TOPIC 1 (Part B) Topic: Operation Strategies in a Global Economy

• Introduction
• Factors Affecting Today’s Global Business Conditions
• Reality of Global Competition
• Quality, Service and Cost Challenges
• Advanced Technologies
• Continued Growth of Service Sector
• Scarcity of Operations Resources
• Social-Responsibility Issues
• Developing Operations Strategy
• Operations Strategy
• Positioning the Production System
• Stages in a Product’s Life Cycle
• Outsourcing Plans
• Process and Technology Plans
• Strategic Allocation of Resources
• Facility Plans
• Competitive Priorities for Service
• Positioning Strategies for Services
• Forming Operations Strategies
• Linking Operations and Marketing Strategies
• No Single Best Strategy

Why This Topic

In this topic, you will understand what strategies are used to compete with the global economy that changes
every year with new challenges and problems to face. This is why this topic will be broken down into each
section in order to elaborate further on some of the stated points.

Each section will explain each factor that affects the business conditions and how to tackle the issues each
company or firm experiences.

Introduction

In most businesses, there is operational effectiveness, which is the ability to perform the same type of
operations as the competitors but in a better way. However, the company should not be stationary if the
success of its business is solely based on operational effectiveness.

To solve this, a firm must also determine how operational effectiveness can be used to achieve sustainable
competitive advantage. Most firms must deploy an effective competitive strategy to knock out other
competitors.

Factors Affecting Today’s Global Business Conditions

Around the world, there are many factors that most firms and companies face in terms of their global business
conditions. As mentioned in the previous topic, the factors are stated below:

• The reality of global competition

• Quality, customer service and cost challenges
• Rapid changes in technologies
• Growth of the service sector
• Scarcity of operations resources
• Social responsibility issues

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 Reality of Global Competition

Naturally, the business world is forever changing from exchanges done through local and international
companies. This is called globalisation, where organisations develop an international influence through
cultural exchange between two or more different countries. There are strategic alliances between them as
well as production sharing. However, there is also a fluctuation in international financial conditions that needs
to be addressed.

In the USA, the gross domestic product (GDP) is the largest in the world at $10 trillion. This results in overseas
companies exporting all of their products and services to the US. In return, the US targets foreign markets to
shore up profits. With other countries having US-themed products in their economy, it is called a global village,
where the global economy interconnects the economies of all countries. One of the USA’s most important
new markets to target is China, which is seen in the Disney company.

International companies, on the other hand, are those who span their operations across the globe where
they buy, produce and sell in the world market. These firms search for opportunities for profits that are
unrestricted by their national boundaries. For example, most artists in Malaysia would market their products to
the international market since it is more effective compared to the local market, where censorship is plausible.
In doing so, the operations managers must coordinate geographically to disperse their operations. For
example, most countries have Chinatown which was incorporated by Chinese businesspeople who want to
produce and sell products across the globe through food, fashion and even festivals.

Strategic alliances are joint ventures among international companies to exploit global business opportunities.
These alliances are motivated by the pooling of capital, marketing access, production technology and
capability.

Production sharing refers to how a product may be funded and created in one country, the materials are
produced in another, assembled in a different country and sold in other countries. For example, a book may
be written and funded by a Malaysian, be published in a Singaporean company and may be sold to London.
The country with the highest quality may have the lowest cost of production for a particular activity.

In terms of financial conditions, international companies experienced complexities due to inflation, fluctuation
in the currency exchange rates, turbulent interest rates, volatility of the stock markets, huge national debts
and enormous trade imbalances between countries. When this issue occurs, companies must be prepared
to shift their strategies since financial conditions are always changing. Sometimes, some opportunities are
available to reduce these risks such as building more flexible factories, using foreign suppliers for cheaper
materials and carefully planning for any upcoming conditions that might need to change.

With most of the statements explained, there are pros and cons to globalisation despite being the most used
business strategy by most countries, especially in America.

In terms of pros, it can increase productivity at a rapid rate and is less likely to disrupt economic growth. With
globalisation, it could open to new opportunities and exchange of ideas from overseas. Finally, it results in
higher pay compared to a local job.

The cons of globalisation, however, are due to imports or production shifts from abroad. Workers who were
displaced may enter some jobs that pay less and face pay-cut demands from their employers. With the
number of foreign workers, most white-collar jobs will become vulnerable, driving out locals to pave the way
for foreign workers who are willing to work at low payment.

Quality, Service and Cost Challenges

In every business, there must be some standards concerning the quality, service and cost of the products. This
section will explain three of the factors that the business experiences in a global economy.

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The quality must be replaced with the objective of a perfect product and service. As employers, they must
redirect the corporate culture to be committed to the ideal quality, which involves the employees' actions.
This type of commitment has to be organisation-wide.

Customer service refers to the companies responding and developing products immediately to the
customers’ needs. The structures of the organisations must be horizontal in order to accommodate change.
A multi-disciplined team must have the authority to decide and make a better response to the marketplace.
Large, stationary companies are making their business units autonomous so that they can compete with their
smaller, aggressive competitors.

For cost challenges, most businesses are pressured to reduce direct costs in their production and sales as well
as overhead costs. For example, retail outlets such as Lotus Supermarket are large enough to squeeze weaker
competitors out of the market, giving the retailers leverage to force their supplies to expand their operations
and reduce costs in production. Another method to reduce cost would be the cost-cutting measurement.
This measurement includes moving the production to low-labour-cost countries and negotiating the labour
rates with the unions and workers.

For example, McDonalds’ is a well-known fast-food chain that has been distributed all over the world. Many
countries in Southeast Asia have McDonalds’ with the same automated processes that reduce the number
of human labourers that are intensive such as touchscreens for customers to place an order or robots to clean
up the floors.

Advanced Technologies

For most companies, the use of automation is one of the most developmental processes to affect
manufacturing and services. The initial cost for the assets is high and can have the benefit of venturing beyond
a reduction in labour costs.

This includes an increase in the product’s quality with how the machines are programmed to produce the
items based on the company’s vision and can reduce the material costs. Besides that, technology can help
companies respond to the customer’s needs and introduce a new line of products and services that are
available. This is seen in most companies such as Nintendo with their introduction of new games every quarter
of a month, attracting customers to buy their products while also maintaining the products’ standard.

Most American companies cannot be too dependent on production technology if they want to have a
competitive advantage in the market. Although these systems are available to any company, the price can
be expensive for companies to obtain. Not investing in technology could lead the company to a
disadvantage.

Continued Growth of Service Sector

To support the manufacturing sector, a robust service sector is needed. This is an opportunity for quality
improvement in most service firms, especially in America.

This leads to operations managers being employed in the services. Their duties are to plan, analyse and
control the approaches from the manufacturing that are adapted into the service systems. It applies in the
manufacturing sector since it must streamline and improve the operations of the company.

Scarcity of Operations Resources

Every product is made from raw materials. Some are in short supply such as fossil fuels, water and even
titanium.

Any shortage of supply can be a problem for the operations manager since they are the backbone of the
organisation and company. An important issue in forming the business strategy is how to allocate scarce
resources among business opportunities. This way, they will still maintain their competitive streak in the market
while managing the shortage of supplies.

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 Social-Responsibility Issues

Most corporate companies need to have the right attitude in order to progress in the company. Three factors
that influenced the attitudes to evolve are the consumer attitude, regulation and self-interests.

Consumer attitude refers to understanding what the consumers express in their preferences in buying, liability
suits and how they react to stockholder meetings. Regulations are rules implemented in companies to follow
but they could put constraints on the business. Finally, self-interests refer to the employees' attitudes that affect
the gains and losses in the company if they act responsibly.

Next, the companies must be aware of the impact they have caused through their business. The most
common impacts are environmental, product safety and the employee. Environmental impact is being
concerned with the environment, specifically, pollution, conserving energy and waste disposal that needs to
be standardized or else the companies will gravitate toward irregulated countries. The International
Organisation for Standardisation developed a set of environmental guidelines called ISO 14000. Product
safety impact refers to the concerns of the employees and workers in the company. Harm to people can
damage the company’s reputation and can cause the government to impose more regulations that might
restrict the business from progressing further. Employee impact finally refers to the benefits and policies that
are placed for the workers such as safety programmes, family leave and other benefits. These policies will
impact long-term profitability due to their effect on the employee’s productivity, the demand for a
company’s product and the cost to defend against any boycotts.

Developing Operations Strategy

This section discusses the assessment of global business conditions through four different steps. They are the
corporate mission, business strategy, competitive priorities and operations strategy. These steps will present a
greater detail of their role in the operations strategy.

A corporate mission is a set of long-range goals set up by employers to state the kind of business they
envisioned the company to be. This includes who are their targeted customers, their beliefs about their
business and how will they survive through their profitable products.

Business strategy is also a long-range plan of an organisation and it provides a pathway on how to achieve
the corporate mission. It includes a plan in each area of business from production, marketing and finance.
The inputs are to assess the global business conditions of the competitive market and the weaknesses of their
workers, technology and management.

Competitive priorities refer to 4 main points: low production costs (C), delivery performance (D), high-quality
products/services (Q), and customer service and flexibility (S). Low production cost refers to the unit cost of
each product or service to reduce any waste and create new technology. Delivery performance refers to
the punctuality of the delivery service that can create a fast-shipping method, have better control of the
orders and can give a realistic promise. High-quality products/services are the customers’ perceptions that
are exhibited by how the products and services are created in terms of their appearance, their functions and
their after-sales service. Finally, customer service and flexibility are the ability to quickly change the production
to the other products based on the customer’s response through the use of advanced technologies.

Operations Strategy

As mentioned in the previous section, an operations strategy is a long-range game plan for the production of
the company’s products and provides a map for the production in order to achieve the business strategy.

The decisions and issues in the areas are how the new products and services are developed, the requirements
in the facilities, and how the development is processed and paving the way to new technology.

Elements in the operations strategy are to position the production system, the service plans, outsourcing plans,
process the technology, allocate the resources and plan the layout of the facility

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 Positioning the Production System

The purpose of this is to select the type of design of the product, the production processing system and the
finished goods inventory policy.

Product design regards the standard and custom of how the product was made. An effective product would
have something to draw the customers’ attention. For example, Pokemon is attractive to children and young
adults because of the product’s designs and colours that made them want to purchase the products.

The production processing system is to focus on both the product and process. This relates to the materials
used to produce such as fabric, cotton, beads and even metal. For example, most plushies are made with
soft fabric and stuffing that is safe for children to handle.

Finished-good inventory policy refers to a method where a placed order of a product will make a produce-
to-stock and produce-to-order. For example, a customer orders a burger from BurgerLab where the cook
must produce burgers to stock on the demands and to also attend to the customer’s order.

Since the operation strategy is influenced by the product/service plan, there are reasons for this. First, the
designed product is established through all of the detailed characteristics of the creator. This can directly
affect how the product can be made for future business. Finally, it determines the design of the production
system.

Stages in a Product’s Life Cycle

There are four stages in the product’s life cycle which are the introduction, growth, maturity and decline.
Each stage will be explained in detail.

Introduction refers to how at the beginning of sales, the production and marketing of the goods are in
development. The profits, in the beginning, are negative because the business is just starting.

Growth refers to how the sales grow, the efforts are intensified and the start of incoming profit.

Maturity focuses on the high volume, efficiency and low costs in the production line. At this point, the profits
are at their peak, and they focus on competitive sales promotion.

Decline is when the product is declining in sales and profit due to the low demand from customers. The said
products may be pulled out of the market or be replaced with another product that can bring in profits.

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If the life cycle is shortened, this could affect several things. First, the cost of designing the product and
development will increase. The system will change continuously, resulting in the company’s need for a flexible
production system. Finally, the operation strategies need to emphasise bringing a new product design into
the market immediately.

Outsourcing Plans

Outsourcing is about hiring out some of the work that the company needs to do. This strategy is used by
companies to operate their system efficiently and to achieve their business goal. This plan has both
advantages and disadvantages.

Most outsourcing requires a company to work in a minimalistic environment with fewer employees and a
smaller facility. In some companies, they might outsource any of the manufacturing-related functions such as
designing the product, purchasing the raw materials, processing the assembly line and distributing the
product.

Some companies can even outsource service functions if they notice a flaw in the system. This includes the
payroll, billing, processing the order, developing a website, recruiting employees and maintaining a facility.

In general, the advantage of outsourcing is that there is less capital investment and the company can spend
the investment on producing the products. However, the disadvantage is that the company will lose some
control over the quality and production of the products.

Process and Technology Plans

This is an essential part of the operations strategy. It determines how the products and services will be
produced. Meaning, that it involves the planning of production processes and facilities.

The technology used to produce products/services is constantly changing and effective.

Strategic Allocation of Resources

The resources in the company can refer to the cash, workers, materials, machines and others. The majority of
the firm’s resources are used for production or operations.

Some or all of the resources are limited, depending on the company’s budget. However, they must allocate
to the products, services, projects or opportunities that maximise the achievement of the operation's
objective.

Facility Plans

In terms of planning, it is to produce the firm’s products/services as a critical strategic decision. Capital
investment is required to make the production capacity available for use.

This includes the new location of the facility to produce the products at an efficient pace. The internal layout
of the workers, equipment and functional areas affects the ability to provide the desired quality and cost of
the products and services.

Competitive Priorities for Service

When creating a product, there are several priorities that manufacturers need to apply to the service firms in
order to produce an efficient service to the customers.

Those priorities are low production costs, on-time delivery, high-quality products/services and customer
service and flexibility. For example, most customers are drawn to buy a product that is low in price. When
placing an order, the customer expects their product to arrive on time at their designated area and that it

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has the best quality as the company promised. Finally, the person in charge of taking the customer’s orders
must be flexible to attend to various customers without making them dissatisfied.

However, it is not possible for a company to provide all of the priorities simultaneously because some of the
priorities outweigh the others.

Positioning Strategies for Services

For this section, discussions will be made about the different positions of strategies that companies have used
for service.

First is the type of service design used to set a standard for the company to follow when manufacturing the
product. It must have a standard product that the customer can associate with the company such as
Dominos Pizza has thin crust pizza as their standard product. The service design must have an amount of
customer contact through their advertising on social media and other sources to promote their product.
Finally, it must have a mixture of physical goods and intangible services that can make customers return for
more. For example, McDonalds’ has physical goods in their restaurant that dominate their intangible service
of presenting their menu items.

The types of the production process used as strategies are quasi-manufacturing, customer-as-participant and
customer-as-product. Quasi-manufacturing refers to a service that has a high capital investment and a
relatively low customer contact. For example, Mcdonalds’ apps and technology helped employees to
service customers without any physical interactions.

Customer-as-participant refers to the customer’s involvement in the service such as Baskin Robbins giving
customers free samples of their new ice cream flavour and the customer’s feedback will determine whether
or not Baskin Robbins will sell that flavour.

Customer-as-product refers to products that are considered consumer goods. Examples are clothing, food
and jewellery, which could be used by customers since they are usable products.

Forming Operations Strategies

In most business strategies, the product plans are supported and are always evolving. Most companies need
to make adjustments in order to position their strategies. They need to be linked to the market and have some
alternatives if the plan fails.

The positioning strategies tend to evolve just as the products go through a product life cycle seen in the
diagram below.

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The operations strategies must include a plan to modify the production systems to change the competitive
priorities as the products mature. To support these changes, capital and production technology are required.

Linking Operations and Marketing Strategies

Both operations and marketing strategies are linked to manufacturing the products and services. There are
several examples of how these linked strategies are paired together.

For Playstation 5, the operations strategy focuses on the product, which is the console itself. It is made-to-stock
through how it was advertised online and by most game stores across the world. Since it is a standardised
product with its features and games, there will be a high volume of customers who want to purchase the
Playstation 5 through their demands.

In terms of marketing strategy, it has a low production cost whereas the Playstation 5 is produced at a lower
cost. Despite being manufactured in Japan, its distribution towards several countries to arrive on the same
date shows how fast are their delivery service. Finally, it must present the best quality that could make
customers satisfied.

No Single Best Strategy

With all the strategies discussed, the question is which strategy is the best? The answer is that there is not a
single strategy that is deemed ‘the best’. There are three types of strategies that are mostly used in business
practice.

First is the start-up and small manufacturers. This prefers a positioning strategy, where it focuses on custom
products, process-focused production and produce-to-order policies. This system is flexible and does not
require most of the capital.

Second is the start-up and small services that compete with large corporations. How they achieved this
success is by carving out a special niche for the company to work on. This in turn will form a close bond with
customer service where customers will loyally return to purchase more of their products. An example would
be Tealive where they offer promotions and discounts at a low price for customers to purchase their bubble
tea beverages.

The final strategy that companies used is the technology-intensive business. As the name implied, the
company must have two strengths, which are tech-savvy people and sufficient capital. The production

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system must be capable of producing new products and services in a high volume after the products’
introduction.

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