Presentation

on
International Business

Unit No.IV
 PRODUCTION, MARKETING, FINANCIAL
AND HUMAN RESOURCE MANAGEMENT
OF GLOBAL BUSINESS
Global production –Location –scale of operations-
cost of production – Make or Buy decisions – global
supply chain issues – Quality considerations-
Globalization of markets, marketing strategy –
Challenges in product development , pricing,
production and channel management- Investment
decisions – economic- Political risk – sources of fund-
exchange –rate risk and management – strategic
orientation – selection of expatriate managers-
Training and development – compensation.
GLOBAL PRODUCTION

• Globally integrated. Systems of production located in several

countries and commonly involving complex products.
• Logistics activities are highly important as production and
• distribution capabilities need to be effectively reconciled.
• Global production provides an unparalleled opportunity for
companies to grow into new markets while at the same time
boosting their competitiveness.
Reason for Global Production
• Import Restrictions: Imposition of restrictions on imports by the
foreign countries forces the MNC’s to establish the manufacturing
facilities in other countries
• Raw Material: Availability of high quality raw materials and
components in other countries
• Inputs: Availability of inputs at low cost in foreign countries
• Human Resources: Availability of skilled labour/human resources at
low cost Global Production
• Labour Laws: Liberal labour laws in the foreign countries
• Logistics Management: To reduce the cost of transportation and
easy logistics management
• Export: Facility of exporting to other neighboring foreign countries
• Different Customers: To design and produce the products as per
the varying tastes of customers in foreign countries
Four major location strategies for Global
Production Networks
• Centralized global production.
– The entire production occurs within only one nation and is
exported thereafter on the global market. difficult to relocate, such
as goods linked to the location of resources, difficult to reproduce
(e.g. luxury and craft) or depending on massive economies of
scale.
• Regional production
– This system depends more on a regional accessibility than on
economies of scale. (Soft drinks)
• Regional specialization
– Each region specializes in the production of a specific good and
imports from other regions what it requires.
Cont…

• Vertical transnational integration

– while assembly is performed in regions having low labor costs or
high skill levels depending on the type of product or the stage in
its manufacturing.
Factors behind the selection of a
location
• 1.Size
• 2. Raw Material
• 3. Currency
• 4. Political
• 5. Cultural
• 6. Market
• 7.labour
• 8. Logistics
• 9. Economies of scale
• 10. Quality
• 11. Subsidiaries
• 12.Customers
Global location decision

• Country Factors
• Technology Factors
• Product Factors
• Government Policies
• Organizational Issues
• Business Strategy Issues
• Inventory Management Policies
Global Production Strategy
• Manufacturing Compatibility
• Efficiency – reduction of Manufacturing cost
• Dependability – Degree of trust in company’s product, its delivery
and price promises
• Quality – Performance reliability, service quality, speed of delivery
and maintenance quality of products
• Flexibility – ability of the production process to make different kinds
of products and to adjust the volume of output
• Innovation – ability to develop new products and ideas
• Manufacturing Configuration
• Centralized Manufacturing in a single country: Where the
company’s small niche product is patent protected – One centralized
operations for the entire world
• Regionalized Manufacturing in the specific regions served:
Strategy which focuses on providing goods or services which match
to the different region
• Local Manufacturing in each country served: Strategy focuses on
increasing profitability by customizing the firm’s goods and services
so that they provide a good match to taste and preferences in
different national markets
• Coordination and Control
• Linking or integrating of participants all along the global supply chain
into a unified system.
• This activity included from purchasing to warehousing to shipment
• Location Decisions in Global Production
• Concentrating them in a centralized location and serving the world
market from there
BASIC STRATEGIES FOR ADOPTING
LOCATION FACILITIES
• Concentration of manufacturing makes most sense when:
•  Differences between countries in factor costs, political economy, and
culture have a substantial impact on the costs of manufacturing in
various countries,
•  Trade barriers are low,
•  Externalities arising from the concentration of like enterprises favor
certain locations,
•  Important exchange rates are expected to remain relatively stable,
•  The production technology has high fixed costs and high minimum
efficient scale relative to global demand, or flexible manufacturing
technology exists,
•  The product's value-to-weight ratio is high, and
•  The product serves universal needs.
• Decentralization of manufacturing is appropriate when:
•  Differences between countries in factor costs, political economy,
and culture do not have a substantial impact on the costs of
manufacturing in various countries,
•  Trade barriers are high,
•  Location externalities are not important,
•  Important exchange rates are expected to be volatile,
•  The production technology has low fixed costs and low minimum
efficient scale relative to global demand and flexible manufacturing
technology is not available,
•  The product's value-to-weight ratio is low, and
•  The product does not serve universal needs
• Managing Global Supply Chain Issues
• • With increased globalization and offshore sourcing, global supply
chain management is becoming an important issue for many
businesses
• • Global supply chain management involves a company's worldwide
interests and suppliers rather than simply a local or national
orientation
• • Companies must do their research and give serious consideration
to all of these different elements as part of their global supply
management approach.
STRATEGIC ROLE OF FOREIGN
FACTORIES

•  Pressure to lower costs or respond to local markets

•  An increase in the availability of advanced factors of production.
SIX STRATEGIC ROLE OF FOREIGN
FACTORIES

• Offshore Factory: An offshore factory is established to produce

specific terms at a low cost – items that are then exported either
for further work or for sale.
•  Source Factory: This factory is low-cost production but its
strategic role is broader than that of an offshore factory. Its
manager have greater authority over procurement (including the
selection of suppliers), production planning, process changes,
outbound logistics, and product customization and redesign
decisions
•  Server Factory: Supplies specific national or regional markets. It
typically provides a way to overcome tariff barriers and to reduce
taxes, logistics costs or exposure to foreign exchange fluctuations
• 
• Contributor Factory: Serves a specific national or regional
market, but it responsibilities extend to product and process
engineering as well as the development and choice of suppliers.
It has an authority over procurement decisions and participates
in the choice of key suppliers for the company.
•  Outpost Factory: Primary role is to collect information. It is
placed in an area where advanced suppliers, competitors,
research laboratories or customers are located. Because every
factory obviously must make products and have markets to
serve, virtually all outpost factories have a secondary strategic
role – as a server or an offshore for example.
•  Lead Factory: Creates new processes, products and
technologies for the entire company. This type of factory taps
into local skills and technological resources not only to collect
data for headquarters but also to transform the knowledge that it
gathers into useful products and processes.
PRIMARY STRATEGIC REASON FOR
BUILDING FOREIGN FACTORIES

•  Become global hub for product or process knowledge

•  Supply global markets
•  Assume responsibilities for product development
•  Make product improvement recommendations
•  Assume responsibility for the development of suppliers
•  Make process improvement recommendations
•  Assume responsibility for procurement and local logistics
•  Maintain technical processes
•  Assume responsibility for production
SCALE OF OPERATIONS

• The term scale of production refers to the quantity or numbers of a product

made.
• Economies of Scale and International Trade
• The WTO can cut the cost of doing business internationally
• Trade allows a division of labor between countries.
• Its decisions will be influenced by the:
•  Volume or quantities of products required
•  Types of materials used to make the products
•  Type of product being manufactured
• Input factors:
•  Land , labour, capital, resources, and
• technology…
• Scales of production
• Continuous production
•  EX: FMCG products
• Batch Production
•  EX: Furniture, Auto Ancillary
• Single Item Production
•  EX: Designers, Bicycle mfg
Trade allows a division of labor between
countries.
• Non-discrimination is just one of the key principles of the WTO’s
trading system. Others
• include:
•  Transparency (clear information about policies, rules and
regulations)
•  Increased certainty about trading conditions (commitments to lower
trade barriers and to
• increase other countries’ access to one’s markets are legally binding)
•  Simplification and standardization of customs procedure, removal
of red tape, centralized
• databases of information, and other measures to simplify trade,
known as “trade
• facilitation”.