a good orcompany a good orservice that is notservice that is not

central to a company’scentral to a company’scompetitive advantagecompetitive advantage

Greater flexibilityGreater flexibilityGreater flexibilityGreater flexibility

Market powerMarket powerMarket powerMarket power

Lower riskLower riskLower riskLower risk

Barriers to buyingBarriers to buyingBarriers to buyingBarriers to buying


Quality ImprovementQuality Improvement

Total QualityManagement (TQM) ISO 9000

Continuous quality improvementto meet or exceed customer

expectations throughquality-enhancing processes

International StandardsOrganization 9000 is a

certification a firm gets whenit meets the highest quality

standards in its industry


Other Production IssuesOther Production Issues

ShippingShippingcostscosts

ShippingShippingcostscosts

Just-in-timeJust-in-time(JIT)(JIT)

manufacturingmanufacturing

Just-in-timeJust-in-time(JIT)(JIT)

manufacturingmanufacturing

InventoryInventorycostscosts

InventoryInventorycostscosts


Decision to Reinvest or DivestDecision to Reinvest or Divest

ReinvestReinvest

• Promising outlookPromising outlook

• Growing marketGrowing market

• Highest returnHighest return

DivestDivest

• Unprofitable outlookUnprofitable outlook

• Social unrestSocial unrest


Financing Business OperationsFinancing Business Operations

Pay operating expenses

Expand production capacity

Enter new geographic markets

Develop and reward employees

Invest in new projects

and much more…

Financial resources needed to:


BorrowingBorrowing

Difficulties:Difficulties:

Exchange-rate riskExchange-rate risk

Currency inconvertibilityCurrency inconvertibility

Restricted capital flowsRestricted capital flows


Back-to-Back LoanBack-to-Back Loan


American Depository ReceiptsAmerican 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


Emerging Stock MarketsEmerging Stock Markets

Poorregulation

Poorregulation

ExtremevolatilityExtremevolatility

Hot money:Hot money:Liquid investments that

can be quickly withdrawn

Hot money:Hot money:Liquid investments that

can be quickly withdrawn

Patient money:Patient money:Holdings of factories,

equipment, and land thatcannot be quickly withdrawn

Patient money:Patient money:Holdings of factories,

equipment, and land thatcannot be quickly withdrawn


Equity, debt,Equity, debt,and feesand fees

Equity, debt,Equity, debt,and feesand fees

Revenue fromRevenue fromoperationsoperations

Revenue fromRevenue fromoperationsoperations

Subsidiaries financed bySubsidiaries financed byparents, who are laterparents, who are laterrewarded financiallyrewarded financially

Subsidiaries financed bySubsidiaries financed byparents, who are laterparents, who are laterrewarded financiallyrewarded financially

Money earned fromMoney earned fromsales is the lifebloodsales is the lifeblood

of every companyof every company

Money earned fromMoney earned fromsales is the lifebloodsales is the lifeblood

of every companyof every company

Internal FundingInternal Funding


Mix of equity, debt, and internal funds used to finance activities

Capital StructureCapital Structure


Small Business FinancingSmall 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


Chapter ReviewChapter Review

• Identify the types of planning involved in production strategy

• List the reasons for making or buying inputs

• Explain several issues that are of special concern in production strategy

• Discuss problems of international debt financing

• Identify each source of equity financing available to international companies

chapter 15 managing international operations

Documents

production facilitiesbusiness

production capacity

production strategylist

specific number of shares

reward employees

eprocess planningdeciding

withdrawnpatient money

highest qualitystandards