Transcript Lecture-25.pptx

Global Business Management
(MGT380)
Lecture #25
Global Marketing and Product
Development
&
Global Production, Outsourcing
and Logistics
Learning Objectives
Understand how do regulations influence
pricing
 Become familiar with the important influence
that operations management can have on the
competitive position of an international
business.
 Understand how country differences,
manufacturing technology and product
features all affect the choice of where to
locate production operations.

Recap of the last lecture

1.
2.
The effectiveness of a firm's international communication can
be jeopardized by
Cultural barriers - it can be difficult to communicate
messages across cultures
Source and country of origin effects –

source effects occur when the receiver of the message
evaluates the message on the basis of status or image of
the sender. Can counter negative source effects by
deemphasizing their foreign origins, Examples: French
wines, Italian clothes, and German luxury cars

country of origin effects - the extent to which the place
of manufacturing influences product evaluations antiJapan wave in US in 1990’s
Noise levels - the amount of other messages competing for a
potential consumer’s attention
Firms have to choose between two types of communication
strategies

1.
2.

1.
2.
3.
A push strategy emphasizes personnel selling
A pull strategy emphasizes mass media advertising
The choice between strategies depends on
Product type and consumer sophistication
 a pull strategy works well for firms in consumer goods
selling to a large market segment
 a push strategy works well for industrial products
Channel length
 a pull strategy works better with longer distribution
channels
Media availability


In general, a push strategy is better
 for industrial products and/or complex new products
 when distribution channels are short
 when few print or electronic media are available
A pull strategy is better
 for consumer goods products
 when distribution channels are long
 when sufficient print and electronic media are available to
carry the marketing message
 Price discrimination - occurs when firms charge consumers in
different countries different prices for the same product
What Is Strategic Pricing?

1.
Strategic pricing has three aspects
Predatory pricing - use profit gained in one
market to support aggressive pricing designed to
drive competitors out in another market

after competitors have left, the firm will raise prices
and earn higher profits
What Is Strategic Pricing?
2.
Multi-point pricing - a firm’s pricing strategy in one
market may have an impact on a rival’s pricing
strategy in another market

3.
managers should centrally monitor pricing decisions
Experience curve pricing - price low worldwide in
an attempt to build global sales volume as rapidly
as possible, even if this means taking large losses
initially

firms that are further along the experience curve have a
cost advantage relative to firms further up the curve
How Do Regulations
Influence Pricing?

1.
A firm’s ability to set prices may be limited by
Antidumping regulations –

2.
dumping occurs when a firm sells a product for a price
that is less than the cost of producing it
 antidumping rules set a floor under export prices and
limit a firm’s ability to pursue strategic pricing
Competition policy –


most industrialized nations have regulations designed to
promote competition and restrict monopoly practices
can limit the prices that a firm can charge
How Should Firms Configure
The Marketing Mix?

Standardization versus customization is not an all or
nothing concept
 most
firms standardize some things and customize
others

Firms should consider the costs and benefits of
standardizing and customizing each element of the
marketing mix
Why Is New Product
Development Important?

Product innovation should be a strategic priority
 today,
competition is as much about technological
innovation as anything else

The pace of technological change is faster than ever
and product life cycles are often very short
 new
innovations can make existing products obsolete,
but at the same time, open the door to a host of new
opportunities

Firms need close links between R&D, marketing, and
manufacturing
Where Should
R&D Be Located?


New product ideas come from the interactions of
scientific research, demand conditions, and
competitive conditions
The rate of new product development is greater in
countries where
more money is spent on basic and applied research and
development
 demand is strong
 consumers are affluent
 competition is intense

How Can R&D, Marketing, And
Production Be Integrated?


Since new product development has a high failure
rate, new product development efforts should involve
close coordination between R&D, marketing, and
production
Integration will ensure that
customer needs drive product development
 new products are designed for ease of manufacture
 development costs are kept in check
 time to market is minimized

Why Are Cross-Functional
Teams Important?


Cross-functional integration is facilitated by crossfunctional product development teams
Effective cross functional teams should
be led by a heavyweight project manager with status in the
organization
 include members from all the critical functional areas
 have members located together
 establish clear goals
 develop an effective conflict resolution process

How Can Firms Build
Global R&D Capabilities?


To adequately commercialize new technologies, firms
need to integrate R&D and marketing
To successfully commercialize new technologies, firms
may need to develop different versions for different
countries

so, a firm may need R&D centers in North America, Asia,
and Europe that are closely linked by formal and informal
integrating mechanisms with marketing operations in each
country in their regions, and with the various manufacturing
facilities
Global Production, Outsourcing and Logistics
International firms must answer five interrelated questions:
1. Where should production activities be located?
2. What should be the long-term strategic role of foreign production sites?
3. Should the firm own foreign production activities, or is it better to outsource
those activities to independent vendors?
4. How should a globally dispersed supply chain be managed, and what is the
role of Internet-based information technology in the management of global
logistics?
5. Should the firm manage global logistics itself, or should it outsource the
management to enterprises that specialize in this activity?
Strategy, Production, And Logistics
Firms need to identify how production and logistics can be
conducted internationally to:
 lower the costs of value creation
 add value by better serving customer needs
Production and logistics are closely linked since a firm’s ability to
perform its production activities efficiently depends on a timely
supply of high quality material inputs.


Production refers to activities involved in creating a product
Logistics refers to the procurement and physical transmission of
material through the supply chain, from suppliers to customers
Strategy, Production, And Logistics
To lower costs, firms can:
 disperse production to those locations where
activities can be performed most efficiently
 manage the global supply chain efficiently to better
match supply and demand
To improve quality, firms can:
 eliminate defective products from the supply chain
and the manufacturing process
 Improved quality will also reduce costs
These objectives are interrelated:
• increasing productivity because time is not wasted producing
poor-quality products that cannot be sold, leading to a direct
reduction in unit costs
• lowering rework and scrap costs associated with defective
products
• reducing the warranty costs and time associated with fixing
defective products

Strategy, Production, And Logistics



To increase product quality, most firms today use the
Six Sigma program which aims to reduce defects,
boost productivity, eliminate waste, and cut costs
throughout a company
Six Sigma, a direct descendant of total quality
management (TQM), has a goal of improving
product quality
In the European Union, firms must meet the
standards set forth by ISO 9000 before the firm is
allowed access to the European marketplace



The total quality management (TQM) philosophy was developed by a
number of American consultants such as W. Edwards Deming, Josephy Juran,
and A. V. Feigenbaum.
Deming identified a number of steps that should be included in any TQM
program:
• Management should embrace the philosophy that mistakes, defects, and
poor quality materials are not acceptable
• Supervisors should work more with employees and provide them with the
tools they need to do the job
• Management should create an environment in which employees will not
fear reporting problems
• Work standards should not only be defined as numbers or quotas, but
should include some notion of quality
Production process operating at Six Sigma are 99.99966 percent accurate.
• Only 3.4 defects per million units
Strategy, Production, And Logistics
International companies have two other important
production and logistics objectives:
 production and logistics functions must be able to
accommodate demands for local responsiveness
 production and logistics must be able to respond
quickly to shifts in customer demand



Demands for local responsiveness arise from national
differences in consumer tastes and preferences, infrastructure,
distribution channels, and host-government demands.
Demands for local responsiveness create pressures to
decentralize production activities to the major national or
regional markets in which the firm does business or to
implement flexible manufacturing processes that enable the
firm to customize the product coming out of a factory
according to the market in which it is to be sold.
In recent years, time-based competition has grown more
important. When consumer demand is prone to large and
unpredictable shifts, the firm that can adapt most quickly to
these shifts will gain an advantage.
Where To Produce
Three factors are important when making location
decisions:
1. country factors
2. technological factors
3. product factors
Country Factors
Firms should locate manufacturing activities in those
locations where economic, political, and cultural
conditions, including relative factor costs, are most
conducive to the performance of that activity
Country factors that can affect location decisions
include:
 the availability of skilled labor and supporting
industries
 formal and informal trade barriers
 expectations about future exchange rate changes
 transportation costs

Suggested Discussion Questions




1. What makes China such an attractive production location for Philips? Are
there other locations that share the same characteristics?
Discussion Points: Several factors make China an attractive production
location for Phillips. Perhaps the most important factor is the country’s
cheap wages. In addition, the Chinese workforce is well educated, the
economy is strong, and many of the company’s suppliers are doing business
there. Most students will argue that at least at the moment, China is the
only country that offers these particular qualities. While other countries like
Mexico and India also have low cost workforces, they do not have the
industrial base that is present in China.
2. Philips wants to eventually turn China into a global supply base from
which its products will be exported around the world. Consider the
advantages and disadvantages of this strategy.
Discussion Points: Students should recognize that using China as a global
supply base from which to serve the world offers several advantages to
Phillips. By having a single production location, the company can capitalize
on costs savings that come from economies of scale as well as the low
wages in China. However, if economic, political, or other types of problems
arise in the country, Phillips could be in serious trouble if it has no alternate
locations to fill production gaps.
Technological Factors

The type of technology a firm uses in its
manufacturing can affect location decisions
Three characteristics of a manufacturing technology
are of interest:
1. the level of fixed costs
2. the minimum efficient scale
3. the flexibility of the technology
Technological Factors
1. The level of fixed costs:
 If the fixed costs of setting up a manufacturing
plant are high, it might make sense to serve the
world market from a single location or from a few
locations
 When fixed costs are relatively low, multiple
production plants may be possible
 Producing in multiple locations allows firms to
respond to local markets and reduces dependency
on a single location
Technological Factors
2. The minimum efficient scale:
 The larger the minimum efficient scale (the minimum
efficient scale is defined as the lowest production
point at which long-run total average costs are
minimized) of a plant, the more likely centralized
production in a single location or a limited number
of locations makes sense
 A low minimum efficient scale allows the firm to
respond to local market demands and hedge
against currency risk by operating in multiple
locations
Technological Factors
3. The flexibility of the technology:

flexible manufacturing technology or lean production lean production,
often simply "lean", is a systematic method for the elimination of waste
within a manufacturing process. Lean also takes into account waste created
through overburden and waste created through unevenness in work loads.
Essentially, lean is centered on making obvious what adds value by reducing
everything else. Lean manufacturing is a management philosophy derived
mostly from the Toyota Production System (TPS).
It covers a range of manufacturing technologies that are designed to:

reduce set up times for complex equipment

increase the utilization of individual machines through better scheduling

improve quality control at all stages of the manufacturing process
Technological Factors



Firms using flexible manufacturing technologies can produce a wide variety
of end products at a unit cost that at one time could only be achieved
through the mass production of a standardized output
Mass customization (Production of personalized or custom-tailored goods or
services to meet consumers' diverse and changing needs at near mass
production prices. Enabled by technologies such as computerization,
internet, product modularization, and lean production, it portends the
ultimate stage in market segmentation where every customer can have
exactly what he or she wants) implies that a firm may be able to customize
its product range to meet the demands of local markets yet still control costs
Flexible machine cells allow firms to increase efficiency by improving
capacity utilization. It is is a manufacturing system in which there is some
amount of flexibility that allows the system to react in case of changes,
whether predicted or unpredicted. This flexibility is generally considered to
fall into two categories, which both contain numerous subcategories.
Review question
What allows firms to increase efficiency by improving
capacity utilization and reducing work-in-progress?
a) mass customization
b) Six Sigma technology
c) ISO 9000
d) flexible machine cells
Summary of the lecture

1.
2.
3.


Strategic pricing has three aspects
Predatory pricing - use profit gained in one market to support
aggressive pricing designed to drive competitors out in another market
Multi-point pricing - a firm’s pricing strategy in one market may have an
impact on a rival’s pricing strategy in another market
Experience curve pricing - price low worldwide in an attempt to build
global sales volume as rapidly as possible, even if this means taking
large losses initially
A firm’s ability to set prices may be limited by Antidumping regulations –

Dumping and Competition policy
Why Is New Product Development Important? Product innovation should
be a strategic priority today, competition is as much about technological
innovation as anything else; The pace of technological change is faster than
ever and product life cycles are often very short; new innovations can make
existing products obsolete, but at the same time, open the door to a host of
new opportunities; Firms need close links between R&D, marketing, and
manufacturing



The rate of new product development is greater in countries where
 more money is spent on basic and applied research and development
 demand is strong; consumers are affluent; competition is intense
Why Cross-functional team is important? Team integration is facilitated by
cross-functional product development teams. Effective cross functional teams
should (i) Be led by a heavyweight project manager with status in the
organization ii) include members from all the critical functional areas
iii)have members located together (iv) establish clear goals (v)develop an
effective conflict resolution process
Building global capabilities: To adequately commercialize new
technologies, firms need to integrate R&D and marketing. To successfully
commercialize new technologies, firms may need to develop different
versions for different countries
Strategy, Production, And Logistics: Firms need to identify how production and
logistics can be conducted internationally to: lower the costs of value
creation (ii) add value by better serving customer needs

Production refers to activities involved in creating a product
Logistics refers to the procurement and physical transmission of material
through the supply chain, from suppliers to customers
To lower costs, firms can: disperse production to those locations where activities
can be performed most efficiently(ii) manage the global supply chain
efficiently to better match supply and demand
To improve quality, firms can: (i) eliminate defective products from the supply
chain and the manufacturing process (ii) Improved quality will also reduce
costs


To increase product quality, most firms today use the Six Sigma program
which aims to reduce defects, boost productivity, eliminate waste, and cut
costs throughout a company- a part of total quality management (TQM). In
the European Union, firms must meet the standards set forth by ISO 9000.