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Chapter 15 - 1International Business 4e© Prentice Hall, 2008
Chapter 15 Chapter 15 Managing Managing
International International OperationsOperations
© Prentice Hall, 2008 International Business 4e Chapter 15 - 2
Chapter PreviewChapter 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 - 3
Reflects overall firm strategyReflects overall firm strategyReflects overall firm strategyReflects overall firm strategy
Low-cost leadership Low-cost leadership
FocusFocus
Differentiation Differentiation
Essential to achieving objectivesEssential to achieving objectivesEssential to achieving objectivesEssential to achieving objectives
Production StrategyProduction Strategy
© Prentice Hall, 2008 International Business 4e Chapter 15 - 4
Capacity PlanningCapacity 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
© Prentice Hall, 2008 International Business 4e Chapter 15 - 5
Economic benefits
derived from locating
production activities
in optimal locations
Economic benefits
derived from locating
production activities
in optimal locations
Centralized production
tends to be well-suited
to global strategy
Centralized production
tends to be well-suited
to global strategy
Locationeconomies
Centralized Decentralized
Decentralized production
tends to be well-suited
to multinational strategy
Decentralized production
tends to be well-suited
to multinational strategy
Facilities Location PlanningFacilities Location Planning
Selecting the location for production facilities
© Prentice Hall, 2008 International Business 4e Chapter 15 - 6
Process PlanningProcess Planning
Deciding the process that a company willuse to create its product
Deciding the process that a company willuse to create its product
Adaptation• Suits differentiation and focus
Standardization• Suits low-cost leadership
© Prentice Hall, 2008 International Business 4e Chapter 15 - 7
Facilities Layout PlanningFacilities Layout Planning
Deciding the spatial arrangement of production processes within facilities
• Reflects business-level strategy
• Location’s geography also a factor
© Prentice Hall, 2008 International Business 4e Chapter 15 - 8
Make-or-Buy DecisionMake-or-Buy DecisionMake-or-Buy DecisionMake-or-Buy Decision
Raw materialsRaw materialsRaw materialsRaw materials
Intermediate componentsIntermediate componentsIntermediate componentsIntermediate components
AvailabilityAvailabilityAvailabilityAvailability
Needed modificationsNeeded modificationsNeeded modificationsNeeded modifications
Cost considerationsCost considerationsCost considerationsCost considerations
© Prentice Hall, 2008 International Business 4e Chapter 15 - 9
Decision to MakeDecision to Make
Vertical integrationExtend control over inputs (backward integration)
or output (forward integration)
Vertical integrationExtend control over inputs (backward integration)
or output (forward integration)
Reasons to makeReasons to make
Lower costLower cost
Greater controlGreater control
© Prentice Hall, 2008 International Business 4e Chapter 15 - 10
Reasons to buyReasons to buyReasons to buyReasons to buyOutsourcingOutsourcingOutsourcingOutsourcing
Decision to BuyDecision to Buy
Buying from anotherBuying from anothercompany a good orcompany a good orservice that is notservice that is not
central to a company’scentral to a company’scompetitive advantagecompetitive advantage
Buying from anotherBuying from anothercompany a good orcompany a good orservice that is notservice that is not
central to a company’scentral to a company’scompetitive advantagecompetitive advantage
Greater flexibilityGreater flexibilityGreater flexibilityGreater flexibility
Market powerMarket powerMarket powerMarket power
Lower riskLower riskLower riskLower risk
Barriers to buyingBarriers to buyingBarriers to buyingBarriers to buying
© Prentice Hall, 2008 International Business 4e Chapter 15 - 11
Quality ImprovementQuality Improvement
Total QualityManagement (TQM) ISO 9000
Continuous quality improvementto meet or exceed customer
expectations throughquality-enhancing processes
International StandardsOrganization 9000 is a
certification a firm gets whenit meets the highest quality
standards in its industry
© Prentice Hall, 2008 International Business 4e Chapter 15 - 12
Other Production IssuesOther Production Issues
ShippingShippingcostscosts
ShippingShippingcostscosts
Just-in-timeJust-in-time(JIT)(JIT)
manufacturingmanufacturing
Just-in-timeJust-in-time(JIT)(JIT)
manufacturingmanufacturing
InventoryInventorycostscosts
InventoryInventorycostscosts
© Prentice Hall, 2008 International Business 4e Chapter 15 - 13
Decision to Reinvest or DivestDecision to Reinvest or Divest
ReinvestReinvest
• Promising outlookPromising outlook
• Growing marketGrowing market
• Highest returnHighest return
DivestDivest
• Unprofitable outlookUnprofitable outlook
• Social unrestSocial unrest
© Prentice Hall, 2008 International Business 4e Chapter 15 - 14
Financing Business OperationsFinancing Business Operations
Pay operating expenses
Expand production capacity
Enter new geographic markets
Develop and reward employees
Invest in new projects
and much more…
Financial resources needed to:
© Prentice Hall, 2008 International Business 4e Chapter 15 - 15
BorrowingBorrowing
Difficulties:Difficulties:
Exchange-rate riskExchange-rate risk
Currency inconvertibilityCurrency inconvertibility
Restricted capital flowsRestricted capital flows
© Prentice Hall, 2008 International Business 4e Chapter 15 - 16
Back-to-Back LoanBack-to-Back Loan
© Prentice Hall, 2008 International Business 4e Chapter 15 - 17
American Depository ReceiptsAmerican 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
© Prentice Hall, 2008 International Business 4e Chapter 15 - 18
Emerging Stock MarketsEmerging Stock Markets
Poorregulation
Poorregulation
ExtremevolatilityExtremevolatility
Hot money:Hot money:Liquid investments that
can be quickly withdrawn
Hot money:Hot money:Liquid investments that
can be quickly withdrawn
Patient money:Patient money:Holdings of factories,
equipment, and land thatcannot be quickly withdrawn
Patient money:Patient money:Holdings of factories,
equipment, and land thatcannot be quickly withdrawn
© Prentice Hall, 2008 International Business 4e Chapter 15 - 19
Equity, debt,Equity, debt,and feesand fees
Equity, debt,Equity, debt,and feesand fees
Revenue fromRevenue fromoperationsoperations
Revenue fromRevenue fromoperationsoperations
Subsidiaries financed bySubsidiaries financed byparents, who are laterparents, who are laterrewarded financiallyrewarded financially
Subsidiaries financed bySubsidiaries financed byparents, who are laterparents, who are laterrewarded financiallyrewarded financially
Money earned fromMoney earned fromsales is the lifebloodsales is the lifeblood
of every companyof every company
Money earned fromMoney earned fromsales is the lifebloodsales is the lifeblood
of every companyof every company
Internal FundingInternal Funding
© Prentice Hall, 2008 International Business 4e Chapter 15 - 20
Mix of equity, debt, and internal funds used to finance activities
Capital StructureCapital Structure
© Prentice Hall, 2008 International Business 4e Chapter 15 - 21
Small Business FinancingSmall 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 - 22
Chapter ReviewChapter 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