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Competitive Manufacturing

Strategies

Dr. Bappa Acherjee


Production Engineering Department
BIT Mesra
THE COMPETITIVE ENVIRONMENT IN THE MARKET

Liberalization
Removal or reduction of those practices in trade that
restricts free flow of goods and services from one nation to
another. It includes dismantling of tariff (such as duties,
surcharges, and export subsidies) as well as non-tariff
barriers (such as licensing regulations, quotas, and
arbitrary standards).

Globalization
'Globalization' refers to 'a process of removing government-
imposed restrictions on movements between countries in
order to create an "open", "borderless" world economy'. The
process of globalization includes opening up of world trade
and increased mobility of persons, goods, capital, data,
technology, knowledge and ideas between nations. Ideally,
it also contains free inter-country movement of labor.

FDI, Joint Venture, MNC (After policy reform in India in


1991)
Competitive environment in market
Earlier scenario-
Monopolistic business and minimal competition
Customers need to buy the product according to Manufacturer
specifications, irrespective of cost and quality

After liberalization-
breaking political barriers, integrating world capital and
financial markets, opening up international markets and freeing
import of technology and raw material. New opportunities and
challenges are thrown up. The opportunities are in the form of
increasing the sales and profit by exploring the customers in the
massive global market.

Corporations well equipped with technology and tools of


management to adjust the new situations can take advantage of
the opportunities to meet the competition.
Incompetent and ill-equipped companies will find it difficult to
service and they will be forced to exit from the scenario prevailing
in the world market as per the rules of nature known ‘survival of
the fittest’.
The challenges are:
• Maximization of efficiency in operations,
• optimum utilization of plant capacity,
• minimization of cost of operations,
• quality of products and services,
• reduced inventories,
• optimum use of resources, and
• reduction of production wastes.

The goal of manufacturing enterprises will be to develop, fast


responsive and customer focused techniques that maximize the
manufacturers return on all resources-
capital,
materials,
equipment,
facilities,
personnel,
energy and
most importantly, time.
To improve their competitive advantage the companies have
to work on one or more of the following areas:
• Innovation
• Quality
• Efficiency
• Responsiveness towards customer demand.

Various manufacturing management philosophies adopted by


companies for continuous improvements are:
• Total quality management,
• Theory of constraint,
• Lean manufacturing,
• Agile manufacturing,
• Six sigma,
• World class manufacturing, etc.
INDIAN CONTEXT

Indian economy was in deep crisis in July 1991, when


• foreign currency reserves had plummeted to almost $1
billion;
• Inflation had roared to an annual rate of 17 percent;
• fiscal deficit was very high and had become unsustainable;
• foreign investors and NRIs had lost confidence in Indian
Economy.
• Capital was flying out of the country and
• country was close to defaulting on loans.
Major measures initiated as a part of the liberalization and
globalization strategy in the early nineties included the
following:

1. Devaluation
2. Disinvestment
3. Dismantling of The Industrial Licensing Regime
4. Allowing Foreign Direct Investment (FDI)
5. Non Resident Indian Scheme
6. Throwing Open Industries Reserved For The Public Sector to
Private Participation.
7. Abolition of the Monopolistic and Restrictive Trade Practice
(MRTP) Act,
8. The removal of quantitative restrictions on imports.
9. The reduction of the peak customs tariff
10. Wide-ranging financial sector reforms
WORLD TRADE ORGANIZATION

Formation 1 January 1995


Headquarters Geneva, Switzerland
Membership 162 countries on 30 November 2015
Official languages English, French, Spanish
Director-General Roberto Azevêdo
Budget 197 million Swiss francs for 2015
Staff 634
Website www.wto.int

The World Trade Organization (WTO), is the only


international organization dealing with global rules of trade
between nations. Its main goal is to ensure that trade flows
as smoothly, predictably and freely as possible.

At the heart of the system – known as the multilateral trading


system – are the WTO’s agreements, negotiated and signed by
a large majority of the world’s trading nations, and ratified in
their parliaments.
WTO agreements are the legal ground-rules for international
commerce.
These are contracts, guaranteeing member countries important
trade rights.
These also bind governments to keep their trade policies within
agreed limits to everybody’s benefit.

Most of the WTO's current work comes from the 1986-94


negotiations called the Uruguay Round, and earlier negotiations
under the GATT. The organization is currently the host to new
negotiations, under the Doha Development Agenda (DDA)
launched in 2001.

The WTO is governed by a Ministerial Conference, which meets


every two years; a General Council, which implements the
conference's policy decisions and is responsible for day-to-day
administration; and a director-general, who is appointed by the
Ministerial Conference. The WTO's headquarters is in Geneva,
Switzerland.
WTO – PAST, PRESENT AND FUTURE

The World Trade Organization came into being in 1995.


One of the youngest of the international organizations, the WTO
is the successor to the General Agreement on Tariffs and Trade
(GATT) established in the wake of the Second World War (1947),
and continued to operate for almost five decades as a de facto
international organization..
GATT and the WTO have helped to create a strong and
prosperous trading system contributing to unprecedented
growth.

1. The 1986-94 Uruguay Round – led to the WTO’s creation.


The first rounds dealt mainly with tariff reductions but later
negotiations included other areas such as anti-dumping and
non-tariff measures.
2. In 1997, an agreement was reached on telecommunications
services, with 69 governments agreeing to wide-ranging
liberalization measures that went beyond those agreed in the
Uruguay Round. 40 governments successfully concluded
negotiations for tariff-free trade in information technology
products, and 70 members concluded a financial services
deal covering more than 95% of trade in banking, insurance,
securities and financial information.

3. In 2000, new talks started on agriculture and services.

4. The DDA (Doha Development Agenda) launched at the


fourth WTO Ministerial Conference in Doha, Qatar, in 2001,
adds negotiations and other work on non-agricultural tariffs,
trade and environment, WTO rules such as anti-dumping
and subsidies, investment, competition policy, trade
facilitation, transparency in government procurement,
intellectual property, and a range of issues raised by
developing countries as difficulties they face in implementing
the present WTO agreements.
WTO AGREEMENTS

• The WTO’s rules – the agreements – are the result of


negotiations between the members.
• General Agreement on Tariffs and Trade (GATT) is now the
WTO’s principal rule-book for trade in goods.
• The Uruguay Round also created new rules for dealing with
trade in services, relevant aspects of intellectual property,
dispute settlement, and trade policy reviews.
• The complete set runs to some 30,000 pages consisting of
about 30 agreements and separate commitments (called
schedules) made by individual members in specific areas
such as lower customs duty rates and services market-
opening.
• Through these agreements, WTO members operate a non-
discriminatory trading system that spells out their rights and
their obligations.
• Each country receives guarantees that its exports will be
treated fairly and consistently in other countries’ markets.
The agreements fall into a structure with six main parts:

i. The Agreement Establishing the WTO


ii. Goods and investment (the Multilateral Agreements on
Trade in Goods including the GATT 1994 and the Trade
Related Investment Measures)
iii. Services — the General Agreement on Trade in Services
(GATS)
iv. Intellectual property — the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS)
v. Dispute settlement understanding (DSU)
vi. Reviews of governments' trade policies (TPRM)
MISSION, FUNCTIONS AND PRINCIPLES

Its main mission is "to ensure that trade flows as smoothly,


predictably and freely as possible".

The WTO/GATT system is founded on non-discrimination, with


its twin faces of Most-Favoured-Nation and National Treatment
principles.

Functions
Among the various functions of the WTO, these are regarded by
analysts as the most important:
▪ Administering WTO trade agreements
▪ Forum for trade negotiations
▪ Handling trade disputes
▪ Monitoring national trade policies
▪ Technical assistance and training for developing countries
▪ Cooperation with other international organizations
PRINCIPLES OF THE TRADING SYSTEM

The WTO establishes a framework for trade policies; it does not


define or specify outcomes.

• Non-Discrimination.
• Reciprocity
• Binding and enforceable commitments
• Transparency
• Safety valves
THE IMPACT OF THE WORLD TRADE ORGANISATION (WTO)
Negative effects of globalization on Indian industry have
been:

• Rise in demand for labor and the rise in wage rates leading to
some increase in costs.
• Weakening power of the trade unions over labor in emerging
industries and growth sectors like IT, entertainment, internet
and mobile services, airlines, banking, insurance, banking
services.
• Too much competition in the market leading to continuous
pressure on raising productivity, enhancing consumer
service, improving product quality, in order to survive.
• Voluntary retirement for many public sector units.
• Too many sales person chasing customers.
• Too many cars on the road and traffic congestion.
• Growth of consumerism.
• Instability in profits due to too much choice among
customers.
• Shortage of power and infrastructure affecting
industrial expansion.
• Closure of inefficient units supplying costly and shoddy
products and loss of jobs.
• Problems of dealing with uncertainty in the
international market in terms of demand, supply and
prices.
Positive effects

Effect of globalisation on Indian industry has been very positive,


• Though some industrial firms with the baggage of high cost,
inefficient plants and processes inherited from the past
because of closed economy's government dictated industrial
policies and priorities had to face serious problems in the
beginning. But soon most of the industries have became more
and more efficient, customer focused and improved their
international competitiveness in terms of costs, prices,
product quality and variety.
• Industrial growth has been very high and strong during the
past decade because of globalisation.
• Exports have increased tremendously.
• Indian industries are also expanding abroad.
• Foreign companies have substantially increased their
investments in Indian industries.
• Wages of industrial labour has increased substantially as they
have become very productive.
• Lock out and strikes have declined to insignificantly low levels
because industrial labor is happy.
• Those who cannot be efficient and past their prime age they have
been retired with very attractive voluntary retirement schemes.
• The trade unions are finding it difficult to influence industrial
workers into agitation because labor has started benefiting from
the positive fallout of globalization on the prosperity and growth
of the industrial sector.
• Talented and merited labor is commanding premium
compensation in the labor market. Several new type of industries
have also come up. Small scale industries of the past has fast
grown into medium scale companies.
• Incidence of industrial sickness has gone done drastically.
• However, the communists will not agree to this view because
with industrial workers becoming richer following increasing
demand for and the wages of industrial labor resulting from
liberalisation and globalisation.
COMPETITIVE ADVANTAGE
Michael Porter identified two basic types of competitive
advantage:
• cost advantage
• differentiation advantage
A competitive advantage exists when the firm is able to deliver
the same benefits as competitors but at a lower cost (cost
advantage), or deliver benefits that exceed those of competing
products (differentiation advantage). Thus, a competitive
advantage enables the firm to create superior value for its
customers and superior profits for itself.
Resources and Capabilities

Resources are the firm-specific assets useful for creating a cost or


differentiation advantage and that few competitors can acquire
easily. The following are some examples of such resources:
• Patents and trademarks
• Proprietary know-how
• Installed customer base
• Reputation of the firm
• Brand equity

Capabilities refer to the firm's ability to utilize its resources


effectively. An example of a capability is the ability to bring a
product to market faster than competitors.

The firm's resources and capabilities together form its distinctive


competencies. These competencies enable innovation,
efficiency, quality, and customer responsiveness, all of which
can be leveraged to create a cost advantage or a differentiation
advantage.
Cost Advantage and Differentiation Advantage

• Competitive advantage is created by using resources and


capabilities to achieve either a lower cost structure or a
differentiated product. A firm positions itself in its industry
through its choice of low cost or differentiation. This decision
is a central component of the firm's competitive strategy.
• Another important decision is how broad or narrow a market
segment to target.

Value Creation

• To achieve a competitive advantage, the firm must perform


one or more value creating activities in a way that creates
more overall value than do competitors. Superior value is
created through lower costs or superior benefits to the
consumer (differentiation).
COMPETITIVE ADVANTAGE OF LOCAL FIRMS

Economic reform brings the threat of foreign competition, and


many local companies feel as if they are not able to meet
the challenge from more established and efficient MNCs.

ADVANTAGES OF MNCs
Many MNCs enjoy the benefits of,
• having strong international brands and the proven ability to
market those brands. Previous international experience has
provides the ability to market to diverse customers.
• strong financial abilities and proven management skills.
• multinationals from advanced economies can compete
against local firms using better technology.
• finally, multinationals often have the advantages that come
from economies of scale and economies of scope. The ability
to produce more efficiently due to having larger operations and
the ability to transfer resources across company areas
produce a strong competitive advantage for multinationals.
ADVANTAGES OF LOCAL FIRMS
Local firms bring a number of advantages, and those advantages are
often hard for foreign firms to duplicate.
• One of the most significant advantages possible for the local firm
is a cost advantage. The local firm is an expert in cost reductions
in that local economy.
• At the same time, the local firm has already developed a
distribution channel, and has established itself in the
consumer’s mind. Creating a competing channel of
distribution can be an expensive undertaking for the
multinational.
• The local firm has an intimate knowledge of the local market and
can fine- tune its product offerings to the needs of that market.
• Foreign marketers may be skilled at international marketing, but
the local firm has knowledge of the local market and its culture
that would take time for the multinational to acquire.
• The local firm can also appeal to consumer’s sense of nationalism
in order to promote its product over that of the foreign
multinational.
THE CASE OF BAJAJ AUTO
MANUFACTURING AS STRATEGY

• Strategy has been defined as: “The determination of the


basic long-term goals and the objectives of an enterprise, and
the adoption of courses of action and the allocation of
resources necessary for carrying out these goals."

• Such a broad definition of strategy covers a multitude of


decisions from "What business should we be in?" to "How can
manufacturing contribute to the competitive advantage of
this business?"

The idea of a hierarchy of strategy with three major levels:


• Corporate Strategy – what set of businesses should we be
in?
• Business Strategy – how should we compete in a given
business?
• Functional Strategy – how can various functions
(manufacturing, finance, marketing, product development
etc.) contribute to the competitive advantage of the business?
At the outset, certain key word need to be defined:
• Vision statement- What is the organization as a whole trying to
accomplish?
• Strategy- How will the organization accomplish it?
• Plans and policies- What are the organization’s operating rules
and parameters?

MISSION

OBJECTIVES
Financial, Market, Manufacturing, Product Development

ENVIRONMENTAL SCANNING
Economic, Government and Legal issues

INTERNAL STRENGTH AND WEAKNESS ANALYSIS

CORPORATE STRATEGY
Manufacturing strategy can be defined as “a coordinated set of
objectives and action programmes applied to a firm's manufacturing
function (deployment of manufacturing resources) and aimed at securing
medium and long term, sustainable advantage for firms over that firm's
competitors”.
Strategic Decision Areas comprising a Manufacturing Strategy
Category Decision Areas Scope
Structural Capacity Total capacity, capacity flexibility, shift patterns, temporary
Decisions subcontracting policies
Facilities Location, number and size of sites, focus of manufacturing
resources, allocation of tasks to sites
Process technology / Equipment, automation, connectedness, integration, technology choice,
Production configuration of equipment into lines, cells, etc., maintenance policies and
equipment the potential for developing new processes in-house , implementation,
subcontracted development
Vertical Integration Strategic make vs. buy decisions, supplier policies, supplier relationship,
supplier development, extent of dependence on suppliers, network behaviour

Infra- Human resources recruitment, training and development, culture and


structural management style
Decisions
Quality quality assurance and control policies and practice, defect
prevention, monitoring, intervention
Production planning computerization, centralization, decision rules, production
and materials and order, material control systems
control
Organization structure, reporting levels, support groups, accountability and responsibility
Performance Financial and non-financial performance measurements and links to
measurement recognition and reward systems
New product design for manufacturing guidelines, introduction stages, organizational
introduction aspects e.g. manufacturing role in concurrent engineering
Corporate strategy

Coordinated goals and objectives

Manufacturing Strategy
Structural and Infrastructural
decisions

Implementation goals and objectives

Manufacturing actions

Outcomes & Measures

Manufacturing objectives and their scopes


Objectives Scopes of the objectives
Cost refers to cost related factors in the production and delivery of products, i.e. internal costs (e.g.
material, labour, facilities, technology, equipments and overhead costs)

Quality refers to achieving the company defect rate targets, i.e. manufacturing of products with high
quality and performance standards
Delivery refers to achieving delivery targets, i.e. meeting delivery schedules
dependability
Delivery refers to achieving delivery targets, i.e. reacting quickly to customer orders to deliver fast
Speed
Flexibility refers to the ability to cope with change or uncertainty and variety, i.e. reacting to changes in
product, changes in product mix, modifications to design, fluctuations in materials, changes in
sequence and volume
Others refers to after-sale service, advertising, broad distributions and broad product line