15

Managing
International
Operations

Chapter Objectives

Identify the elements that are important to

consider when formulating production strategies

Identify key considerations when acquiring

physical resources

Identify several production matters that are of

special concern to managers

Describe the three potential sources of financing

and the main financial instruments of each
15 - 2

Toyota
Produces, designs, and sells globally
Has solely- and jointly-owned facilities
Planning and financing are vital

15 - 3

Production Strategy
Essential to achieving objectives
Reflects overall firm strategy
Low-cost leadership
Differentiation
Focus
15 - 4

Capacity Planning
Assessing a companys ability to produce enough
output to satisfy market demand
Work shifts
Labor laws
Facility capacity
Subcontracting

15 - 5

Facilities Location Planning

Selecting a location for production facilities
Resources,
conditions

Labor costs,
productivity

Service
customer needs

Factory to
market distance
15 - 6

Location Economies
Economic benefits derived from locating
production activities in optimal locations
Key:
Each production activity generates
more value in a particular location
than could be generated elsewhere

15 - 7

Centralized vs. Decentralized

Centralized production
Low-cost leadership
Global strategy
Transportation costs
Decentralized production
Differentiation / Focus
Multinational strategy
Buyer preferences
15 - 8

Process Planning
Deciding the process that a company
will use to create its product
Low-cost leadership
Large scale
Efficiency
Differentiation / Focus
Skills
Flexibility
15 - 9

Standardized or Adapted
Low-cost leadership
Standardized
Automated
Large batches

Differentiation / Focus
Adapted
Small scale
Higher cost
15 - 10

Facilities Layout Planning

Deciding the spatial arrangement of
production processes within facilities
Reflects business strategy

Geography may be a factor

15 - 11

Discussion Question
What is the concept of
location economies
and how important is
it to facilities location
planning?

15 - 12

Answer to Discussion
Question
Location economies are the
economic benefits derived from
locating production activities in
optimal locations. In other words,
each production activity generates
more value in a particular location
than could be generated anywhere
else. Location economies are
essential to location planning
because of their strategic
importance for the long-term
success of a firms operations.
15 - 13

Make-or-Buy Decision
Questions:
Raw materials
Intermediate components
Facility availability
Cost considerations
15 - 14

Decision to Make
Vertical integration
Extend control over inputs (backward integration)
or outputs (forward integration)

Reasons to make
Lower cost
Greater control
15 - 15

Decision to Buy
Outsourcing

Reasons to buy

Buying from another

company a good or
service that is not
central to a companys
competitive advantage

Lower risk
Greater flexibility
Market power
15 - 16

Materials and Assets

Raw materials
Quality
Quantity

Fixed assets
Existing Facility
Greenfield
15 - 17

Discussion Question
When a company extends
control over additional
stages of production, either
inputs or outputs, it
undertakes __________.
a. Outsourcing
b. Capacity planning
c. Vertical integration
15 - 18

Answer to Discussion
Question
When a company extends
control over additional
stages of production, either
inputs or outputs, it
undertakes __________.
a. Outsourcing
b. Capacity planning
c. Vertical integration
15 - 19

Quality Improvement
Total Quality
Management (TQM)

ISO 9000

Continuous quality improvement

to meet or exceed customer
expectations through
quality-enhancing processes

Certification a firm gets when

it meets the highest quality
standards in its industry

15 - 20

Other Production Issues

Importance of cost containment

Shipping
costs

Inventory
costs

Just-in-time
manufacturing

15 - 21

Decision to Reinvest or Divest

REINVEST

Promising outlook
Growing market
Highest return

DIVEST

Unprofitable outlook
Social unrest
15 - 22

Discussion Question
What are some of
the considerations
that underlie the
reinvest-versusdivest decision?

15 - 23

Answer to Discussion
Question
A firm reinvests when it wishes to:
(1) reinvest in a market with a long
payback period, (2) maintain its
market share and competitive
position, (3) reinvest in a market
growing rapidly, and (4) reduce its
international competition.
A firm divests when it wishes to: (1)
avoid a low return on investment,
(2) avoid high country risk, and (3)
invest in more profitable
opportunities elsewhere.
15 - 24

Financing Business Operations

Financial resources needed to:

Pay operating expenses

Expand production capacity

Enter new geographic markets

Develop and reward employees

Invest in new projects

and so much more

15 - 25

Borrowing Locally
Difficulties:

Exchange-rate risk

Currency inconvertibility

Restricted capital flows

15 - 26

Back-to-Back Loan

15 - 27

American 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

15 - 28

Culture Matters:

Financing Business from

Abroad
Business school international programs
Your countrys commerce department
Leverage your contacts
Industry events in other countries
Hire an intermediary to find capital
Exploit Facebook, Twitter, LinkedIn, etc
15 - 29

Emerging Stock Markets

Hot money

Extreme
volatility
Poor
regulation

Liquid investments that

can be quickly withdrawn

Patient money
Holdings of factories,
equipment, and land that
cannot be quickly withdrawn

15 - 30

Internal Funding
Equity, debt,
and fees

Revenue from
operations

Subsidiaries financed by
parents who are later
rewarded financially

Money earned from

sales is the lifeblood
of every company

15 - 31

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

15 - 32

Discussion Question
A certificate that trades in the
United States and represents
a specific number of shares
in a non-U.S. company is
called a(n) __________.
a. Back-to-back loan
b. Foreign Capital Receipt
c. American Depository Receipt
15 - 33

Answer to Discussion
Question
A certificate that trades in the
United States and represents
a specific number of shares
in a non-U.S. company is
called a(n) __________.
a. Back-to-back loan
b. Foreign Capital Receipt
c. American Depository Receipt
15 - 34