Chapter 2

OPERATIONS STRATEGY IN A
GLOBAL ENVIRONMENT

Reference (textbook): Operations Management: Sustainability

and Supply Chain Management
Heizer, Jay., Render, B. & Munson, C. (2017)

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Syllabus Content
1. A Global View of Operations
2. Achieving Competitive Advantage Through Operations
3. Issues in Operations Strategy
4. Strategic Operations Management Decisions

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1.0 A Global View of Operations and Supply Chains
• Globalization means customers, talent and suppliers are worldwide.
• The new standards of global competitiveness impact quality, variety,
customization, convenience, timeliness and cost.
• Globalization strategies contribute efficiency, adding value to products and
services.
• SIX reasons domestic business operations decide to change to some form of
international operations:
1. Improve the supply chain
2. Reduce costs and exchange rate risk
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global NUR
talent
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1.1 Six reasons domestic business operations go
globalization
1. Improve Supply Chain – by locating facilities in countries where unique resources
are available.
2. Reduce Costs and Exchange Rate Risk – reduce risk with changing currency values
(exchange rates) as well as take advantage of the intangible opportunities to
reduce their direct costs.
3. Improve Operations- Operations learn from better understanding of management
innovations in different countries.
4. Understand Markets – international operations require interaction with foreign
customers, suppliers, and other competitive business, international firms and learn
about opportunities for new products and services
5. Improve Products – remain open to the free flow of ideas
6. Attract and Retain Global Talent – can attract and keep better employees by
offering more employment opportunities
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1.2 Cultural and Ethical Issues
• Bribery
https://www.romania-insider.com/intercultural-cultural-ethical-dilemmas-
in-business-from-bribes-paying-to-political-affairs/
• Child Labor
https://www.developmenteducation.ie/media/documents/Concern
%20Child%20Labour%20Resource.pdf
• Environment
nature, landscape, species, wilderness
• Managers sometimes do not know how to respond when operating in
a different culture

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1.2 Developing Missions and Strategies
• An effective operations management effort must have a mission so it
knows where it is going and a strategy so it knows how to get there

• Missions – the purpose or rationale for an organizations ( what it will

contribute to the society)
- Provide boundaries and focus for organizations and the concepts
around which firm can rally
- Developing a good strategy is difficult, but it is much easier if the
mission has been well defined.
- Missions for each function area (major disciplines –marketing,
accounting, production/operations) are developed to support the
firm’s overall mission
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1.2 Developing Missions and Strategies
• Strategy – How an organization expects to achieve its mission and
goals
- with the mission established – strategy and its implementation
can begin.
- each functional area has a strategy for achieving its mission and
for helping the organization reach the overall mission.
- these strategies exploit opportunities and strengths, neutralize
threats and avoid weaknesses
- The three strategic approaches to competitive advantage are
1. Differentiation (better or least different)
2. Cost Leadership (cheaper)
3. Response (more responsive)
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2.0 Achieving Competitive Advantage
Through Operations
• Competitive Advantage - the creation of a unique advantage over competitors

1. Competing on differentiations
- Concerned with providing uniqueness

- Differentiations –Distinguishing the offerings of an organization in a way that the

customer perceives as adding value

- Experience differentiations – Engaging a customer with a product through imaginative

use of the five senses, so the customer “experiences” the product

- E.g: Movie theater are moving in this direction with surround sound, moving seats,
changing in “smells” and mists of “rain” @ Hard rock Restaurant- dining experience
rather than just a meal @ Starbuck when they provide music and the aroma of fresh
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Product Differentiation of Body Lotion
2.0 Achieving Competitive Advantage Through
Operations (con’t…)
2. Competing on Costs
- Low-cost leadership – Achieving maximum value, as perceive by the
customers

- A Low-Cost strategy does not imply low value or low quality

- used to create a low cost of operation within their niche and primarily to
gain an advantage over competitors by reducing operation costs below
that of others in the same industry (become low cost producer)

- E.g.: Customers finds no background music, shopping bags, or bright

lights; all have been eliminated to cut costs
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Example of Low-Cost Leadership

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2.0 Achieving Competitive Advantage Through
Operations (con’t..)
3. Competing on Response
- Response often though as flexible respond, but it also refers to reliable
and quick response. E.g.: HP’s response to volatile (change rapidly and
unpredictably) world market
- Flexible response – the ability to match changes in a marketplace
where design innovations and volumes fluctuate extensively
- Reliable response – reliable scheduling. E.g.: FedEx’s “absolutely,
positively on time”
- Quick response – speed in product development, speed in production
and speed in delivery. E.g.: Pizza Hut’s five minute guarantee at
lunchtime
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 3.0 Issues in Operation Strategy
Prior to establishing and attempting to implement a strategy, some alternate perspective may be helpful :-
• Resource View –
- A view in which managers evaluate the resources at their disposal and manage or alter them to
achieve competitive advantage
- Thinking in terms of the financial, physical, human, and technological resources available and
ensuring that the potential strategy is compatible with those resources.
• Porter’s Value Chain analysis –
- a way to identify the elements in the product/service chain that uniquely add value
- to identify activities that represent strengths, or potential strengths, and may be opportunities for
developing competitive advantage.
- these are areas where the firm adds its unique value through product research, design, human
resources, supply chain management, process innovation, or quality management
• Porter’s Five Forces Model –
- A way to analyze the five forces in the competitive environment (1) immediate rivals (2) potential
entrants (3) customers (4) suppliers (5) substitute
- these potential competing forces are immediate rivals, potential entrants, customers, suppliers, and
substitute products
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Resource View
Value-chain analysis

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3.1 Strategy Development and Implementation
Analyze the Environment
Start with
(Identify strengths, weaknesses, opportunities and
SWOT threats. Understand the environment, customers,
Analysis industry and competitors.) Core competencies
- A set of skills, talents, and capabilities
in which a firm is particularly strong

Key Success Factors (KSFs)

Determine the Corporate Mission - Activities or factors that are key to
SWOT Analysis
(State the reason for the firm’s existence and achieving competitive advantage
- A method of determining
internal strengths and
identify the value it wishes to create)
weaknesses and external
opportunities and threats
From this
Form a Strategy process Key
(Build a competitive advantage, such a low price, Success
design or volume flexibility, quality, quick delivery, Factors are
dependability, after sales services, or broad product
lines) identified
Strategy Development Process
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4.0 Strategic Planning, Core Competencies, and Outsourcing
• Outsourcing :transferring a firm’s activities that have traditionally been internal to
external suppliers

• Outsources implies an agreement (typically a legally binding contract) with an

external organization

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https://www.youtube.com/watch?v=rYaZ57Bn4pQ&feature=youtu.be

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4.0 Strategic Planning, Core Competencies, and Outsourcing

Potential Risks or outsourcing includes:

1. A drop in quality or customer services
2. Political backlash that results from outsourcing to foreign countries
3. Negative impact on employees
4. Potential future competition
5. Increased logistic and inventory costs
Advantages Disadvantages
Cost Savings Increased logistics and inventory costs
Gaining outside expertise that comes with Loss of control (quality, delivery ,etc)
specialization
Potential Advantages and
Improving operations and service Potential creation of future competition Disadvantages of
Maintaining a focus on core competencies Negative impact on employees Outsourcing

Accessing outside technology Risks may not manifest themselves for years

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4.1 Global Operations Strategy Options
International business
- international companies have no foreign direct investments (FDI) and
make their product or service only in their home country. In other words,
they're exporters and importers. They have no staff, warehouses, or sales
offices in foreign countries
Multinational Corporation (MNC)
-A firm that has extensive involvement in international business, owning or
controlling facilities in more than one country

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4.1 Global Operations Strategy Options
International business
- A firm that engages in cross border transactions
Multinational Corporation (MNC)
- A firm that has extensive involvement in international business, owning or controlling facilities in
more than one country
Four Strategies:
1. International Strategy
- A strategy in which global markets are penetrated using exports and licenses
2. Multidomestic Strategy
- A strategy in which operating decisions are decentralized to each country to enhance local
responsiveness
3. Global Strategy
- A strategy in which operating decisions are centralized and headquarters coordinates the
standardization and learning between facilities
4. Transnational Strategy –
- A strategy that combines the benefits of global- scale efficiencies with the benefits of local
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responsiveness
4.0 Global Operations Strategy Options
High
Global Strategy Transnational Strategy
Cost Reduction Considerations  Standardized product  Move material, people, ideas
 Economies of scale across national boundaries
 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
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References
Heizer, J. Render, B. & Munson, C. (2017). Operation Management: Sustainability and Supply Chain
Management. Harlow: Pearson Education Limited

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