International Business Project; part 5
justme1890
textbook_clips.docxOperational Differences in International Companies
Resources
Depending on whether a firm produces tangible (products that require manufacturing or processing) or intangible goods (services), its resource requirements will differ greatly.
Production management of tangible goods requires supply chain management to acquire production materials in the most efficient and cost-effective manner possible. The successful management of a firm's supply chain utilizes a defined set of process and steps to acquire the resources necessary for production. This may also require operations managers to decide the degree to which they can or should use vertical integration to optimize supply chain efficiencies. Vertical integration is the degree to which a firm decides to use its own resources (by making them) or to purchase the resources from an external supplier. If a firm decides to make the resources it needs to produce its end product, it may purchase a supplier firm and take the resource production "in-house" (Backward Vertical Integration).
If a firm decides it would be best to distribute their products themselves, rather than lose the profit margins to a distributor, they may desire to purchase a distributorship and move that function "in-house" (Forward Vertical Integration).
Conversely, firms may decide that the best efficiencies for production and pricing occur when they purchase their resources for production. In this case, procurement operations are a critical facet of ensuring that resources are purchased at the most favorable terms possible. In the international marketplace, this function relies on strong multinational communications techniques and continual foreign currency analysis in order to optimize pricing. These operational decisions are complex and require astute business analysis
Location
When determining the location for an international firm's various facilities, operations managers must consider:
Country-related issues
· Resource availability - abundance and quality of workforce, raw materials, clean water, etc.
· Cost - prohibitive or supportive of locating a business in that location
· Infrastructure - technology, transportation systems, regulations
· Branding - various nations have brand images associated with them that can either enhance or diminish brand reputation
Product-related issues
· Transportation costs relative to the weight of the product can impact profitability such that a specific location is not suitable for production.
· Appropriate and efficient facility size (relative to anticipated product sales)
Government policies
· The decision to locate a facility in a foreign nation is greatly impacted by the stability of the political system.
· Tariffs and taxes can force firms to locate a facility within the borders of a nation.
· Location decisions can be influenced by economic incentives offered by certain host nations.
Operational issues
· Firms that have a low-cost strategy may locate in low-cost locations, but a firm that relies on product quality will need to locate facilities where there is an ample skilled labor force and managerial expertise.
· Inventory management policies are impacted by plant location determinations.
· Corporations balance the costs of maintaining inventory against the costs of running out of materials and/or finished goods.
· Just-in-time (JIT) inventory management systems exert particular pressure on the factory location, since they require strong reliance on suppliers to deliver needed resources at precisely the correct point in the production process.
Organizational Congruence
Global firms operating in multiple nations face mounting challenges in ensuring that standardized policies are managed effectively across borders. Variances in political landscapes including the degree of governmental controls, laws, regulations, taxes, tariffs, human rights issues, labor systems, and rules, all have an impact on the specific abilities of a corporation to ensure smooth adherence to internal policies.
In addition to working to achieve consistent policies across borders, operations managers are tasked with determining how to manage the growing bank of knowledge about multinational operations across borders. Effective knowledge management creates efficiencies in production and other operational areas, but the lack of strong knowledge management systems can result in devastating loss of profits through attrition, inefficient processes, or labor-intensive investments that recreate systems and processes already successfully implemented in other nations.
Operations Management in a Multi-Product Environment
Firms that produce multiple product lines, such as General Electric or Kraft Foods, must manage their operations functions, such as Supply Chain Management, across various product lines. When the global differences between nations are factored into this management process, it is quite easy to see how complex the global operations management process becomes.
Some of the complexities when managing multiple product lines include:
· Management of an increasing number of suppliers and supplier relationships.
· Production lines may have increasing numbers of components and final products in inventory.
· Product planners have increased difficulty in scheduling and allocating finished goods across multiple factories and sales channels and any change in the supply chain can have a domino effect on other areas of the organization or even the customer base.
Strong operations management uses technical analysis to measure the cost and benefit of product line complexities, and determine the correct production proportions to maximize profits. Consider the five-step process to operation management of product complexities.
Step 1: The first step is to identify which cost areas are impacted by product line complexity. To avoid overlooking hidden costs, conduct a thorough review of material, information, and financial flows along the value chain.
Step 2: The next step is to estimate the effects of complexity in each cost area on a per-unit basis. This includes analyzing the costs for each component's inputs, as well as the expected net revenues, other costs including marketing, and inputs such as factory capacities and retail order lead-time.
Step 3: This is basically a method for establishing a cutoff point at which the business would not be profitable for a specific product. Each product in the portfolio must meet business objectives and contribute acceptable contribution margin (VCM) to offset these complexities.
Step 4: Increased product line complexity can yield benefits as well as costs. Benefits include greater consumer choice, increased shelf space at retailers, increased consumer mindshare, and reduced pricing transparency.
Step 5: The last step involves eliminating products under consideration for which the projected margin contributions do not exceed the thresholds assigned. At its most basic level, this is simply a product-by-product comparison of projected margin impacts against the measured cost thresholds.
How are operations management and operations strategy related?
International operations management refers to the transformation-related activities of an international firm. The overall objective of operations management is to create the opportunity or potential to create superior value for the firm by efficiently managing all operational components of the business. Operations strategies are developed from the competitive priorities of an organization, which include: low cost, high quality, fast delivery, flexibility, and service.
If a firm is pursuing a differentiation strategy, then management of the operations must result in products or services that are clearly different from the firm's competitors. In a low-cost strategy, operations management must effectively create efficiencies throughout its operations, which allow the business to price their product as a low-cost leader.
Both large and small firms, global or otherwise, engage in the execution of their vision and mission through the development and implementation of strategies designed to expand, or grow, their profits in order to maximize their shareholder wealth. This is the overall objective of a business. But, how do they implement the business strategies once they have been identified?
These strategies consist of objectives and actions that, when successful, achieve the desired result. But, in order to be successful, the strategic business actions must be translated into operational strategies that not only synergistically align with the business strategies, but have the capacity for success through appropriate allocations of resources, facilities, application of policies and compliance, adherence to regulations, marketing objectives, logistical support, finance and pricing, technological infrastructure, and a host of other considerations. In other words, there must be strong management of the operations components of the business that are soundly integrated across functions (cross-functionality) in order to increase the likelihood of successfully achieving the business strategies. This requires the development of precise operations strategies.
In the international environment, operations strategies are increasingly complex, as firms must not only consider the efficiencies and success of internal operations in relation to firm strategy, but they must also analyze and develop operations strategies that can successfully create efficiencies and success in multiple regions and nations, whose laws, environment, culture, politics, and technological and logistical considerations are vastly different.
The differences that exist within a host nation and between multinational environments are capable of reducing productivity through inefficiencies and waste, and through the impact of policies and regulations across borders. How firms identify, analyze, and prepare or respond to these cross-border differences can greatly impact their profitability or even their ability to remain in business.
When products and services are produced using systematic production techniques that are standardized across a company, firms can and should use the same systems across borders in order to create greater efficiencies. But when various foreign markets require a firm to use unique operations, global integration of systems is difficult, and often not possible.
The Finance Function in the International Environment
|
Financing A CFO can reduce a group's tax bill by, for example, borrowing in countries with high tax rates and lending to operations in countries with lower rates. But the global CFO needs to be aware of the downsides of strategic financing. Saddling the managers of subsidiaries with debt, for instance, can cloud their profit performance. Capital Budgeting CFOs can add value by getting smarter about valuing investment opportunities. But adopting an overly formal approach may tempt managers to game the system and can lead to an outcome at odds with the company's objectives. |
As corporations go global, capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets. But in managing their internal markets to build an advantage, Chief Financial Officers (CFOs) must balance the opportunities with the challenges of operating in multiple environments. By exploiting their internal capital markets, CFOs can create value in three functions:
