international businsess - logistics

8/8/2019 International Businsess - Logistics

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CONTENTS

(A) INTRODUCTION

(B) GENRIC STRATEGIES OF THE INTRNATIONAL BUSINESS

(C) ACQUISITION OF RESOURCES

(D) LOCATION DECISIONS

(E) INTERNATIONAL LOGISTICS MANAGEMENT

+ POWER POINT PRESENTATION SLIDES


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( A ) INTRODUCTION

Production management is decision- making for operation functions and systemswhich produce goods and/or services. The focus in production management is

primarily on decision making responsibility and secondarily on methodology.

Managers in the production process converts inputs ,i.e, material , energy, capital ,human resources, components and information into output, i.e goods, services andinformation. The five key decisional areas of production management include :

Process Capacity Inventory Human Resources , and Quality

Most of us studied production operations management. Therefore, we shift our discussions to the international production management.

The general term operations management is used to denote production of goods andrendering of services. International operations management includes the following

process:

Strategic Context :- Differentiation- Cost Leadership- Focus

Standardised v.s. Customised production

Acquisition of Resources- Procuring- Vertical Integration- Make or buy or Make and buy decisions

Locational Decisions- Country related issues- Product related issues- Governmental issues- Organizational issues

Logistics and Materials Management- Flow of material- Transportation option- Inventory levels- Packaging


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( B) GENRIC STRATEGIES OF THE INTRNATIONAL BUSINESS

International operation management is closely linked with the business strategy of thecompany. The Generic strategies of a business include :

Differentiation Cost Leadership, and Focus

Roly International Holdings of Hong Kong sends its goods to chinese market via slow but lowcost cargo ships to be distributed by discounts like wal mart and walgreens.Ultimately this company sells its products like Christmas tree lights and plaster bird

baths at low price. Thus , it concentrates on its strategy of low cost leadership.

Standardised v.s Customised

Normally the international business firms go for standadisation in productdesign. This option enables the firm to inegrate the activities of its subsidiaries invarious countries. Toyota selected standardization strategy in car manufacturing and

produces the same car in different countries of the world. It has the advantage of sharing technology and components among various plants.

In contrast the customization strategy enables the company to design the product based on the tastes and preferences of the customer of each country. Thisstrategy helps the global company to compete with the local companies. In fact, the

present trend its customization. Customisation helps the company to hit other globalcompanies and also local companies.

Nestle designs its products based on the customization strategy . It decides its products, ingredients and packaging separately for each market. Thus , each plant of nestle is a self contained unit.

Critical issues of international production management includes:

Resources : The firm needs various kinds of recourses like material, inputs, human

resources and finance. IT is to be decided as to how and from where the firm should procure these resources . The critical issues to be decided are sourcing and verticalintegration.

International business managers have to deal with input suppliers from differentcountries follow the rules and regulation of various governments , and consider various transportation facilities , networks and long distances.

Location : Managers of the international firm have to decide the country location of the plant , sales offices , administrative offices, warehouses etc, and also designingthem, However, with the spread of email , e- commerce/ e marketing, location of sales office , warehousing and administrative offices does not seem to be criticalissues.


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International managers choose the countries in order to locate manufacturingfacilities, warehouse , sales officers , regional offices etc,. They have to take intoconsideration various factors like costs, tax laws, availability of resources, markets ,customer taste and preferences, government regulations , climate conditions, stable

political condition etc .

Logistics : Logistics management involves taking the decisions on modes of transportation and methods of inventory control . The companies should also consider the logistics issues. It would be always better for the inetnational firms to locate the

plants close to suppliers and customers.

( C ) ACQUISITION OF RESOURCES

The international business firm considers the acquisition of various inputs andresources. The factors to be considered under acquisition of resources are: procuring,vertical integration and make or buy decisions.

PROCURING

Production of goods requires a number of varieties of inputs like raw material, parts,components, etc. Procuring is the set of process and steps as firm uses to acquirevarious resources it needs to create its own products. Procuring is also calledsourcing. International companies plan for procurement of inputs carefully as itaffects the cost of the production, quality of the product, delivery of the product,demand for finances etc.The next factor considered here is vertical integration.

Vertical Integration : Vertical integration is adding new products and services whichare complementary to the existing product or service lines. Some of the internationalcompanies develop internal sources for procuring its raw material. For example, aniron and steel company rather than procuring iron ore from outside may develop aniron ore company. Vertical integration is the extent to which a firm can provide itsown resources. In vertical integration new products and/or services which arecomplementary to the existing product lines are added. One unit of the companysupplies the products to the other unit. The finished product for the first unit will be

raw material for the second unit. Thus, the first unit is the supplier to the second unit.Thus, the second unit is treated as the customer to the first unit.

One unit of the British Petroleum company explores natural gas and petroleum invarious countries. The second unit of the company extracts oil after it is discovered bythe first unit. Then the petroleum is transported through pipelines to the next unit of the company, i.e, Oil Refinery. The processed products at the Refineries like gasoline,

processed petroleum and other fuels are transported to the company owned servicestations and convenience stores where it is sold to the ultimate customers. Figureshows the vertical integration of British Petroleum.


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In contrast, some international business firms depend on outsourcing for variousresources and operations. Below figure shows the outsourcing by a beer manufacturer.

The international business firm, thus makes decision regarding procuring/ sourcingvarious inputs. The business managers have three options in procuring the resources.These options include (i) Make, (ii) Buy and (iii) Make and Buy.

Sales to Individual Customers

Company Owned Stations and Convenience Stores

Refines the Crude Oil into Gasoline, Processed Petroleum etc

Extraction of Oil

Beer Manufacturer (Brewing andBottling Operations)

Sell the Beer to Distributors

Sell to Retailers

Sell to Customers

World- Wide Exploration of Natural Gas and Crude Oil

Grains andChemicals

Bottles,Labels andCartons

Bu from Farmers etc Bu from various su liers


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Make Option: The international firm makes the inputs necessary by itself. Making allinputs by the firm leads to backward integration. As indicated in the BritishPretroleum, the firm becomes its own supplier of inputs.

Buy Option: The international firm buys almost all of its inputs from different

sources outside and it concentrates on its products.

Each of these two options has its own advantages and disadvantages.

Advantages and Drawbacks of Make or Buy Options

Advantages Make Option Buy OptionControl over costs Wide Variety and choiceControl over Quality Reduces Business risksControl over Delivery No Additional InvestmentManage Supply No Need for ExpertiseDevelop new Expertise Less control on Delivery

Disadvantages Make Option Buy OptionIncreased Investment Less Control on quality

Need for Expertise Competing for Supplier Need for EfficientManagement

Supplier May go out of Business

May be Inefficient Over Specialization

Labor problem & Unrest Supplier may become itscompetitor by choosingforward integration strategy.

Make-and-Buy Option: Under this option the international firm makes the inputsuntil the optimum stage where it can produce at the lowest cost compared to that of the suppliers. If the company needs additional quantity of inputs it buys from outsidesources where the price is less than that of its marginal cost of production. Thus, theinternational firm partly makes and partly buys.

International production and logistics management :

If the technology and manufacturing facilities need heavy investment beyond thefinancial ability of the international company, the company goes for the option of

buying, IBM mostly makes microprocessors, memory chips, diskdrives, mother boards etc,due to its ability to invent whereas Dell buys most of its input due to to itsfinancial inability.Honda, rather than producing mirrors for its cars, it encouragedDonnelly corporation to invest and produce mirrors for its cars.


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DIFFERENT APPROACHES TO THE MAKE-OR-BUY ISSUE

APPROACH BASIS OFFAPPROACH

EXAMPLES PROBLEMS OR DRAWBACKS

Operational/cost-basedapproach

Decision takenindividually on the

basis of cost-saving or operational advantage.

Sub-contractingtransport, printingor peak-loadmanufacture.

Failure to achieve all possible savings.norelationship to anyoverall companystrategy.

Businessapproach

Proactive approach tomake-or-buy based oneither a system of continuing evaluationor assessment based

broader cost criteria.

Use of multi-functional team,which assessed anydepatment activityfor cost-saving by

buying in.

Decisions may be based on short-medium-term cost-savings which arecyclical.

Policyapproach Based on an overviewof the company and itstechnology strengthsand weaknesses.

Activites based onsingle-mindedconcentration oncost/essentialtecnologies.

Difficulty inintegrating business policy/ technologystrategy/purchasingoperation.

The above analysis leaves the impression in our minds that variety and complexfactors affect the decision of make or buy or make-or-Buy issue.

National origins:

The international firms while making the decision regarding make or buy may selectthe suppliers from different countries based on the possible opportunites. But, thevariation among countries may pose problems to the company in this regard.

The USA does not use metric system. Hence, it causes a number of complications for the companies in converting inches to centimetres, gallons to litres, fahrenheit tocelsius etc.

Further, the national origin gets another problem of politicaland social implications tothe sauppliers of inputs. Each countrys diplomatic relationship , regulations anddependibility also affect the decision.for example, the supply of pelroleum from iranto india by pipelines through pakistan is being delayed and affected due to unsounddiplomatic relationship between india and pakistan. Though pakistan okayed the

proposal, india rejected it.

In another example, to move the material by trucks from west coast of USA to theeast coast, the trucks take canadas highway 401. This route involves crossing the

border into canada and back into USA. This journey requires compliance withcanadas highway regulations which are different from those oy the USA.

In addition both the company and supplier have to deal in the others environoment,

which is strange. If a french company suppilies material to a spanish company, the


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french company should make itself aware with the relevant environment of the spainand the spanish company should be aware of the french environoment.

Timing issues:

Another important factor to be considered is the timing of shipments and receipt of suppliers. The company should consider factors like shipping costs, carrying costs,risks of being out of stock of needed items etc.

Many US and CANADIAN autoplants adopted just in time inventory system in1980s. Canadian independent truckers created a blockade of major border crossing to

protest canadian trucking regulations. This affected and hindered the US-CANADA border and the benefits of just-in-time inventory.

Companys efficiency in handling supplies depends on management of supply

networks. Scientific linear programming models, need to be modified due to thevariations in the real world of national boundaries. A global company should functionas a global citizen. But , in reality the international company has to balance betweenglobal and local needs.

( D ) LOCATION DECISIONS

Location of plant warehouse,market etc, plays an important role inInternational operations Management as it determines the advantages of cost of marketing and availability of the product to the customer in different countries .Themanagement has to take the decisions regarding trade offs between concentration and

dispersion of the manufacturing facilities and marketing facilities.

INPUT V/S MARKETS .

Most of the International companies draw the raw material,human resourcecomponents etc.from different countries and sell the product in specific countries.Thelocation of manufacturing facilities depends upon the factors like nature of rawmaterials like weight losing ,size and weight,transportation facilities ,ability towithstand transportation facilities ,availability of cheap labour,etc.

Some of the International companies locate their assembling facilities in order to takeadvantage of cheap labour,it is costlier to transport these employees to a foreigncountry that establishing the assembling facilities close to them.

The inputs like wire,beads,and coils can be easily transported with less cost than thatof labour .Therefore the industries manufacturing electronic equipment locate their manufacturing facilities close to labour.

Scientific equipment manufacturing companies locate some of their facilities close tocustomers as the movment of this equipment affect precision.


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Some raw materials particularly agricultural output like sugar cane,fruits,vegetableslose their freshness. Therefore the companies using these raw materials as input locatetheir manufacturing facilities close to the source of inputs.

Components of automobiles can be manufactured n any part of the world.Hence the

automobile assembling facilities are locaterd close to the markets.

The company has to consider the matrix of multiple factors in deciding on the locationof the manufacturing facilities.An Australian company producing cellular phones andselling in the U.S. market locatec its primary manufacturing facilities in Malaysia.Ittranports raw materials to Malaysia,produces cell phone in malaysia and transports thefinished products to the U.S. market.the cost of transportation of both raw materialsand finished goods was offset by saving in labour cost.The company considered thematrix of factors like cheap labour, tranportation costs,reliablity of transportation risksand benefits associated ,etc.

Table below shows the checklist regarding the location of manufacturing units:--

POLITICAL.

Political stability or uncertainity.

Attitude of host goverment to private enterprise,andin particular ,to foreign private investments.

Special inducements for foreign investors ,such astax holiday,grants,loans at favorable rates tariff

protection for newly establihed industries.

Membership of a free trade area .or tradeagreements with other countries that might offer export opportunities.

COST.

Cost increase resulting from a a smaller scale of production product modifications to meet maeketneeds,and so forth.

Additional labour costs (for eg.company share of social security payments)

Availability and costs of local raw materials andcomponents.

Availability and cost of transport service.

Freight ,packiging and insurance saving ( if product previously exported to the country.)


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LEGAL..

Legal discrimination against foreign companies or their expatriate employees.

Percentage of companys capital that may be foreignowned.

Patent protection laws and ease of enforcement.Trade mark protection.

Price control legislation.Restructive trade practise legislation

EXCHAGE CONTROLRestrictions of remittance to parent company.

Restriction on repatriation of capital.

Convertiblity of local currency.

Personnel .

Availablity of labour.

Labour laws and regulations.

Exitence of compulsory profit sharing schemes.

TAXATION.

Existence of a double taxation agreement betweenhost country and parent company country.

Withholdingsof a taxpayable on remittance to parentcompany.

Level of company taxation.

Method of calculating depreciation allowances ,stock valuation and so forth

FINANCELocal souces of capital.

Rate of inflation.

External souce of capital.

Practicability of supplying capital from the U.K.

CONCENTRATION V/S DISPERSED LOCATION.

The International business firms may locate their manufacturing facilities in afew places or spread them through the globe whereever they have the markets .Theformer one is called concentrated location whereas the later is called the dispersedlocation.

CONCENTRATED LOCATION.

The International business firm locates its manufacturing facilities in a few places and distribute the products to its warehouse or market intermediaries located invarious part of the world .International business houses adopt this strategy due to thefolloeing benefits.

a) Efficiency or productivity can be maximised. b) Products can be standardised.c) The company can enjoy large scale economies.d) The cost of production per unit can be minimised.e) The adminstrative system can be simplified due to uniform procedures..


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Despite these benefits ,this strategy suffer from the following drawbacks.

Under this strategy ,the raw materials and other inputs have to be transportedfrom different parts of the world to a few locations and the finished productsare to be transported from a few places to a large number of market places.this process:---

a) Enhances the price of the product due to high cost of transportation. b) Take a lot of time to make the product available for sell after its produced.c) Adds coplexity to the business process system.d) Leads to inefficiency and complexity due to large size.e) Has to suffer from political uncertainities in the country where facilities

are located.

However ,this strategy is more appropriate when the source of marketsands inputs are concentrated in a few places.

DISPERESED LOCATION.

The needs and prefrence of the customers vary from one country to other country .Therefore the global companies prefer to produce the products based on thecustomer prefences and also in the locations close to customers.The benefits of thisstrategy include:--

a) Adaption of product ,marketing etc.based on the local conditions. b) The company can be flexible.c) When inputs vary from when supplier to other ,producing different qualitiesof products is feasible.In such circustances dispersal strategy is more suitable.d) Company can go for customisation in production and marketing.e) Political risks,commercial risks,and natural risks can be minimized.

Despite this benefits .the strategy suffer from following drawbacks:--

a) Cost of production per unit is highdue to small scale production at each

location. b) Cost of adminstration also increses due to management of multiplelocations.

However the strategy is more suitable for international business firms of the newmillenium due to increase competition and customisation.

The International companies ,after deciding strategy of concentrated locations or dispersed locations ,has to select the actual place for locating the manufacturing andother facilities.


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LOCATION DECISIONS.

Location decision can be studied under the following approaches.a) Country related issues.

b) Product related issues.

c) Goverment policies.d) Organisational issues

a) Country related issues.

Various factors related to the country affect the location decisions.these includeavailablity of raw materials and other inputs ,cost of theseresources,infrastructure.India attracted a number of information technology firms.Similarly China attracted toy.footwear.and textile industry due to cheap labour.

Infrastructure facilities are a major factor in determining the location of themanufacturing facilities.Concentration of International firms in some developingcountries like Singapore ,Taiwan.Thailand etc was due to the avalablity of infrastructure facilities.Hence the Goverment of Andhra Pradesh is particular of developing infrastructure facilities for attracting foreign companies.

The country of origin also plays a vital role. The advanced countries are known for quality.Japan has reputation for high quality ans low cost products,Italy is known for stylishly designed products.France is known for fashioned design and the U.S.A. isknown for durability of products.

Victor v. Cordell found that consumer preferences for timex watches fell by 6% andfor ternpomax watches fell by 74% when the interviewees were told that thewatches are made in pakistan not in Germany.

b ) Product- related issues

The important product- related issues are: Product-value- to weight ratio

The required production technology

Importance of customer feedback.Product- value- to weight ratio: it affects the cost of transportation in the finaldelivered price of the product. Low product- value- to weight ratio products likecement, iron chemicals,coal etc., can be manufactured in dispered locations whilehigh product- value- to weight ratio products like diamonds,gold ornaments,microprocessors etc., can be located in concentrated location.

If the customer feedback is vital for the success of the business, the company locatesmanufacturing facilities close to the markets. Sportswear producers in the USAresponded efficiently to the changes in customer needs than those located in Taiwan

and Indonesia.


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c ) Government Policies

Government policies towards foreign companies like allocation of land, tax

concessions, incentives, reducing or eliminating bureaucratic procedural formalities,establishment of export processing zones, foreign trade zones, and stability of these

policies influence the location decision.

d) Organizational issuesThe organizational factors may also affect the location decision. The firms with low-cost leadership strategy select the locations where the cost of production can be thelowest.

For example, Intel selected manufacturing locations in Ireland, Puerto Rico, Malaysiaand Philippines due to low cost of labour.

The organizational policy of low inventory levels makes the company locatemanufacturing facilities in various countries. Compaq computers has its primaryassenbly plants in houston(USA), Scotland, Singapore and Brazil in order to cut theoverall inventory levels and also to improve services to North American, European,Asian and south american countries.

(E) INTERNATIONAL LOGISTICS MANAGEMENT

The mechnism of getting inputs from their sources to the manufacturing centre and

taking the finished poducts from the manufacturing centre to the customers is calledlogistics network or system. The logistics system can be complex.

If the manufacturing facilities are located close to the sources of inputs and alsocustomers, then the logistics system can be simple. Otherwise, if the manufacturingfacilities are located far from both the sources of raw materials and cutomers, then thelogistics systems can be complex.

International business firms have to manage the flow of all inputs from their sourcesto the manufacturing centres, materials, spare parts and other resources among and

between units and finished products and services from manufacturing centrs to thecustomers. The first two sets of activities are called materials managament and thethird set is called physical distribution.

Logistics managements plays vital role in those firms which are developed andintegrated but are geographically dispersed in manufacturing and distributionnetworks where parts may be made in one country, assembly country and sales in athird country.

Domestic vs. International Materials management

Domestic materials management is different from international materials managementin the following factors:


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Distance involved in shipping, normally more in international managementcompared to that in domestic management.

Domestic shipment normally involves only one mode of transport like truck or rail. But international shipment involves a number of modes of transport liketruck, rail, ship again rail and truck.

There are number of regulations on transportation like price, safety packagingand size. These regulations vary from country to country. They are more ininternational operations compared to domestic operations. As we have discussedearlier, the trade blocks reduce and streamline these international regulations andred tapism.

Packaging: Packaging is a minor consideration in the domestic market.but it is amajor and complex considerationin international logistics. This is because,

packaging in international logistics has to protect the goods, make the handlingeasier, facilitate delivery of finished goods comfortable to the customer.

A company, for example, transports delicate electronics equipment from the USAto Saudi Arabia. This equipment is transported by trucks, railcars, ship, etc,. Thisequipment has to pass through varying degrees of humidity, temperature, dustetc.Further this eqipment may be handled with varying degrees of roughness.Therefore, the equipment must be packed to handle in different situations andconditions.Packaging adds to the weight of the total product. Sometimes importduty is determined on the basis of weight. Customers specify the total weightincluding packaging, package models, package materials, etc.

The logistics managemnet considers various factors like: Materials management costs

Warehousing costs

Packaging

Transporting

Distributing goods

Inventory carrying costs

Competitive levels of services to foreign customers.

Information technology and logistics management: The revolutionary changes and breakthroughs in information technology increased the efficiency of logisticsmanagement. These breakthrough include: fax machines, electronics mails, videoconferences, and satellite communications. The different aspects of logisticsmangement like different modes of transport, materials management, etc., builtnetwork with the breakthrough of information technology, which enhanced the speedand efficiency of logistics management.


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Business process Re- engineering and supply chain management: Business process re-engineering and supply chain management have a great impact oninternational production and logistics management. These aim at re-arranging andlinking all business operation from customer enquiry to customer satisfactionincluding procurement of inputs, product development, converting the inputs into

output, etc., in order to operate the total business more efficiently.

international businsess - logistics

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