Lecture International business - Chapter 15: Managing international operations

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

• 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

• Produces, designs, and sells globally

• Has solely- and jointly-owned facilities

• Planning and financing are vital

Reflects overall firm strategy

Low-cost leadership

Focus Differentiation Essential to achieving objectives

Production Strategy

Selecting a location for production facilities

Resources, conditions

Labor costs, productivity

Service customer needs

Factory to market distance

Key:

Each production activity generates more value in a particular location than could be generated elsewhere

Economic benefits derived from locating production activities in optimal locations

Deciding the process that a company

will use to create its product

Higher cost Small scale

Deciding the spatial arrangement of production processes within facilities

 Reflects business strategy

 Geography may be a factor

Location economies are the

economic benefits derived from

locating production activities in

optimal locations In other words,

each production activity generates

more value in a particular location

than could be generated anywhere

else Location economies are

essential to location planning

because of their strategic

importance for the long-term

success of a firm’s operations.

Questions:

Raw materials Intermediate components

Facility availability

Facility availability

Cost considerations

Vertical integration Extend control over inputs (backward integration)

or outputs (forward integration)

Reasons to make

Lower cost Greater control

Reasons to buy Outsourcing

When a company extends

control over additional

stages of production, either

When a company extends

control over additional

stages of production, either

Total Quality Management (TQM) ISO 9000

Continuous quality improvement

to meet or exceed customer

expectations through quality-enhancing processes

Certification a firm gets when

it meets the highest quality standards in its industry

Just-in-time manufacturing

Inventory costs

Inventory costs

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

 Pay operating expenses

 Expand production capacity

 Enter new geographic markets

 Develop and reward employees

 Invest in new projects

and so much more…

Financial resources needed to:

Back­to­Back Loan

 No currency-conversion fees

 No minimum purchase

amounts

 Attractive to U.S mutual

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…

Poor regulation

Poor regulation

Extreme volatility

Extreme volatility

Hot money

Liquid investments that can be quickly withdrawn

Hot money Liquid investments that can be quickly withdrawn

Patient money

Holdings of factories, equipment, and land that cannot be quickly withdrawn

Patient money Holdings of factories, equipment, and land that cannot be quickly withdrawn

Equity, debt, and fees

Revenue from operations

Mix of equity, debt, and internal funds used to finance

activities

Capital Structure

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

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

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