Chapter 15 Managing International Operations

International Business 4e 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, 2008 International Business 4e

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

International Business 4e Capacity Planning Assessing a company’s ability to produce enough output to satisfy market demand Number of work shifts Number of employees Size of facilities Subcontracting © Prentice Hall, 2008 International Business 4e

Facilities Location Planning Selecting the location for production facilities Location economies Centralized Decentralized Economic benefits derived from locating production activities in optimal locations Centralized production tends to be well-suited to global strategy Decentralized production tends to be well-suited to multinational strategy © Prentice Hall, 2008 International Business 4e

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

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

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

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

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

Quality Improvement Total Quality ISO 9000 Management (TQM) 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, 2008 International Business 4e

Other Production Issues International Business 4e Shipping costs Just-in-time (JIT) manufacturing Inventory © Prentice Hall, 2008 International Business 4e

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

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 much more… © Prentice Hall, 2008 International Business 4e

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

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

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, 2008 International Business 4e

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

Subsidiaries financed by International Business 4e 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 © Prentice Hall, 2008 International Business 4e

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

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, 2008 International Business 4e

International Business 4e 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 © Prentice Hall, 2008 International Business 4e