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InternationalBusiness 1

InternationalBusiness 1

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07/23/2013

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The main attraction of countertrade is that it can give a
firm a way to finance an export deal when other means
are not available. Given the problems that many
developing nations have in raising the foreign exchange
necessary to pay for imports, countertrade may be the
only option available when doing business in these
countries. Even when countertrade is not the only option
for structuring an export transaction, many countries
prefer countertrade to cash deals. But the drawbacks of
countertrade agreements are substantial. Other things

228

being equal, all firms would prefer to be paid in hard
currency. Countertrade contracts may involve the
exchange of unusable or poor - quality goods that the
firm cannot dispose of profitably.

Given these drawbacks, countertrade is most attractive to
large, diverse multinational enterprises that can use their
worldwide network of contacts to dispose of goods
acquired in countertrading. The masters of countertrade
are Japan's giant trading firms, the sogo shosha, who use
their vast networks of affiliated companies to profitably
dispose of goods acquired through countertrade
agreements.

229

Chapter Sixteen

Global Manufacturing and Materials Management

Introduction

In this chapter, we look at the problems that Li & Fung
and many other enterprises are facing and at the various
solutions. We will be concerned with answering three
central questions:

•Where in the world should productive activities be
located?
•How much production should be performed in-
house and how much should be out-sourced to
foreign suppliers?
•What is the best way to coordinate a globally
dispersed supply chain?

We will examine each of the three questions posed above
in turn.

Strategy, Manufacturing, and Materials Management

We used the term production to denote both service and
manufacturing activities, since one can produce a service
or produce a physical product. We defined materials
management
as "the activity that controls the
transmission of physical materials through the value
chain, from procurement through production and into
distribution." Materials management includes logistics,
which refers to the procurement and physical
transmission of material through the supply chain, from
suppliers to customers. Manufacturing and materials
management are closely linked, since a firm's ability to

230

perform its manufacturing function efficiently depends
on a continuous supply of highquality material inputs, for
which materials management is responsible.

The manufacturing and materials management functions
of an international firm have a number of important
strategic objectives. Productivity increases because time
is not wasted manufacturing poor-quality products that
cannot be sold. This saving leads to a direct reduction in
unit costs.

•Increased product quality means lower rework and
scrap costs.
•Greater product quality means lower warranty and
rework costs.

The main management technique that companies are
utilizing to boost their product quality is total quality
management
(TQM). TQM is a management philosophy
that takes as its central focus the need to improve the
quality of a company's products and services.

In addition to the objectives of lowering costs and
improving quality, two other objectives have particular
importance in international businesses. First,
manufacturing and materials management must be able
to accommodate demands for local responsiveness.
Second, manufacturing and materials management must
be able to respond quickly to shifts in customer demand.
In recent years time - based competition has grown more
important.

Where to Manufacture

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