discussion
smashbox
notes.pptWeek8
Global production and logistics
*
1-*
The opening case
- Philips in China - Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
*
The Opening Case: Making the Amazon Kindle describes how Amazon decided where to produce the Kindle, what to do in-house, and what to outsource, and how to maintain a competitive price in the process.
1-*
What Are The Main
Production Issues For Firms?
- five interrelated questions
Where should production activities be located?
What should be the long-term strategic role of foreign production sites?
Should the firm own foreign production activities or outsource those activities to independent vendors?
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?
Should the firm manage global logistics itself, or should it outsource the management to enterprises that specialize in this activity?
*
The Opening Case: Making the Amazon Kindle describes how Amazon decided where to produce the Kindle, what to do in-house, and what to outsource, and how to maintain a competitive price in the process.
1-*
How Are Strategy, Production, And Logistics Related?
- Production - activities involved in creating a product
- Logistics - procurement and physical transmission of material through the supply chain, from suppliers to customers
*
LO1: Explain why production and logistics decisions are of central importance to many multinational businesses.
1-*
How Are Strategy, Production, And Logistics Related?
Questions: How can production and logistics
Lower the costs of value creation?
disperse production to the most efficient locations
manage the global supply chain efficiently to better match supply and demand
Add value by better serving customer needs?
eliminate defective products from the supply chain and the manufacturing process
*
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.
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
1-*
How Can Quality Be Improved?
- Most firms use the Six Sigma program - a direct descendant of total quality management (TQM)
aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout the company
in the EU, firms must meet ISO 9000 standards before gaining access to the EU marketplace
- Improved quality reduces costs
*
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
1-*
Centralized or Decentralized Locations?
- Firms should locate production so that
production and logistics can be locally responsive
production and logistics can respond quickly to shifts in customer demand
Centralized (a few locations)
Decentralized (many locations)
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
1-*
Centralized or Decentralized Locations?
- Firms should consider
Country factors
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
1-*
Centralized or Decentralized Locations?
2. Technological factors
The level of fixed costs
if fixed costs are high, produce in a single location or a few locations
when fixed costs are low, multiple production plants may be possible
allows firms to respond to local demands
The minimum efficient scale - the level of output at which most plant-level scale economies are exhausted
when minimum efficient scale is high, choose centralized production in a single location or a limited number of locations
when minimum efficient scale is low, respond to local market demands and hedge against currency risk by operating in multiple locations
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
1-*
Centralized or Decentralized Locations?
The flexibility of the technology
flexible manufacturing technology or lean production
reduces set up times for complex equipment
increases the utilization of individual machines
improves quality control
allows firms to produce a wide variety of end products at a relatively low unit cost
mass customization
flexible machine cells
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
1-*
Centralized or Decentralized Locations?
3. Product factors
The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
- globally dispersed centers of excellence (COE)
a transnational strategy
*
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
1-*
How Are Location, Strategy,
And Production Related?
Location, Strategy, and Production
*
1-*
What Are The Hidden Costs of Foreign Production Locations?
- Are low cost locations really low cost and always beneficial? What are the hidden costs?
- The hidden costs associated with foreign production. Before making the decision to locate production in a foreign location firms must consider the potential for
high employee turnover
poor workmanship
poor product quality
low productivity
*
The answer is b.
1-*
What Is The Strategic Role
Of Foreign Factories?
- The strategic role of foreign factories and the strategic advantage of a particular location can change over time
factories established to take advantage of low cost labor can evolve into facilities with advanced design capabilities
- Improvement in a facility comes from
Pressure to lower costs or respond to local markets
An increase in the availability of advanced factors of production
*
LO3: Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge.
1-*
What Is The Strategic Role
Of Foreign Factories?
- Many companies now see foreign factories as globally dispersed centers of excellence
supports the development of a transnational strategy
global learning - valuable knowledge can be found in foreign subsidiaries
implies that firms are less likely to switch production to new locations simply because some underlying variable like wage rates has changed
*
1-*
Should A Firm
Outsource Production?
- Make or buy? (in-house vs. outsourcing)
- Lowers costs
- Facilitates investments in highly specialized assets
- Protects proprietary technology
- Facilitates the scheduling of adjacent processes
- Gives the firm greater flexibility
- Drive down the cost structure
coordination and control
incentives
appropriate transfer prices
- orders from foreign customers
Make
Buy (outsourcing)
*
Management Focus: Hewlett Packard in Singapore explores the strategic decision making involved in establishing Hewlett Packard’s Singapore plant. The company initially used the plant as a low cost location to manufacture electronic components. Later, entire products were produced in Singapore, Later still, the Singapore plant was involved not only in production but also product design. Today, the plant is an important part of Hewlett Packard’s global network responsible for manufacturing and also product development and design.
Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliers
however, these commitments may actually limit strategic flexibility
risk giving away key technological know-how to a supplier
1-*
Do Strategic Alliances With Suppliers Make Sense?
- Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliers
however, these commitments may actually limit strategic flexibility
risk giving away key technological know-how to a supplier
*
1-*
How Do Firms Manage
The Global Supply Chain?
- Logistics - the activities necessary to get materials to a manufacturing facility, through the manufacturing process, and out through a distribution system to the end user
at the lowest possible cost
superior customer service
- Just-in-time (JIT) systems - having materials arrive at a manufacturing plant just in time to enter the production process
major cost savings (warehousing and inventory holding)
spot defective parts and take them out of the manufacturing process
- Any disadvantage about JIT?
*
1-*
What Is The Role Of Information Technology And The Internet?
- Web-based information systems
optimize production scheduling
- Electronic Data Interchange (EDI)
facilitates the tracking of inputs
optimize the production schedule
the firm and its suppliers communicate in real time
eliminates the flow of paperwork
*
LO5: Describe what is required to efficiently coordinate a globally dispersed production system.
International Marketing & R&D
*
1-*
What Is The Marketing Mix?
- The marketing mix (the choices the firm offers to its targeted market)
Product attributes
Distribution (channel) strategy
Communication strategy
Pricing strategy
*
1-*
Should The Marketing Mix Be Changed For Each Market?
- “ world markets were becoming increasingly similar making it unnecessary to localize the marketing mix” (Theodore Levitt)
- Is Levitt right?
cultural differences
economic differences
trade barriers
differences in product and technical standards
*
LO1: Explain why it might make sense to vary the attributes of a product from country to country.
1-*
What Is Market Segmentation?
- Market segmentation - identifying distinct groups of consumers whose purchasing behavior differs from others in important ways
- Markets can be segmented by
geography
demography
socio-cultural factors
psychological factors
*
1-*
What Is Market Segmentation?
- differences between countries
a unique marketing mix to appeal to a certain segment in a given country
- transcend national borders
a global marketing strategy
*
1-*
What Is Market Segmentation?
1. Market segmentation - distinct groups of consumers whose purchasing behavior differs from others
Culture - tradition, social structure, language, religion, education
Level of economic development
consumers in countries demand a lot of extra performance attributes
consumers in less developed nations prefer basic products
Product and technical standards
national differences can force firms to customize the marketing mix
*
1-*
Standardization vs. customization?
Product attributes
- Products attributes = consumer needs
Nature of Product
Technology Differences
Weights & Measures
Physical Environment
Cost/Benefit Relationship
Legal Requirements
Competition
Support Systems
Cultural differences
Market Conditions
*
Packaging: Materials: vary by transportation mode, transit conditions, storage, display, length of time in transit, regulations...
The promotional aspect of packaging relates mostly to labeling.
User convenience. Containers must withstand logistics challenge, and yet must be easy for customers to open.
Package aesthetics: prudent choice of colors and package shapes.
Package size: varies by purchasing patterns and market conditions.
Physical size, local behaviors, tastes, attitudes, and traditions….
Consumption patterns, psychosocial characteristics, general cultural criteria …
Product positioning - Consumers’ perception of a brand as compared with that of competitors’ brands.
1-*
How Does Distribution Influence Marketing Strategy?
2. Distribution strategy - the means the firm chooses for delivering the product to the consumer
*
LO2: Recognize how and why a firm’s distribution strategy might vary among companies.
1-*
How Does Distribution Influence Marketing Strategy?
- Production depends on the firm’s market entry strategy
produce locally
sell directly to the consumer
sell to the retailer
sell to the wholesaler
produce outside the country
the same options above
sell to an import agent
*
LO2: Recognize how and why a firm’s distribution strategy might vary among companies.
1-*
How Do Distribution
Systems Differ?
- Four main differences in distribution systems
Retail concentration – concentrated or fragmented
concentrated retail system, a few retailers supply most of the market
fragmented retail system there are many retailers, no one of which has a major share of the market
Developed vs. developing countries?
Channel length - the number of intermediaries
short channel - when the producer sells directly to the consumer
long channel - when the producer sells through an import agent, a wholesaler, and a retailer
Concentrated vs. fragmented retail systems
*
Concentrated system:
- common in developed countries
- contributing factors: increase in car ownership, number of households with refrigerators and freezers, and two-income households
Fragmented system:
- common in developing countries
- contributing factors: great population density with large number of urban centers, e.g. Japan
- uneven or mountainous terrain, e.g. Nepal
Compared with U.S, less developed country
1. Much smaller
2. Fewer/smaller chains
3. Varied operating hours
4. Limited offerings
5. Nomenclature differences
6. Government regulations
7. Service level varies by country
8. Less self-service
1-*
How Do Distribution
Systems Differ?
Channel exclusivity – how difficult it is for outsiders to access
E.x. Japan's system is a very exclusive system
Channel quality - the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses
Developed vs. developing countries
*
Degree to which it is difficult for outsiders to access distribution channels.
Varies between countries:
- Japan - exclusive systems because personal relations, often decades old, play an important role in stocking products
- difficult for new firm to get shelf space as compared to an old firm
1-*
Which Distribution Strategy Should A Firm Choose?
- The optimal strategy depends on the relative costs and benefits of each alternative
- Shorter channel is preferred, when
price is important (no mark-ups)
What products?
- Longer channel is beneficial, when
economizes on selling costs
exclusive channels
What products?
*
1-*
Why Is Communication Strategy Important?
- Communication strategy - communicating product attributes to prospective customers
- How a firm communicates with customers depends partly on the choice of channel
- Communication channels include
direct selling
sales promotion
direct marketing
advertising
*
1-*
What Are The Barriers to International Communication?
- The effectiveness of a firm's international communication can be jeopardized by
Cultural barriers - communicate messages
develop cross-cultural literacy
use local input when developing marketing messages
ex. Chevy’s “nova” in Mexico, “Gerber” in France, “Parker” pens
2. Noise levels - the amount of other messages competing for a potential consumer’s attention
in highly developed countries, noise is very high
in developing countries, noise levels tend to be lower
*
Parker Pens are proud of the fact that, unlike some cheap ballpoints, its pens won’t leak in your pocket and embarrass you. And that was just the message they sought to convey to the Mexican market, but without realising the Mexican Spanish word for “embarazar” does not mean “to embarrass” but “to impregnate”. Result, an ad for Parker Pens that read, “It won’t leak in your pocket and make you pregnant.”
1-*
What Are The Barriers to International Communication?
3. Source and country of origin effects (stereotyping)
Olive Oil
Cars
Electronics
Watch
Are consumers stereotyping?
How?
*
The origin of a product may have a strong effect on consumer perceptions and biases.
Cultural Barriers:
- develop cross-cultural literacy
- firm should use local input such as local advertising agency and sales force
Source and country of origin effects:
- receiver of the message evaluates the message based on status or image of the sender
- anti-Japan wave in US in 1990’s
- place of manufacturing influences product evaluations
- often used when consumer lacks more detailed knowledge of the product
- Examples: French wines, Italian clothes, and German luxury cars
1-*
What Are The Barriers to International Communication?
3. Source and country of origin effects
source effects 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
country of origin effects - the place of manufacturing influences product evaluations
*
The origin of a product may have a strong effect on consumer perceptions and biases.
Cultural Barriers:
- develop cross-cultural literacy
- firm should use local input such as local advertising agency and sales force
Source and country of origin effects:
- receiver of the message evaluates the message based on status or image of the sender
- anti-Japan wave in US in 1990’s
- place of manufacturing influences product evaluations
- often used when consumer lacks more detailed knowledge of the product
- Examples: French wines, Italian clothes, and German luxury cars
1-*
How Do Firms Communicate With Customers?
- Firms have to choose between two types of communication strategies
A push strategy emphasizes personnel selling
for industrial products and/or complex new products
when distribution channels are short
when few print or electronic media are available
A pull strategy emphasizes mass media advertising
for consumer goods products
when distribution channels are long
when sufficient print and electronic media are available to carry the marketing message
*
1-*
How Do Firms Communicate With Customers?
- Two strategies depend on:
Product type and consumer sophistication
Channel length
Media availability
| Push | Pull | |
| Product type | Industrial product | Consumer product |
| Marketing segment | Niche | Large segment |
| Channel length | Short | long |
| Media availability | Not available | available |
*
Push strategy:
Accomplished through direct-response advertising (direct mail literature and catalogs), telemarketing (telephone via call centers), and direct selling (database marketing to create individual relationships with each customer).
All can be highly personalized tools if the target audience can be identified and defined narrowly.
Pull strategy
1-*
Should A Firm Use Standardized Advertising?
- Standardized advertising
economic
creative talent is scarce
brand names are global
- Customized advertising
cultural differences
advertising regulations
- Partial standardization
Some firms standardize parts of a campaign to capture the benefits of global standardization, but customize others to respond to local cultural and legal environments
*
Management Focus: Levi Strauss Goes Local explores how Levi Strauss, the manufacturer of blue jeans, changed its international marketing strategy to regain its competitiveness in the mid-2000s. Levi Strauss had watched its sales fall from $7.1 billion in 1996 to just $4 billion in 2004. The company had failed to keep up with changes in the fashion market, and was out of touch with its consumer. A three part turnaround strategy was implemented, and currently the company is beginning to see a turnaround.
1-*
What Pricing Strategy
Should Firms Use?
- Firms need to consider
Price discrimination
Strategic pricing
Regulations that affect pricing decisions
*
LO4: Explain why and how a firm’s pricing strategy might vary among countries.
1-*
What Is Price Discrimination?
- Price discrimination - when firms charge consumers in different countries different prices for the same product
- Motivations?
- Does it work? What are the conditions?
must be able to keep national markets separate
countries must have different price elasticity of demand
*
1-*
What Is Price Discrimination?
- Price elasticity of demand – a measure of the responsiveness of demand for a product to changes in price
demand is elastic when a small change in price produces a large change in demand
demand is inelastic when a large change in price produces only a small change in demand
Typically, price elasticity is greater in countries with lower income levels and larger numbers of competitors
*
1-*
What Is Strategic Pricing?
- Strategic pricing
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
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
*
Pricing:
Costs: Easily measured, Varying inflation rates
When prices cannot be changed, try value pricing, stripping down products, introducing innovative products at a modest premium, and getting close to customers by using new technologies.
Demand and market factors: Price elasticity, customer perception of the product
Market structure and competition: Distribution structure, trade discounts, etc.
Environmental constraints: Government policies. Try non-price measures, emphasize other marketing mix elements
1-*
How Do Regulations
Influence Pricing?
- Pricing strategy may be limited by
Antidumping regulations –
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
*
1-*
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
*
International R&D Management
*
1-*
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
*
LO5: Describe how the globalization of the world economy is affecting new product development within the international business firm.
1-*
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
*
1-*
Why Is New Product Development Important?
- Cross functional product development team:
- R&D – marketing – manufacturing - service
- Benefits
more quickly.
Products can be more easily commercialized.
Barriers:
Different orientations and perceptions
Organizational politics
*
LO5: Describe how the globalization of the world economy is affecting new product development within the international business firm.
1-*
Why Are Cross-Functional Teams Important?
- 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
*
1-*
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
*
1-*
Where Should
R&D Be Located?
- Sources of new product ideas
scientific research - demand conditions - competitive conditions
- R&D has a high failure rate
customer needs driven
ease of manufacture
development costs are kept in check
time to market is minimized
*
1-*
Boeing: Aircraft, electronics, power system and engine, chemical process, etc.
Philips: Electronics, biotech, computer science, chemistry, etc.
International diversification and innovation
*
Boeing: has established a number of R&D centers in the U.S (Seattle, Chicago), Japan, Australia, SAUDI ARABIA, covering technologies such as…
Philips: has R&D centers in New Jersey, Brazil, Netherland, and Belgium, technologies in these centers include Biotech, electronics, computer science, chemistry).
The rationale of incorporate a diversity of sources of learning is to raise the firm’s potential rate of innovation. But how do firms like Philips and Boeing integrate combine the technologies generated in different locations and build their core competencies and serve their products.
Groups: Boeing Philips
Subsidiaries: Stars
International Network: not across firms is within firms
1-*
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
*
*
*
The Opening Case: Making the Amazon Kindle describes how Amazon decided where to produce the Kindle, what to do in-house, and what to outsource, and how to maintain a competitive price in the process.
*
The Opening Case: Making the Amazon Kindle describes how Amazon decided where to produce the Kindle, what to do in-house, and what to outsource, and how to maintain a competitive price in the process.
*
LO1: Explain why production and logistics decisions are of central importance to many multinational businesses.
*
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.
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
*
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
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
*
Management Focus: Philips in China describes Philips NV’s operations in China. Philips, the Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate, has been operating factories in China since 1985. By 2002, the company had invested $2.5 billion in China and operated 23 factories there. Initially, Philips believed that it would sell a large portion of its output to the local Chinese market. However, the company quickly discovered that the low wages that make China such an attractive production location also meant that the market for its products was smaller than anticipated. Philips’ solution was to export most of its output to the United States and elsewhere.
Country factors:
the availability of skilled labor and supporting industries
formal and informal trade barriers
expectations about future exchange rate changes
transportation costs
regulations affecting FDI
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
*
Two product factors impact location decisions
- The product's value-to-weight ratio
if the value-to-weight ratio is high, produce the product in a single location and export to other parts of the world
if the value-to-weight ratio is low, there is greater pressure to manufacture the product in multiple locations across the world
- Whether the product serves universal needs
when products serve universal needs, the need for local responsiveness falls, and concentrating manufacturing in a central location makes sense
*
*
The answer is b.
*
LO3: Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge.
*
*
Management Focus: Hewlett Packard in Singapore explores the strategic decision making involved in establishing Hewlett Packard’s Singapore plant. The company initially used the plant as a low cost location to manufacture electronic components. Later, entire products were produced in Singapore, Later still, the Singapore plant was involved not only in production but also product design. Today, the plant is an important part of Hewlett Packard’s global network responsible for manufacturing and also product development and design.
Firms can capture the benefits of vertical integration without the associated organizational problems by forming long-term strategic alliances with key suppliers
however, these commitments may actually limit strategic flexibility
risk giving away key technological know-how to a supplier
*
*
*
LO5: Describe what is required to efficiently coordinate a globally dispersed production system.
*
*
*
LO1: Explain why it might make sense to vary the attributes of a product from country to country.
*
*
*
*
Packaging: Materials: vary by transportation mode, transit conditions, storage, display, length of time in transit, regulations...
The promotional aspect of packaging relates mostly to labeling.
User convenience. Containers must withstand logistics challenge, and yet must be easy for customers to open.
Package aesthetics: prudent choice of colors and package shapes.
Package size: varies by purchasing patterns and market conditions.
Physical size, local behaviors, tastes, attitudes, and traditions….
Consumption patterns, psychosocial characteristics, general cultural criteria …
Product positioning - Consumers’ perception of a brand as compared with that of competitors’ brands.
*
LO2: Recognize how and why a firm’s distribution strategy might vary among companies.
*
LO2: Recognize how and why a firm’s distribution strategy might vary among companies.
*
Concentrated system:
- common in developed countries
- contributing factors: increase in car ownership, number of households with refrigerators and freezers, and two-income households
Fragmented system:
- common in developing countries
- contributing factors: great population density with large number of urban centers, e.g. Japan
- uneven or mountainous terrain, e.g. Nepal
Compared with U.S, less developed country
1. Much smaller
2. Fewer/smaller chains
3. Varied operating hours
4. Limited offerings
5. Nomenclature differences
6. Government regulations
7. Service level varies by country
8. Less self-service
*
Degree to which it is difficult for outsiders to access distribution channels.
Varies between countries:
- Japan - exclusive systems because personal relations, often decades old, play an important role in stocking products
- difficult for new firm to get shelf space as compared to an old firm
*
*
*
Parker Pens are proud of the fact that, unlike some cheap ballpoints, its pens won’t leak in your pocket and embarrass you. And that was just the message they sought to convey to the Mexican market, but without realising the Mexican Spanish word for “embarazar” does not mean “to embarrass” but “to impregnate”. Result, an ad for Parker Pens that read, “It won’t leak in your pocket and make you pregnant.”
*
The origin of a product may have a strong effect on consumer perceptions and biases.
Cultural Barriers:
- develop cross-cultural literacy
- firm should use local input such as local advertising agency and sales force
Source and country of origin effects:
- receiver of the message evaluates the message based on status or image of the sender
- anti-Japan wave in US in 1990’s
- place of manufacturing influences product evaluations
- often used when consumer lacks more detailed knowledge of the product
- Examples: French wines, Italian clothes, and German luxury cars
*
The origin of a product may have a strong effect on consumer perceptions and biases.
Cultural Barriers:
- develop cross-cultural literacy
- firm should use local input such as local advertising agency and sales force
Source and country of origin effects:
- receiver of the message evaluates the message based on status or image of the sender
- anti-Japan wave in US in 1990’s
- place of manufacturing influences product evaluations
- often used when consumer lacks more detailed knowledge of the product
- Examples: French wines, Italian clothes, and German luxury cars
*
*
Push strategy:
Accomplished through direct-response advertising (direct mail literature and catalogs), telemarketing (telephone via call centers), and direct selling (database marketing to create individual relationships with each customer).
All can be highly personalized tools if the target audience can be identified and defined narrowly.
Pull strategy
*
Management Focus: Levi Strauss Goes Local explores how Levi Strauss, the manufacturer of blue jeans, changed its international marketing strategy to regain its competitiveness in the mid-2000s. Levi Strauss had watched its sales fall from $7.1 billion in 1996 to just $4 billion in 2004. The company had failed to keep up with changes in the fashion market, and was out of touch with its consumer. A three part turnaround strategy was implemented, and currently the company is beginning to see a turnaround.
*
LO4: Explain why and how a firm’s pricing strategy might vary among countries.
*
*
*
Pricing:
Costs: Easily measured, Varying inflation rates
When prices cannot be changed, try value pricing, stripping down products, introducing innovative products at a modest premium, and getting close to customers by using new technologies.
Demand and market factors: Price elasticity, customer perception of the product
Market structure and competition: Distribution structure, trade discounts, etc.
Environmental constraints: Government policies. Try non-price measures, emphasize other marketing mix elements
*
*
*
*
LO5: Describe how the globalization of the world economy is affecting new product development within the international business firm.
*
*
LO5: Describe how the globalization of the world economy is affecting new product development within the international business firm.
*
*
*
*
Boeing: has established a number of R&D centers in the U.S (Seattle, Chicago), Japan, Australia, SAUDI ARABIA, covering technologies such as…
Philips: has R&D centers in New Jersey, Brazil, Netherland, and Belgium, technologies in these centers include Biotech, electronics, computer science, chemistry).
The rationale of incorporate a diversity of sources of learning is to raise the firm’s potential rate of innovation. But how do firms like Philips and Boeing integrate combine the technologies generated in different locations and build their core competencies and serve their products.
Groups: Boeing Philips
Subsidiaries: Stars
International Network: not across firms is within firms
*
