Chapter 15 Managing International Operations

© Prentice Hall, 2008International Business 4e Chapter Chapter 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

© Prentice Hall, 2008International Business 4e Chapter Reflects overall firm strategy Low-cost leadership Focus Differentiation Essential to achieving objectives Production Strategy

© Prentice Hall, 2008International Business 4e Chapter Capacity 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

© Prentice Hall, 2008International Business 4e Chapter 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 tends to be well-suited to global strategy Location economies CentralizedDecentralized Decentralized production tends to be well-suited to multinational strategy Decentralized production tends to be well-suited to multinational strategy Facilities Location Planning Selecting the location for production facilities

© Prentice Hall, 2008International Business 4e Chapter Process Planning Deciding the process that a company will use to create its product Adaptation Suits differentiation and focus Standardization Suits low-cost leadership

© Prentice Hall, 2008International Business 4e Chapter Facilities Layout Planning Deciding the spatial arrangement of production processes within facilities Reflects business-level strategy Location’s geography also a factor

© Prentice Hall, 2008International Business 4e Chapter Make-or-Buy Decision Raw materials Intermediate components Availability Needed modifications Cost considerations

© Prentice Hall, 2008International Business 4e Chapter Decision to Make Vertical integration Extend control over inputs (backward integration) or output (forward integration) Reasons to make Lower cost Greater control

© Prentice Hall, 2008International Business 4e Chapter Reasons to buy OutsourcingOutsourcing Decision to Buy Buying from another company a good or service that is not central to a company’s competitive advantage Buying from another company a good or service that is not central to a company’s competitive advantage Greater flexibility Market power Lower risk Barriers to buying

© Prentice Hall, 2008International Business 4e Chapter Quality Improvement Total Quality Management (TQM) ISO 9000 Continuous quality improvement to meet or exceed customer expectations through quality-enhancing processes International Standards Organization 9000 is a certification a firm gets when it meets the highest quality standards in its industry

© Prentice Hall, 2008International Business 4e Chapter Other Production Issues ShippingcostsShippingcostsJust-in-time(JIT)manufacturingJust-in-time(JIT)manufacturingInventorycostsInventorycosts

© Prentice Hall, 2008International Business 4e Chapter Decision to Reinvest or Divest Reinvest Promising outlook Promising outlook Growing market Growing market Highest return Highest return Divest Unprofitable outlook Unprofitable outlook Social unrest Social unrest

© Prentice Hall, 2008International Business 4e Chapter Financing 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:

© Prentice Hall, 2008International Business 4e Chapter Borrowing Difficulties:  Exchange-rate risk  Currency inconvertibility  Restricted capital flows

© Prentice Hall, 2008International Business 4e Chapter Back-to-Back Loan

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter Emerging Stock Markets Poor regulation Poor regulation Extreme volatility Extreme volatility Hot money: Liquid investments that can be quickly withdrawn Hot money: Liquid investments that can be quickly withdrawn Patient money: Holdings of factories, equipment, and land that cannot be quickly withdrawn Patient money: Holdings of factories, equipment, and land that cannot be quickly withdrawn

© Prentice Hall, 2008International Business 4e Chapter Equity, debt, and fees Equity, debt, and fees Revenue from operations operations Subsidiaries financed by parents, who are later rewarded financially Subsidiaries financed by parents, who are later rewarded financially Money earned from sales is the lifeblood of every company Money earned from sales is the lifeblood of every company Internal Funding

© Prentice Hall, 2008International Business 4e Chapter Mix of equity, debt, and internal funds used to finance activities Capital Structure

© Prentice Hall, 2008International Business 4e Chapter Small 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

© Prentice Hall, 2008International Business 4e Chapter Chapter 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