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Basic Concepts of Global Operations

• Chapter Objectives
– To introduce the evolving process of global operations
strategy.
– To define key concepts: manufacturing strategy,
service operations strategy, and global operations
strategy.
– To discuss international operations management and
global operations strategy.
– To present basic principles in global operations
strategy.
– To discuss basic decisions in global operations
strategy.

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 Strategy-- defined
• Strategy is “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”
(Chandler 1962).
• There is a hierarchy of strategy, with three major levels
(Hofer and Schendel 1978):
1. Corporate Strategy: What set of businesses should a
corporate be in?
2. Business Strategy: How should a corporate compete in a
given business?
3. Functional Strategy: How can this function contribute to
the competitive advantage of the business?

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 Manufacturing Strategy
• Manufacturing strategy is one of such functional strategies.
Corporations usually use three basic strategies: low-cost
production, differentiation, and cost or differentiation focus
(Porter 1985).
• manufacturing strategies are usually classified into four
stages (Hayes and Wheelwright 1984), from relatively
passive to relatively aggressive:
1. Internally neutral. Manufacturing simply provides products.
2. Externally neutral. Manufacturing only meets the requirement
from competition.
3. Internally supportive. Manufacturing tries to be unique and
separate from its competitors.
4. Externally supportive. Manufacturing pursues uniqueness
worldwide and becomes world-class manufacturing.

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x From Manufacturing Strategy to
Service Operations Strategy
• (1) Distinction between product and service
• (2) Service categories
• (3) Service competences
• (4) Service concept
• (5) Service packages
• (6) Competitive service strategy frameworks
• (7) Definition

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 The distinction between product and
service
• The distinction between product and service is seen mainly
in the following four aspects:
1. Inseparability and simultaneity: The service provider is an
integral part of the service(ex education in univ , uni or lecture
is sevice providers). The customers participate in the service,
and affect the service outcome(customer can be smthg like car
=ex fixing car , service car repair ,mechanic = service provider ,
car = customer.
2. Heterogeneity: Since a service is produced and consumed
simultaneously and individuals make up part of the service
delivery, a service is always unique.
3. Intangibility: Most services are intangible and products are
always tangible objects.
4. Perishability: Most services are perishable and they do not
have a long life or cannot be stored for repeat use

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 Service categories
1. People-processing service: In this service, customers are
integrated with production processes.
– For example, in Hilton hotels, customers need to enter the hotel to
enjoy the service. In a tourism agency, a tourist needs to sign up to a
cruise to experience the processes.
2. Possession-processing service: This type refers to customer
involvement with the production process without directly
following production, via tangible actions to a service object to
improve the value.
– For example, for a public storage warehousing service, a customer will
rent a storage unit, but not follow the whole service process.
3. Information-processing service: This refers to creating value by
collecting, processing, and transferring information.
– Bloomberg, for example, collects and delivers updated business news,
economic data, and financial information to global customers.

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x Service competences
and Service concept
• An appropriate service operations strategy should keep alignment
with business strategy in terms of distinctive competences such as
speed of service, quality, price, flexibility, availability, reliability,
uniqueness, and range of services.
• Different from manufacturing strategy, it is a core task to identify
the service concept when formulating a service operations strategy.
A service concept is a service product bundle including explicit and
implicit services and specific service goods.
• A service concept is a statement of service nature, including
customer service experience of the service process and service
outcome of benefits, emotions, and values.
– For example, a Swedish company offers the service concept of a nice
hotel, providing customers with the exciting and fun experience of
residing in a hotel made of ice.

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 Service packages
• Unlike products, service is often delivered with a form of service
package. A service package consists of the following four elements
(Fitzsimmons and Fitzsimmons 1994):
– Supporting facility: This consists of physical resources that support the
service;
• for example, a building for a restaurant, a swimming pool, a warehouse for
public storage.
– Facilitating goods: These are goods consumed or used by customers;
• for example, towels and shampoo in a hotel.
– Explicit service: These are benefits quickly noticed by customers and
are the intrinsic or essential features of a service;
• for example, the accommodation and feeding of customers in a hotel, and
surgery in a hospital.
– Implicit services: These are benefits sensed by customers vaguely –
extrinsic features ancillary to service.
• Examples include the romantic atmosphere in a bar.

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X Competitive service strategy
frameworks

Fig. 1.1 An outcome/experience competitive

service strategy framework

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x Another competitive service strategic
conceptual framework

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 A framework based on the
customer/account base matrix

Fig. 1.3 Roth and van der Velde competitive service strategy framework

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 Explanation
• Revolving door: operations make little value-added contribution to service
delivery. Relative degree of importance to customers is low and relative
size of competitive gap is small.
• Minimum daily requirement: In this strategy, the critical success factors
are highly important for customers but display small capability gaps
among competitors. The corporation just maintains parity with
competitors.
• Gateway: The term “gateway” is used to describe a strategy to attract new
customers to enter service systems. This is a strategy which is perceived by
the majority as less important, but can display large competitive gaps.
Given appropriate implementation policies, this strategy can win the
competitive edge in the long term.
• Golden handcuff: “Golden handcuff” is used to describe a strategy to hold
long-term customer loyalty. In this strategy, the success factors are not
only perceived to be important by customers, but also create a large
competitive gap.

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x
Definition: Service operations strategy
• A consistent pattern of structural and
infrastructural decisions, competing on
customer outcome and/or customer
experience, to develop service concept for
people-processing, possession-processing, or
information-processing services, and to
achieve a set of service competencies aligned
with business strategy.

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 From Operations Strategy to Global
Operations Strategy
Operations strategy determined by 3 operating capabilities:
• Process-based operating capacity
– This is a type of capacity to achieve operating advantage,
including low cost and high quality, during the process of
transferring material or information to a product or service.
• Coordination-based operating capacity
– This is a type of capacity to achieve operating advantages, such
as short lead times, product and service ranges, and
customization, through coordination excellence throughout the
entire operating system.
• Organization-based operating capacity
– This is a type of capacity to introduce new technology, design
new products, and build new facilities faster than competitors.

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 From Operations Strategy to Global
Operations Strategy 2
Global strategy theories:
• Eclectic theory
• Comparative advantage-based competitive
advantage
• Framework for global strategy Competing for
future
• Total global strategy

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 Eclectic theory
Dunning (1977)
• According to Dunning, a firm will engage in
international production when each of the three
following conditions is satisfied:
– First, the firm possesses an “ownership advantage”, some
unique competitive advantages not possessed by
competing firms in other countries.
– Second, there is a “location advantage”: Undertaking the
value adding activities must be more profitable in a foreign
location than undertaking it in a domestic location.
– Third, there is a “internalization advantage”: the firm must
benefit more from controlling the foreign business activity
than from selling or leasing them to other companies.

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 comparative advantage-based competitive
advantage by Kogut (1985)
• The key concept of comparative advantage-based
competitive advantage imposes influence on
studies of global operations.
• Highlights the difference between comparative
advantage (or location-specific advantage) and
competitive advantage (or firm-specific
advantage).
• The design of global strategies is based on “the
interplay between the comparative advantage of
countries and competitive advantages of firms”.
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 framework for global strategy
Ghoshal (1987)
• a multinational has three means (sources of
competitive advantage):
– national differences,
– scale economies,
– scope economies.
• A firm can use these three means to achieve
three goals or “ends”:
– achieving efficiency in current operations,
– managing risks,
– innovation learning and adaptation

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 total global strategy
Yip (1992)
• An approach of total global strategy
– to diagnose industry globalization potential,
– to design global products and services,
– to locate global activities,
– to build a global organization,
– and to measure the use of global strategy.

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 Global operations strategy 3
perspectives
• Competency-based global operations strategy in
terms of Cost, Time, Quality, Flexibility and other
competencies
• Resource-based global operations strategy in
terms of capacity size, capacity investment and
expansion time, resource-types, and resource
locations
• Process-based global operations strategy in terms
of global activity network or processes, including
the supply process, technology management
process, demand and revenue management
process, and innovation processes. 20
 Integration decisions of global
operations strategy concerning
• Cross-border global operational decisions (political
separation, cultural separation, physical separation,
developmental separation, and relational separation),
• Cross-function global operational decisions consider
the interface between operations and marketing
management, finance management, taxation
management, human resource management, R&D
management, and IT management,
• Cross-value global operational decisions that consider
global operational problems across economic,
environmental, and social values

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 Homework 1
• Do case study 1: Global Operations of IKEA
starting on Page 14

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