GLOBAL BUSINESS Operations

The Global Shift Strategy

Current Business Landscape & Changing Demand

1. Economic Power Shifting The focus of economic power is shifting to Asia and BRIC( brazil Russia India china) in terms of investment and output. The question is how independent the BRIC markets will be in driving global growth and what the role of the Triad will be. 2. Shifting Market Landscape While developed countries will remain the largest consumer and industrial markets, the rise of a massive global middle class in rapidly developing economies (RDEs) will shift the demand landscape radically. The competition for these markets will be intense, but which competitors will succeed? 3. Changing Geopolitical and Security Landscape Globalization is driving new dimensions of power beyond military might including economics, resources and technology. However, the new global landscape is not stable: risks and nationalism are rising. 4. Fracturing Global Social Fabric Globally, the population is becoming older, more urban, more Asian and more mobile. At the same time, traditional social structures are fragmenting, shifting notions of personal identity. With demands for greater inclusion by previously isolated segments of society, dividesand associated tensionsare increasing.

Current Business Landscape & Changing Demand: contd

5. Growing Stakeholder Demands on Business More stakeholderspublic and privateare actively demanding transparency and accountability from business. Corporations are seen as part of societys problems. Can they also become critical contributors to required solutions? 6. Changing Consumer Landscape In more diverse and mobile societies and economies, new consumer groups are emerging. Consumer segmentation now requires new lenses, as new sources of similarity and difference emerge. Consumers increasingly demand more involvement in and customization of consumption experiences. 7. Changing Industry Landscape Business models must become more flexible. Power is shifting along the value chain and the competition to create and capture valueand profitsis intensifying. The emergence of BRIC multinationals means more intense competition. Flexibility and innovation are critical to avoid being stuck in the middle. 8. Changing Nature of Capital Global financial flows are accelerating, with Asia increasingly funding the deficit spending of the U.S., partly, Europe, leading to global systemic risks now being realized as the current credit crunch redefines the global financial system. New power brokers are emerging, reshaping market dynamics and potentially raising tensions.

Current Business Landscape & Changing Demand: contd

9. Changing Labor Landscape A raging global war for talent for both skilled and low cost jobs is increasing. Asia is increasingly important for all types of skills. Partnering and outsourcing is on the rise within and across borders. 10. Growing Pressure on Natural Resources Basic resources are under threat, including water, energy, food and habitats/climate. Consumption of critical resources is outpacing the rate that the planet can sustain. Public and institutional activism is rising, demanding action. 11. Changing Technology Landscape A global technology revolution is gaining pace, crossing national borders and scientific disciplines. New technologies, including biotechnology and nanotechnology, will reshape industries and our daily lives. 12. Changing Economics of Information and Knowledge Exploding connectivity and channels for information are making knowledge creation a global imperative. Networking is critical! Gaining an advantage in and protecting knowledge is difficult to achieveand even more difficult to sustain.

Global Competitive Pressures:

As discuss iced in class Time & Again Read about Globalization and as networked Economy Attached Reference reading: Modulus\UNIT-1\world without Borders.pdf

A great advantage of Globalization is the opportunity To source them from the best source of the world. To take advantages Of Various technology , Human capital, Quality, Costs, Raw Materials, and other sources advancements around the Globe. To take advantages of certain legal ,political, economical, and Social aspects Of trade.

Globalisation of the Economy

 

Global Markets New Technologies

Protectionism


Tariff and Non-tariff Barriers

Easing Trade Barriers

 

GATT, WTO and IFM EU, NAFTA, APEC, ASEAN

Need Based Economy

Global

Competition Economy

Liberalized Compete

or Perish
8

How the company will compete in a changing competitive environment? How companies make money: Raise Prices INCREASE REVENUE Increase Volume Reduce Cost of People (downsize) DECREASE COSTS Reduce cost of process waste Reduce cost of matls

Pressures/ Challenges faced by the Manufacturing Sector

Just-in-time inventory Demanding delivery sched. rapid tech. innovation rapid response time-to-market increasing global comptn Individual cust omized prodn. globalisation of markets
(raw matl delivery: road, rail,sea, air or pipeline)

raw materials inventory

work in FACTORY process A inventory

(customer service by wholesale and retail outlets)

FACTORY B A Production-Distribution System

finished goods inventory

pressures on pricing
small industries

stress on quality

shorter pdt. life cycles

10

pressures on time-to-mkt

Research & Development

Product Design

Process Development

Raw Materials Goods

Labor

Services

Technology

After-Sale

Infrastructure

Country A Country C

Country B Country D

11
The Global Supply Chain: Intra-Firm Coordination.

Distributor Storage with Carrier Delivery Dell inventory

Factories

Warehouse Storage by Distributor/Retailer Customers Product Information Flow Flow

12

Survey findings On International Sourcing:

Modulus\UNIT-1\Survey trends in outsourcing.docx

International Economist View on Importance Of Sourcing:

Read Points on Sourcing By Different points on Sourcing. Modulus\UNIT-1\International Economist View.docx

The process (stages) of Internationalization

Stages
1. 2. 3. 4. 5.

Domestic Export International Multinational Global/Transnational

16

Stages

17

Market Entry Strategies

1.

1. 2. 3. 4. 5. 6. 7. 8.

Exporting. Direct Or Indirect Exporting Licensing Contract Manufacturing. Management Contract. Assembly operations. Fully owned Manufacturing facilities. Joint venturing. Counter trade. Mergers & Acquisitions.
18

Market Entry strategies

Strategic alliance 11. Third country location. 12. Sourcing. 13. Collaboration. Licensing:
10.

It is a method of overseas operation whereby a company in one country the licensor) enters into an agreement with an company in other country (the licensee) to use the manufacturing, processing, knowledge, trade secrets, mark , name, brand, patent, technical assistance, marketing or some other skill provided by the licensor in exchange to the royalties, fees ,profit sharing or income.

19

Market Entry strategies

Joint venture: In the widest sense, any form of
association which implies collaboration for more than a very transitory period, is a joint venture. Management contracts: under management contracting, the international marketer supplies management know-how for a company in a foreign country for which capital is provided by the investor of the country in the company is located.

20

Market Entry strategies

Contract Manufacturing: Assembly operations
Under Contract manufacturing, the company engaged in international marketing contracts with the firms in the foreign country to manufacturer assemble its products while retaining the responsibility of marketing and distribution etc of these products .

21

Decision Criteria for International Operations

1. 2. 3. 4. 5. 6. 7. 8.

Political risk Market access Factor costs and conditions Shipping Considerations Country information Foreign Exchange Creating : Product- Market Profile Market selection Criteria

22

ALTERNATIVE STRATEGIES
High Global Co-ordination Integration

Global

TransNational

Low

International
Low

MultiNational
High
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National differentiation, Responsiveness

UNIT-2

Basic Understandings on Sourcing

Global Sourcing:
Outsourcing has already become a well accepted Business Strategy. Every Small & big organizations is outsourcing some of their products or part of their Products or the process involved in the manufacture of a Product. The buzz Word Today is Global Sourcing

Reasons for Global sourcing

To improve Productivity To focus on Core Competencies To increase Flexibility in Operations To tap the best Resources around The globe To Find out New avenues In Production & Markets To Maximize the Profits and to minimize costs. To integrate the best processes & Practices from around the world.

Out sourcing:
28

Out sourcing is Contracting with an External firm for the ongoing management and delivery of a defined set of products & services to a prescribed Level of performance .

Why outsourcing?
The economic rationales from the firms point of view

More cumbersome non-core activity that requires substantial capital investment and other resources Of the firm to the third party could free up those resources for better deployment.

As the third Party service provider specialize in the task, they tend to give better Quality & Cost than if the function were performed in house.

Why outsourcing?
Along with the cost reduction, quality also improves as the outsourced service or product is provided by a supplier with the best domain knowledge

Contd

A Fresh perspective to the gains of outsourcing is that Greatly increases & enhances the quality of the workforce- Peter Drucker

In some cases Outsourcing may increase the costs but bring in better effectiveness

Outsourcing may Focuses on the core competences Of a firm and evolves from time to time as a competitive advantage.

Out sourcing brings in A mutual Beneficial & profitable For both the companies and creates a win-win situation and also for the economy at large. Companies have opted for out shoring to scale up services to their customers by offering Quality, cost and time advantages

Sourcing and few terms Often used in this context

Global Strategy

Read Global strategy Word file attached

key factors related to effective global sourcing.

These factors, have been organized as follows: 1. Global sourcing organization and focus, which includes the development of foreign logistics, global purchasing and supply chain management skills, and integrated information systems 2. Foreign language skills, which includes the ability to send and receive correspondence and contracts in the supplier's language, as well as a more general international language capability 3. Global sourcing business capabilities, which includes knowledge of exchange rates, understanding of foreign markets and their opportunities, knowledge of foreign business customs and foreign supplier qualification methods, and development of methods to deal with foreign suppliers

5. 6. 7. 8.

9.

10.

Top management support; Developing communication skills; Establishing long-term relationships; Developing the skills unique to international sourcing. Other factors purported to be important for global sourcing success include understanding international business opportunities, knowledge of foreign business practices, qualifying foreign suppliers, and planning for international sourcing. Top management commitment and support, global structures, international communication skills, and global sourcing capabilities are critical components of effective global sourcing strategies.

The Theory of Absolute Advantage -Adam Smith

Different countries produce some goods more efficiently. This may due to differences in factors such as climate, quality of land, natural resources, labour, technology, capital or entrepreneurship. If each country specializes in the product for which it has absolute advantage, each can use its recourses more effectively.

CULTURE

the way we do things around here.

When is change necessary?

Outsourcing and Offshoring

When the environment is undergoing fundamental change, and the organization has always been highly value driven
Advent

of new technologies Pressure on traditional business models Globalization

40

What does change look like?

Management
Risky Critical Time-consuming

Positive
Excitement Opportunity Motivation

Employees
Threatening Confusing Insecurity

Negative
Resistance Questioning

trust Glorification of past

41

Promote and manage change

Outsourcing and Offshoring

Managers
Articulate

objectives clearly Lay out step-by-step plan Align employee incentives with objectives

Employees
Participate

directly in process Coordinate and implement change Communicate concerns constructively

42

Order/ Product Flow through Supply Chain Functions

Products

Ugra Raj Enterprises Privated Limited

Orders

Order Management

Channel A
Orders

Orders

Channel B

Customer
Orders

Manufacturing
Parts

Products

Products Product Distribution

Channel C
Products

Production Plans

Demand Forecast

Part Supply
Component Requirement
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Supply Planning

Demand Planning

TYPES & Hierarchal Levels sourcing of Business Functions

Three types of sourcing deals

Business Value

Business Performance Improvement Focused

Transformation

Operation performance Improvement focused

Enhancement

Cost Improvement Focused

Efficiency

Relationship Complexity

Four World Strategy

Value and Delivery Model

Optimization
One-to-one

Value

Creation
One-to-Many Many-to-Many

Pay For business Performance Delivery Custom

Business Transaction Priced

Standard

Management
One-to-one

Access
One-to-Many Many-to-Many

Fee for service level Operational Outcome

Pay for Usage

The vertical axis: Value Axis

The vertical axis shows the value of service in terms of its direct impact on business Goals. At Other bottom end are those services that provide operational outcomes. These are the services that other services and processes are built, as such their direct impact on the business outcomes is hard to measure. These Services tend to be measured or determined or denominated in terms of process or service metrics. The Focus of the management of these services overtime is on increasing productivity, reliability and performance or lowering cost or both

The vertical axis: Value Axis

At the top end of the easily measurable in terms of ,for value axis is the business Outcome. These are the services impact on business goals is much more direct and easily measurable in terms of, for instance, Brand dominance, revenue enhancement, Early mover advantage or Competitive advantage rather than being measured in process efficiency, These services are evaluated by their impact on the business goals (e:g, customer satisfaction, Market share, revenue, Profitability)

The Horizontal axis: Delivery Axis

The horizontal axis describes how the service is delivered. At one end , are the services that are completely customized to a specific organization environment The service may tap into standard processes and industry or cross industry best practice, is adapted to the idiosyncrasies of the organization- its specific work flows, forms, customs and culture. At the other extreme end of the axis is to standization, The more the recipients that use the standard services, the greater the economies of scale and lower the cost of service.

The Management Quadrant

This Quadrant describes a world in which the goals are predictable and often declining costs and operatio.nal efficiency and availability. When the service is this quadrant are purchased from an outside provider, the financial model is based on a fee, for a specific service level. The cost of service will rises if the higher service levels are desired, the cost of service declines if lower service levels are acceptable. Ex-Internet service provider, when the service is outsourced the organization expects little change in the way of services are delivered but expects to gain from the vendors expertise and competence and overtime, excepts these leverage points to lead to lower costs.

The Access Quadrant

As in the management model , the value in the Access model is an improvement in operational efficiency. Unlike the M-model, the A-model has the organization accessing a utility- like service, One instance of this service now common is the ability to rent a band width for a limited periods to meet peak demand Ex Power generators' The organization pays for the capacity It uses.

The Optimization Quadrant

In the upper quadrants , the service model moves from an operational focus to a Focus on business outcomes and business metrics. The optimization quadrant is again one to one delivery model, specific to the recipient's enterprise. In the optimatization world, The recipient pays for the specific performance levels that optimize the recipient's Business model. As a result, payment schemes often depend on specific business outcomes such as Market -share growth, Reverence growth, profitability or entry into new markets, or are based on the service providers earnings a share of profit or revenue generated. Because of the much larger share-risk component Of such relationships, they often involve equity sharing.

The Creation Quadrant

It named creation world because this approach to sourcing can create new Revenue streams or new business value. Typical of the creation world is the emergence of new Business models, referred to as business Process For application Utilities. Ex-SAP Application The service aims at Improving systems, Customer Service and Sales productivity. The service recipient Does not purchase the complete licenses for application or own the Underlying technology infrastructure. Importantly, by forging ownership and customization of the application, the service recipient Gains speed To implement and greater control of costs, as the fees are based on usage.

Potential drivers for Make Or Buy Decision

What is a make or buy decision?

Outsourcing and Offshoring

Sometimes it makes more sense to buy services rather than perform the task in-house

The argument for outsourcing

 

Proficiency Complexity Control Flexibility Either can make operational and financial sense Arguments for, can become arguments against
57

The argument against outsourcing

 

The verdict
 

Deciding whether to make or buy

Outsourcing and Offshoring

What do you want to accomplish? How is it done now? What can you do?

Make Buy

58

Set objectives
Outsourcing and Offshoring

What?
Improve quality Reduce time Cut costs

Why?
Rationale Importance

When?

Timeframe

59

Needs assessment
Outsourcing and Offshoring

Identify your needs

The more crucial the task, the more details need to be specified Workflow and outputs

   

Policies Steps Time increments Staff and system capabilities

Classify your needs

Long-term, medium-term, immediate Low, medium, and high priority

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Review options
In-house
Core

competencies Competing priorities Career path

Skills to task  Supervision


Outsourcing
Availability

Corporate

culture

of options Competitor offerings Appropriateness (esp, offshoring) Gains from technology Interface issues

Outsourcing and Offshoring

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The RFP process: a 5-point plan

Outsourcing and Offshoring

1. 2. 3. 4. 5.

Identify potential suppliers Prepare and distribute the RFP Evaluate proposals Meet with finalist/s Decide on supplier

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Prospective suppliers
Outsourcing and Offshoring

Identify
Direct

and indirect competitors Industry meetings and periodicals Visit Web sites

Pre-screen
Experience Interest Time

63

Prepare the RFP: components

Stated objective Organizational overview Required deliverables

Required proposal format

Product specifications Service expectations Start date, length of initial term Budget, cost considerations Ownership of data, code, etc.

Technical section Time-cost section Additional documentation Deadline Contact Basis of award of contract Award date Targeted suppliers With sample materials Confirm receipt
64

Submission

Assumptions, agreement

Send

Outsourcing and Offshoring

Kaufman-Wills Group

Evaluate proposals
Outsourcing and Offshoring

Decide on evaluation criteria

Financial Qualitative

Create summary grid/s Compare apples to apples Involve stakeholders appropriately Goal: good decision, perhaps not best decision Select finalist/s

65

Kaufman-Wills Group

66

Evaluating alternatives
Make What it means Potential benefits Potential drawbacks Costs to consider
Outsourcing and Offshoring

Buy 1

Buy 2

Meet the finalist/s

Outsourcing and Offshoring

Presentation Q&A Meet and greet Tour

67

Decide on supplier
Outsourcing and Offshoring

Decide on supplier Notify all prospective suppliers Enter into contract negotiation
Set

timeline for completion Business terms first Legal sign off afterward

68

International policies:Easing Trade Restrictions

General Agreement on Tariffs and Trade (GATT) World Trade Organisation (WTO) International Monetary Fund (IMF) Multinational Market Regions (EU, NAFTA, APEC, and ASEAN)

Strategies In International context

Read related topics in UNIT-2 folder , take ideas & Make points Modulus\UNIT2\Brochure_Epiq_Sourcing.pdf Read Pages , take ideas & Make points

Modulus\UNIT-5\ib97e0__global_sourcing_of_strategic_information_tec hnology__mmba_.pdf Read Page 5,6 & 7

Gats
The creation of the GATS was one of the landmark achievements of the Uruguay Round, whose results entered into force in January 1995. The GATS was inspired by essentially the same objectives as its counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT): creating a credible and reliable system of international trade rules; Ensuring fair and equitable treatment of all participants (principle of non-discrimination); Stimulating economic activity through guaranteed policy bindings; Promoting trade and development through progressive liberalization.

Is it true that the GATS not only applies to cross-border flows of services, but additional modes of supply?
74

The GATS distinguishes between four modes of supplying services: cross-border trade, consumption abroad, commercial presence, and presence of natural persons. Cross-border supply is defined to cover services flows from the territory of one Member into the territory of another Member (e.g. banking or architectural services transmitted via telecommunications or mail); Consumption abroad refers to situations where a service consumer (e.g. tourist or patient) moves into another Member's territory to obtain a service;
Ugra Raj Enterprises Privated Limited

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Commercial presence implies that a service supplier of one Member establishes a territorial presence, including through ownership or lease of premises, in another Member's territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains); and Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, doctors or teachers). The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate measures regarding citizenship, residence or access to the employment market on a permanent basis

Theories of International Trade

76

The Theory of Absolute Advantage -Adam Smith

Different countries produce some goods more efficiently. This may due to differences in factors such as climate, quality of land, natural resources, labour, technology, capital or entrepreneurship. If each country specializes in the product for which it has absolute advantage, each can use its recourses more effectively.

Possible Product Outputs (for certain resources & lab our)

Country A Country B

Product X

20

10

Product Y

10

20

78

78

The Theory of Comparative Advantage -- David Ricardo

A country specializes in those products that it can produce most efficiently than other products without regard to absolute advantage. A country would focus on the product with greatest comparative advantage or a product with the least comparative disadvantage

Possible Product Outputs (for certain resources & labour)

Country A Country B Product X Situation 1 Product Y Product X Situation 2 Product Y

80

20 10 20 30

10 20 10 20
80

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Ugra Raj Enterprises Privated Limited

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82

83

83

Defects in the theory

Unrealistic Assumption of labour Cost. Static nature of the theory Neglect of transport costs. Assumption of constant costs. Factors Immobile Internally Unrealistic theory based on assumptions. Inadequate explanation of comparative cost. Demand conditions ignored. Complete specialization is impossible.

84

84

Heckscher-Ohlin Theory of Factor Endowment

Argues that comparative advantage arises from differences in Factor Endowment. Extent to which a country is endowed with such resources as Land,labour and capital. Different nations have different factor endowments and different factor endowments explain differences in factor costs. The more abundant a factor, the lower is the cost.
85

85

Order/ Product Flow through Supply Chain Functions

Products

Orders

Order Management

Channel A
Orders

Orders

Channel B

Customer
Orders

Manufacturing
Parts

Products

Products Product Distribution

Channel C
Products

Production Plans

Demand Forecast

Part Supply
Component Requirement
86

Supply Planning

Demand Planning

Economic Indicators

Module II: International Eco system

The eco system, economic indicators and characteristics of operating in North America (USA), Europe (EU), Asia (China), Latin America (Brazil), Africa (South Africa) & Middle-East (UAE).

Drivers of Trade Performance

89

Efficiency

Responsiveness Supply chain structure

Inventory

Transportation

Facilities

Information

Drivers

Source: Chopra & Meindl/Logistics Strategy

Economic Indicator:
An economic indicator (or business indicator) is a statistics about the economy. Economic indicators allow analysis of economic performance and predications of future performance. One application of economic indicators is the study of Business cycles.