1. THE GLOBALIZATION OF OPERATIONS: FACTS AND CAUSES

2. CAUSES OF GLOBALIZATION CHANGES IN GLOBAL MARKETS GLOBAL DISSEMINATION OF TECHNOLOGY CHANGES IN COST PRIORITIES POLITICAL AND ECONOMIC FACTORS

3. CHANGES IN GLOBAL MARKETS INCREASED FOREIGN COMPETITION GROWTH IN FOREIGN DEMAND SHORTER PRODUCT LIVES, MORE CUSTOMIZATION, FASTER RESPONSE PRESENCE IN STATE-OF-THE-ART MARKETS

4. CHANGES IN GLOBAL MARKETS INCREASED FOREIGN COMPETITION –Facts Import penetration of American Market Increase in foreign owned capacity –Implications Compete against World Class Competition Even Small Firms have Global Concerns

5. CHANGES IN GLOBAL MARKETS (cont.) GROWTH IN FOREIGN DEMAND –Facts Shift in relative size of U.S. market –1965: 40% of world GDP –1987: 30% of world GDP Increasing portion of future sales abroad –Implications Global Presence helps smooth Demand Fluctuations Global Presence as a Competitive Threat

6. CHANGES IN GLOBAL MARKETS (cont.) SHORTER PRODUCT LIVES, MORE CUSTOMIZATION, FASTER RESPONSE –Examples Short Product Lives –DRAM Chips: 3-4 years –Automobiles: less than 4 years Customization: –Allen Bradley, customized relays –GE: customized circuit breakers –Implications Product Life Cycle Approach to International Production not Valid Simultaneous Product Development in All Markets Local Presence Needed for Customization and Fast Response

7. CHANGES IN GLOBAL MARKETS (cont.) PRESENCE IN STATE-OF -THE-ART MARKET FOR MAINTAINING TECHNOLOGICAL EDGE –Examples of State of the Art Markets Japan: Semiconductor process, Equipment, Consumer Electronic Germany: Machine Tools U.S.: Aerospace, Computers, Software –Production Facilities in State of the Art Markets Serve as Market Sensors Learning Laboratories

8. GLOBAL DISSEMINATION OF TECHNOLOGY GLOBAL LOCATION TO ENSURE ACCESS TO CRITICAL COMPONENTS –Examples Canon (engines for fax machines and laser printers) Fanuc (machine tool controllers) GLOBAL LOCATION TO ENSURE ACCESS TO PROCESS TECHNOLOGY –Examples U.S. Semiconductor Manufacturers in Japan (photolithography technology) IBM & Xerox in Japan (video technology)

9. GLOBAL DISSEMINATION OF TECHNOLOGY (cont.) TECHNOLOGY DRIVEN JOINT VENTURES –Examples Autos (GM-Toyota, Chrysler-Mitsubishi, Ford-Mazda) Steel Industry (Inland-Nippon, LTV-Sumitomo, Armco-Itoh) GLOBAL LOCATION OF R&D FACILITIES –Design of customized products –Access to high-quality, low-cost engineering talent.

10. CHANGES IN COST PRIORITIES MOVING AWAY FROM OFFSHORE STRATEGIES DRIVEN BY LOW LABOR COST MENTALITY –Diminishing importance of direct labor cost –“Island hopping” syndrome NEW COMPETITIVE PRIORITIES DRIVE GLOBAL LOCATION –Access to markets –Timely Delivery –Access to skilled workers –Quality –Availability of suppliers

11. CHANGES IN COST PRIORITIES (cont.) IMPORTANCE OF CAPITAL COSTS AND GOVERNMENT SUBSIDIES IN CERTAIN INDUSTRIES –Government Subsidies (country example: Ireland) interest rate subsidies tax holidays cost sharing on plant and equipment INCREASING CAPITAL INTENSITY OF PRODUCTION FACILITIES –Examples Semiconductor Plants –1986: 50M$-100M$; –1994: 250M$-400M$ (including R&D over 1B$)

12. CHANGES IN COST PRIORITIES (cont.) MANUFACTURERS SHARE COSTS AND RISKS –Examples Texas Instruments and Hitachi Motorola and Toshiba IBM and Siemens NEED FOR INCREASED CAPACITY UTILIZATION LEADS TO PURSUIT OF GLOBAL MARKETS

13. POLITICAL AND MACROECONOMIC FACTORS SIGNIFICANT EXHANGE RATE FLUCTUATIONS FORCE DEVELOPMENT OF FACILITIES IN LOCAL MARKETS DEVELOPMENT OF REGIONAL FREE TRADE GROUPS FORCE COMPANIES TO RETHINK REGIONAL PRODUCTION STRATEGIES –Examples European Community U.S.-Canada-Mexico (NAFTA)

14. POLITICAL AND MACROECONOMIC FACTORS (cont.) GATT DETERRED TARIFF INCREASES OR ADDITIONS AND OPENED NEW MARKETS THE IMPOSING OF NON-TARIFF BARRIERS FAVORS GLOBALIZATIONOF PRODUCTION STRATEGIES –Voluntary Export Restraints (U.S. government - Japan Autos) –Trigger Price Mechanisms (U.S. semiconductor and steel industry) –Local Content Requirement (European auto and semiconductor industry)

15. GLOBALIZATION POTENTIAL OF THE MANUFACTURING PROCESS MARKET DRIVERS MANUFACTURING COST PROCESSTECHNOLOGY DRIVERSGLOBALIZATION DRIVERS POTENTIAL POLITICAL AND ECONOMIC DRIVERS