IONA College Operations Management MBA-540 Jerry Fjermestad 3-1 Operations Management Operations in a Global Environment Chapter 3 3-2 Outline  Global Company Profile: Boeing  Why Global Operations are Important  Achieving Global Operations Global Product Design  Global Process Design and Technology  Global Facility Location  Impact of Culture and Ethics   Global Issues in Service Operations 3-3 Outline - continued  Global Issues in Service Operations  Managing Global Service Operations  Global Operations Strategies International Strategy  Multi-domestic Strategy  Global Strategy  Transnational Strategy  3-4 Learning Objectives When you complete this chapter, you should be able to :  Identify or Define: International business  Multinational corporation  Transnational Strategy  Maquiladora  Critical success factors in location analysis  3-5 Learning Objectives - continued When you complete this chapter, you should be able to :  Describe or Explain: Global facility location analysis  Cultural and ethical issues in operations  Why global issues are important  Four global operations strategies  3-6 Boeing Suppliers (777) Firm Alenia AeroSpace Technologies CASA Fuji Country Italy Australia Spain Japan Parts Wing flaps Rudder Ailerons Landing gear doors, wing section Flight computers Flap supports Landing gears Landing gear doors Landing gear doors GEC Avionics United Kingdom Korean Air Korea Menasco Aerospace Canada Short Brothers Singapore Aerospace Ireland Singapore 3-7 Examples  Boeing - flourishes because both its sales and production are world-wide  Benetton - moves inventory to stores around the world faster than its competitors  Sony - purchases components from suppliers in Thailand, Malaysia, etc.  General Motors - simultaneously building four similar plants in Argentine, Poland, China, and Thailand so that they can learn from each other and drive down cost while increasing quality 3-8 Management Issues in Global Operations Global Strategic Context Differentiation  Cost leadership  Response  Supply Chain Management Location Decisions Logistics Management 3-9 Supply-Chain Management  Sourcing  Vertical integration  Make-or-buy decisions  Partnering 3-10 Location Decisions  Country-related issues  Product-related issues  Government policy/political risk  Organizational issues 3-11 Materials Management  Flow of materials  Transportation options and speed  Inventory levels  Packaging  Storage 3-12 Defining Global Operations  International business - engages in cross-border transactions  Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country  Global company - integrates operations from different countries, and views world as a single marketplace  Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness 3-13 Some Multinational Corporations Company Home Country USA USA USA USA Japan USA % Sales Outside Home Country 34 65 54 68 63 59 3-14 % Assets Outside Home Country 46 47 45 66 36 55 % Foreign Workforce NA NA NA NA NA 51 Citicorp ColgatePalmolive Dow Chemical Gillette Honda IBM Some Multinational Corporations Company Home Country % Sales Outside Home Country 78 98 % Assets Outside Home Country 50 95 % Foreign Workforce ICI Nestlé Britain Switzerland NA 97 Philips Electronics Siemens Netherlands Germany 94 51 85 NA 82 38 3-15 Global Operations Strategies Company Home Country USA Citicorp %Sales % Assets %Foreign Outside outside Workforce Home Home Country Country 34 63 78 98 94 51 3-16 46 36 50 95 85 NA NA NA 97 82 38 Honda Japan ICI Britain Nestlé Switzerland Philips Netherlands Electronics Siemens Germany NA Pontiac - the LeMans Included the Following  About $6,000 heads to South Korea for auto’s assembly  $3,500 goes to Japan for engines, axles, and electronics  $1,500 goes to Germany for design  $800 goes to Taiwan, Singapore, and Japan for smaller parts  $500 heads to England for marketing  $100 goes to Ireland for information technology  the rest  $7,600, goes to GM and its US bankers, insurance agents, and attorneys. 3-17 Reasons to Globalize Operations Tangible  Reduce costs (labor, taxes, tariffs, etc.)  Improve the supply chain  Provide better goods and services  Attract new markets  Learn to improve operations  Attract and retain global talent 3-18 Intangible Trade and Tariff  Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment  GATT - an international treaty that helps promote world trade by lowering barriers to the free flow of goods across borders  NAFTA - a free trade agreement between Canada, Mexico, and the United States 3-19 Free trade may take us into the era of the floating factory - a six person crew will take a factory from port to port in order to obtain the best market, material, labor and tax advantages 3-20 Achieving Global Operations -Four Considerations Global product design  Global process design and technology  Global factory location analysis  Impact of Culture and Ethics 3-21 Global Competitiveness of Countries                 Country 1999 Ranking Singapore …………………...  1 United States ……………….  2 Hong Kong ………………….  3 Taiwan ……………………….  4 Canada ……………………….  5 Switzerland ………………….  6 Luxembourg ………………..  7 United Kingdom …………...  8 Netherlands ………………...  9 Ireland ……………………….  10 Australia …………………….  11 Finland ………………………  12 New Zealand ……………….  13 Japan ………………………..  14 ……... ….. Russia ……………………….  59 3-22 Global Product Design  Remember social and cultural differences  packaging and marketing can help make product seem “domestic” but  “liter” versus “quart”  “sweetness” and “taste” 3-23 Global Process Design and Technology  Information technology enables management of integrated, globally dispersed operation  Texas Instruments: 50 plants in 19 countries  Hewlett-Packard - product development teams in U.S., Japan, Great Britain, and Germany  Reduces time-to-market 3-24 Global Facility Location Analysis Using CSFs for Country Selection  Select CSFs based on parent organization;’s strategic or operations objectives  Obtain country-specific information on the CSFs  Evaluate each country’s CSFs using a 1 (bad) to 5 (good) rating scale  Sum the ratings 3-25 You May Wish To Consider  national literacy rate  rate of innovation  rate of technology change  number of skilled workers  stability of government  product liability laws  export restrictions  similarity in language 3-26  work ethic  tax rates  inflation  availability of raw materials  interest rates  population  number of miles of highway CSF in Location Analysis Critical Success Factors Technology Rate of technology change Innovations in process design Number of skilled workers National education rate Stability of government Product liability laws Export restrictions Country Country Country Country 1 2 3 4 3 5 5 4 5 4 4 5 3 4 1 5 3 3 2 1 3 1 2 3 3 1 5 4 2 5 5 1 Level of education Political and Legal Aspects 3-27 CSF in Location Analysis continued Critical Success Factors Social and Cultural Aspects Similarity in language Work ethic Country Country Country Country 1 2 3 4 5 4 3 3 2 3 50 3-28 1 2 3 5 4 4 43 5 3 2 5 3 2 35 4 1 5 5 5 5 48 Economic factors Tax rates Inflation Availability of raw materials Interest rates Total Rating Points Global Impact of Culture and Ethics  Cultures differ! Some accept/expect: variations in punctuality  long lunch hours  expectation of thievery  bribery  little protection of intellectual property  3-29 Ranking Corruption 1. 2. 3. 4. 5. Denmark Finland Sweden New Zealand Iceland 10.0 9.6 9.5 9.4 9.3 7.5 2.4 2.3 2.2 2.0 1.4 3-30 17. United States 76. Russia 77. Ecuador 79. Columbia 80. Indonesia 85. Cameroon To Establish Global Services  Determine if sufficient people or facilities exist to support the service  Identify foreign markets that are open - not controlled by governments  Determine what services are of most interest to foreign customers  Determine how to reach global customers 3-31 Managing Global Service Operations Must take a different perspective on  Capacity planning  Location Planning  Facilities design and layout  Scheduling 3-32 Some Definitions  International business  A firm that engages in cross-border transactions. A firm that has extensive involvement in international business, owning or controlling facilities in more than one country 3-33  Multinational Corporation (MNC)  Some Global Strategies  International Strategy: uses exports and licenses to penetrate the global area  Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business  Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants  Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization 3-34 Four International Operations Strategies High Global Strategy Standardized product Economies of scale Cross-cultural learning Caterpillar Otis Elevator International Strategy Import.export or license existing product U.S. Steel Harley Davidson Low Transnational Strategy Move material, people, ideas, across national boundaries Cross-cultural learning Coca-Cola Nestlés Cost Reductions Low Multi-domestic strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Heinz McDonalds High Local Responsiveness 3-35 Match Product & Parent            Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods           a. Volkswagen b. Bidermann International c. Bridgestone d. Campbell Soup e. Credit Lyonnais f. Ford Motor Company g. Gillette h. Grand Metropolitan i. Michelin j. Nestlé 3-36 Match Product & Country            Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods       1. France 2. Great Britain 3. Germany 4. Japan 5. United States 6. Switzerland 3-37