In this chapter, you will learn how companies launch and manage international production. You will also: Understand how firms acquire the physical resources and products they need, explore aspects of the business environment that affect international production, and examine potential sources of financing international activities.
15 Managing International Operations Copyright © 2014 Pearson Education, Inc Chapter Objectives • Identify the elements that are important to consider when formulating production strategies • Identify key considerations when acquiring physical resources • Identify several production matters that are of special concern to managers • Describe the three potential sources of financing and the main financial instruments of each Copyright © 2014 Pearson Education, Inc 15 - Toyota • Produces, designs, and sells globally • Has solely- and jointly-owned facilities Planning and financing are vital Copyright â 2014 Pearson Education, Inc 15 - Production Strategy Essential to achieving objectives Reflects overall firm strategy Low-cost leadership Differentiation Focus Copyright © 2014 Pearson Education, Inc 15 - Capacity Planning Assessing a company’s ability to produce enough output to satisfy market demand Work shifts Labor laws Facility capacity Subcontracting Copyright © 2014 Pearson Education, Inc 15 - Facilities Location Planning Selecting a location for production facilities Resources, conditions Labor costs, productivity Service customer needs Factory to market distance Copyright © 2014 Pearson Education, Inc 15 - Location Economies Economic benefits derived from locating production activities in optimal locations Key: Each production activity generates more value in a particular location than could be generated elsewhere Copyright © 2014 Pearson Education, Inc 15 - Centralized vs. Decentralized Centralized production Low-cost leadership Global strategy Transportation costs Decentralized production Differentiation / Focus Multinational strategy Buyer preferences Copyright © 2014 Pearson Education, Inc 15 - Process Planning Deciding the process that a company will use to create its product Low-cost leadership Large scale Efficiency Differentiation / Focus Skills Flexibility Copyright © 2014 Pearson Education, Inc 15 - Standardized or Adapted Low-cost leadership Standardized Automated Large batches Differentiation / Focus Adapted Small scale Higher cost Copyright © 2014 Pearson Education, Inc 15 - 10 Other Production Issues Importance of cost containment Shipping costs Copyright © 2014 Pearson Education, Inc Inventory costs Just-in-time manufacturing 15 - 21 Decision to Reinvest or Divest REINVEST DIVEST Promising outlook Unprofitable outlook Growing market Social unrest Highest return Copyright © 2014 Pearson Education, Inc 15 - 22 Discussion Question What are some of the considerations that underlie the reinvest-versusdivest decision? Copyright © 2014 Pearson Education, Inc 15 - 23 Answer to Discussion Question A firm reinvests when it wishes to: (1) reinvest in a market with a long payback period, (2) maintain its market share and competitive position, (3) reinvest in a market growing rapidly, and (4) reduce its international competition A firm divests when it wishes to: (1) avoid a low return on investment, (2) avoid high country risk, and (3) invest in more profitable opportunities elsewhere Copyright © 2014 Pearson Education, Inc 15 - 24 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 so much more… Copyright © 2014 Pearson Education, Inc 15 - 25 Borrowing Locally Difficulties: Exchange-rate risk Currency inconvertibility Restricted capital flows Copyright © 2014 Pearson Education, Inc 15 - 26 BacktoBack Loan Copyright © 2014 Pearson Education, Inc 15 - 27 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 Copyright © 2014 Pearson Education, Inc fees No minimum purchase amounts 15 - 28 Culture Matters: Financing Business from Abroad Business school international programs Your country’s commerce department Leverage your contacts Industry events in other countries Hire an intermediary to find capital Exploit Facebook, Twitter, LinkedIn, etc… Copyright © 2014 Pearson Education, Inc 15 - 29 Emerging Stock Markets Hot money Extreme volatility Poor regulation Copyright © 2014 Pearson Education, Inc Liquid investments that can be quickly withdrawn Patient money Holdings of factories, equipment, and land that cannot be quickly withdrawn 15 - 30 Internal Funding Equity, debt, and fees Revenue from operations Subsidiaries financed by Money earned from parents who are later sales is the lifeblood rewarded financially of every company Copyright © 2014 Pearson Education, Inc 15 - 31 Capital Structure Mix of equity, debt, and internal funds used to finance activities Copyright © 2014 Pearson Education, Inc 15 - 32 Discussion Question A certificate that trades in the United States and represents a specific number of shares in a non-U.S company is called a(n) a Back-to-back loan b Foreign Capital Receipt c American Depository Receipt Copyright © 2014 Pearson Education, Inc 15 - 33 Answer to Discussion Question A certificate that trades in the United States and represents a specific number of shares in a non-U.S company is called a(n) a Back-to-back loan b Foreign Capital Receipt c American Depository Receipt Copyright © 2014 Pearson Education, Inc 15 - 34 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United States of America Copyright © 2014 Pearson Education, Inc 15 - 35 ... Education, Inc 15 - Toyota • Produces, designs, and sells globally • Has solely- and jointly-owned facilities Planning and financing are vital Copyright â 2014 Pearson Education, Inc 15 - Production Strategy... Pearson Education, Inc fees No minimum purchase amounts 15 - 28 Culture Matters: Financing Business from Abroad Business school international programs Your country’s commerce department... planning because of their strategic importance for the long-term success of a firm’s operations Copyright © 2014 Pearson Education, Inc 15 - 13 MakeorBuy Decision Questions: Raw materials Intermediate