Transcript Chapter 15 Managing International Operations Chapter Preview • Identify the types of planning involved in production strategy • List the reasons for making or buying.

Chapter 15
Managing International
Operations
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
Chapter 15 - 2
Production Strategy
Essential to achieving objectives
Reflects overall firm strategy
Low-cost leadership
Differentiation
Focus
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International Business 4e
Chapter 15 - 3
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
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International Business 4e
Chapter 15 - 4
Facilities Location Planning
Selecting the location for production facilities
Location
economies
Economic benefits
derived from locating
production activities
in optimal locations
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Centralized
Decentralized
Centralized production
Decentralized production
tends to be well-suited
tends to be well-suited
to global strategy
to multinational strategy
International Business 4e
Chapter 15 - 5
Process Planning
Deciding the process that a company will
use to create its product
Standardization
• Suits low-cost leadership
Adaptation
• Suits differentiation and focus
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International Business 4e
Chapter 15 - 6
Facilities Layout Planning
Deciding the spatial
arrangement of production
processes within facilities
• Reflects business-level strategy
• Location’s geography also a factor
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International Business 4e
Chapter 15 - 7
Make-or-Buy Decision
Raw materials
Intermediate components
Availability
Needed modifications
Cost considerations
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International Business 4e
Chapter 15 - 8
Decision to Make
Vertical integration
Extend control over inputs (backward integration)
or output (forward integration)
Reasons to make
Lower cost
Greater control
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International Business 4e
Chapter 15 - 9
Decision to Buy
Outsourcing
Reasons to buy
Lower risk
Buying from another
company a good or
service that is not
central to a company’s
competitive advantage
Greater flexibility
Market power
Barriers to buying
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International Business 4e
Chapter 15 - 10
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
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International Business 4e
Chapter 15 - 11
Other Production Issues
Shipping
costs
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Inventory
costs
International Business 4e
Just-in-time
(JIT)
manufacturing
Chapter 15 - 12
Decision to Reinvest or Divest
Reinvest
Divest
• Promising outlook
• Growing market
• Highest return
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• Unprofitable outlook
• Social unrest
International Business 4e
Chapter 15 - 13
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…
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International Business 4e
Chapter 15 - 14
Borrowing
Difficulties:
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
Exchange-rate risk

Currency inconvertibility

Restricted capital flows
International Business 4e
Chapter 15 - 15
Back-to-Back Loan
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International Business 4e
Chapter 15 - 16
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
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International Business 4e
Chapter 15 - 17
Emerging Stock Markets
Hot money:
Extreme
volatility
Poor
regulation
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Liquid investments that
can be quickly withdrawn
Patient money:
Holdings of factories,
equipment, and land that
cannot be quickly withdrawn
International Business 4e
Chapter 15 - 18
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
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International Business 4e
Chapter 15 - 19
Capital Structure
Mix of equity, debt, and internal funds used to finance activities
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International Business 4e
Chapter 15 - 20
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
Chapter 15 - 21
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
Chapter 15 - 22