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International Business

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  1. International Business Wendy Jeffus Harvard Summer School

  2. Introduction • Chapter 16: Global Production, Outsourcing, and Logistics • Case Study: Microsoft – Outsourcing Xbox • Case Study: Kodak in Russia • Chapter 17: Global Marketing and R&D • “Global Teen Market” • MIT’s Media Lab & “Zero as a Special Price” Research by Taya Leary

  3. Wendy Jeffus Harvard Summer School Chapter 16:

  4. Hangman A D E I N C H I N A M

  5. Hangman A D E O N E A R T H M

  6. "In a globalized world, bilateral trade figures are irrelevant… The trade balance between the U.S. and China is as irrelevant as the trade balance between New York and Minnesota." • Dong Tao, Economist, UBS http://www.iht.com/articles/2006/02/08/business/trade.php

  7. Anti “Made In China” Sentiment • www.boycottmadeinchina.org • A year without 'Made in China‘ • By Sara Bongiorni http://english.people.com.cn/200602/22/eng20060222_245031.html http://husaria.files.wordpress.com/2007/08/made_in_china1.jpg; http://www.newcounterculture.com/log/graphics/china_makes_crap.jpg

  8. Sneakers • Adidas, “Made in China” • Sketchers, “Made in China” • Reebok, “Made in China” • or Indonesia. • New Balance, “Made in China,” • and “Made in the USA of imported materials.” http://www.msnbc.msn.com/id/19508453/ http://www.eukicks.com/wp-content/uploads/2007/07/nike-lebron-v-5-china-2.jpg

  9. An Example: Automobiles • The Chevrolet Equinox • is from an American company, • but is assembled in Ontario, Canada, • has an engine made in China • and a transmission from Japan. • The Toyota Sienna • hails from Japan, • but has a West Virginia-built engine and transmission • and is assembled in Indiana. • Under federal regulations, the Chevy doesn't qualify as a "domestic vehicle" but the Toyota does. http://www.msnbc.msn.com/id/19486015/ http://www.chevrolet.com/equinox/, wikipedia.org

  10. For your final project… • Consider: • Where should production activities be located? • What is the long-term strategic role of foreign production sites? • Should the firm own foreign production activities or is it better to outsource to vendors?

  11. The Limited • Supply Chain Management • 7,500 independent suppliers in 40 countries. • Once orders are received from The Limited they are delivered within 5 weeks. • Yarn from Korea • Woven & dyed in Taiwan • Zippers from Japan • Final assembly in Thailand http://www.research.ibm.com/journal/sj/464/nayak2.gif, http://www.thelimited.com/

  12. Li & Fung http://openlearn.open.ac.uk/file.php/2392/DD205_2_010i.jpg, http://www.irasia.com/listco/hk/lifung/logo4.gif

  13. http://images.forbes.com/media/2006/03/fff46.jpg

  14. Outsourcing • “Make vs. Buy” • Extreme examples: Nike & Reebok outsource all manufacturing. • Examples of outsourcing include: IT, HR, Legal services, Manufacturing, and R&D.

  15. Outsourcing http://news.bbc.co.uk/1/hi/business/6279679.stm

  16. Outsourcing… • Outsourcing is just one question to answer in terms of a firm’s overall Strategy. • Other issues include production & logistics.

  17. Strategy, Production, & Logistics • Production • the activities involved in creating a product • Both service and manufacturing activities are “produced” • Logistics • the activities that control the transmission of physical materials through the value chain • Two Goals • Lower the costs of value creation • Add value by better serving customer needs

  18. Relationship Between Quality & Costs

  19. Where to Produce • For the firm contemplating international production a number of factors must be considered • Country factors • Technological factors • Product factors

  20. Country Factors • Optimum economic, political, and cultural conditions • Externalities • Skilled labor pools • Supporting industries • Formal and informal trade barriers • Exchange rate • Note currency appreciation can transform a low-cost location into a high cost location!

  21. Country Factors: Clusters • Bangalore, the Silicon Valley of India • The Bangalore Tigers: • TCS (Tata Consultancy Services) • Infosys • WIPRO http://news.bbc.co.uk/1/hi/business/6279679.stm

  22. Country Factors: Clusters • Zhongguancun Science Park “Z-Park,” China's Silicon Valley • Lenovo • Founder Group Corp • UFIDA Software “UFSoft” http://www.businessweek.com/innovate/content/jun2007/id20070605_039465.htm

  23. Country Factors: Policy • Environment • Innovation • Chinese President Hu Jintao's plan, announced in 2006, is to turn China into an "innovation-oriented" country by 2021. • Regulation

  24. What Country Factors are Important? Water (Morocco) 20/20 (India) Oysho (China) Credit (Russia) Real E (Ukraine) Water (Nigeria) Hogwarts (U.S.) ATIS (U.S.) Vending (France) Fruit (Pakistan) Barcode (Dubai) Scooter (India) Energy (Poland) Energy (U.S.) Pace-M (Mauritius) ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.)

  25. Technological Factors • How high are fixed costs? • Minimum efficient scale • Flexible manufacturing • Reduce setup times for complex equipment • Increase machine utilization • Improve quality control • Flexible machine cells to perform a variety of operations Mass customization Low cost Product customization

  26. Ohno Taiichi • The father of the “Toyota Production System,” also known as “Lean Manufacturing” (or flexible manufacturing technology) • Ohno wrote several books about the system, the most popular of which is Toyota Production System: Beyond Large-Scale Production. • Born in China. • First an employee of the family's Toyoda Spinning • Moved to the motor company in 1943, and gradually rose through the ranks to become an executive. • In what is considered to be a punishment, (possibly because he spoke publicly about the production system), he was denied the normal executive track and was sent instead to consult with suppliers in his later career.

  27. How (comparatively) High are your Fixed Costs? Water (Morocco) 20/20 (India) Oysho (China) Credit (Russia) Real E (Ukraine) Water (Nigeria) Hogwarts (U.S.) High Fixed Costs ATIS (U.S.) Vending (France) Fruit (Pakistan) Low Fixed Costs Barcode (Dubai) Scooter (India) Energy (Poland) Energy (U.S.) Pace-M (Mauritius) ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.)

  28. Will you customize or standardize your product? Water (Morocco) 20/20 (India) Oysho (China) Credit (Russia) Real E (Ukraine) Water (Nigeria) Hogwarts (U.S.) Standardized Products ATIS (U.S.) Vending (France) Fruit (Pakistan) Customized Products Barcode (Dubai) Scooter (India) Energy (Poland) Energy (U.S.) Pace-M (Mauritius) ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.)

  29. Product Factors & Location Strategies • Two product features affect location decisions: • Value to weight ratio • Calculator, phone, ipod, vs. sugar, chemicals, paint • Does the product serves universal needs? • How different are consumer needs? • Two basic strategies • Concentrating in a centralized location and serving the world market • Decentralizing them in various regional or national locations close to major markets when opposite conditions exist

  30. Is your value-to-weight ratio comparatively high? Water (Morocco) 20/20 (India) Oysho (China) Credit (Russia) Real E (Ukraine) Water (Nigeria) Hogwarts (U.S.) High Value-to-Weight ATIS (U.S.) Vending (France) Fruit (Pakistan) Low Value-to-Weight Barcode (Dubai) Scooter (India) Energy (Poland) Energy (U.S.) Pace-M (Mauritius) ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.)

  31. Centralized Location High cost of manufacturing Low trade barriers Externalities (i.e. clusters) exist Stable exchange rates Flexible manufacturing technology Product’s value-to-weight ratio is high Product serves universal needs Decentralized Location Low cost of manufacturing High trade barriers Location externalities not important Volatile exchange rates Flexible manufacturing technology unavailable Product’s value-to-weight ratio is low Significant differences in consumer tastes and preferences exist between nations Manufacturing Location

  32. Will you centralize or decentralize manufacturing? Water (Morocco) 20/20 (India) Oysho (China) Credit (Russia) Real E (Ukraine) Water (Nigeria) Hogwarts (U.S.) Centralize Manufacturing ATIS (U.S.) Vending (France) Fruit (Pakistan) Decentralize Manufacturing Barcode (Dubai) Scooter (India) Energy (Poland) Energy (U.S.) Pace-M (Mauritius) ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.)

  33. Centralized vs. Decentralized Production

  34. Make or Buy Decisions • Should a firm make or buy the component parts that go into their final product? • Issues to consider: • Costs • Does a more efficient producer exist? • Trust • Is there a producer you trust? How high is the need for trust? • Improved scheduling • Does the control make scheduling easier or does it make things more cumbersome to manage? • Offsets • Example: Before Air India places a large order with Boeing, the Indian government might ask Boeing to push some of the subcontracting work to Indian manufacturers.

  35. Strategic Alliances with Suppliers • Long-term relationships with suppliers: • Kodak & Cannon • Canon builds photocopiers for sale by Kodak • Apple & Sony • Sony builds laptop computers for Apple • Microsoft & Flextronics • Flextronics builds the Xbox for Microsoft

  36. Just-In-Time Inventory Hold inventory just when you need it (not before) – increases profitability, if things run smoothly. But, no buffer stock of inventory. Solutions include: relationships with more than one supplier & improved information technologies.

  37. ISO 9000 http://en.wikipedia.org/wiki/ISO_9001; http://www.cfaindustries.com/images/iso.gif; http://www.economia.gob.mx/pics/p/p174/ISO9000.jpg • The EU requires that all products be certified under the ISO 9000 quality standard, which includes: • a set of procedures that cover all key processes in the business; • monitoring processes to ensure they are effective; • keeping adequate records; • checking output for defects, with appropriate and corrective action where necessary; • regularly reviewing individual processes and the quality system itself for effectiveness; and • facilitating continual improvement • November 2008 – ISO 9001

  38. What are the “right” answers? Water (Morocco) 20/20 (India) Oysho (China) Credit (Russia) Real E (Ukraine) Water (Nigeria) • Good Question! Hogwarts (U.S.) ATIS (U.S.) Vending (France) Fruit (Pakistan) Barcode (Dubai) Scooter (India) Energy (Poland) Energy (U.S.) Pace-M (Mauritius) ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.)

  39. Case Assignments • Case Study: Microsoft – Outsourcing Xbox • Case Study: Kodak in Russia

  40. By Elissa Moses The Global Teen Market

  41. The Global Teen Market • Elissa Moses • 1995- Observations • Increasing teen cultural homogenization • 2004- Observations • New Segments? • New Values? • New Dilemmas?

  42. Is There A New World Teen?& What Do They Look Like?

  43. How Many? • Population 15-19-years-olds: millions . . . • India 101.3 - Russia 11.7 • China 97.7 - Mexico 10.7 • Indonesia 22.3 - Vietnam 8.5 • US 19.7 - Philippines 8.4 • Brazil 17.8 - Japan 7.7 • Under 25: 50% Latin America, 66% of Asia

  44. Core Value Segments Boot Straps 14% Resigned 14% Upholders 16% Thrills & Chills 17% Quiet Achievers 15% World Savers 12%

  45. Thrills & ChillsGlobal Incidence 18% Driven by Pleasure • Fun• Friends• Irreverence • Sensation Brazil: 17%USA: 28% W. Europe: 29% Japan: 24% China: 5%

  46. Boot StrapsGlobal Incidence 14% Driven by Bold Ambition • Achievement• Individualism• Optimism • Determination • Power Brazil:15%USA:26% W. Europe:8% Japan:4% China:8%

  47. Quiet AchieversGlobal Incidence 15% • Success • Anonymity• Anti-Individual • Social Optimism Brazil:12%USA:10% W. Europe:7% Japan:9% China:44% Driven by: Success with Humility

  48. ResignedsGlobal Incidence 14% Driven by: m o m e n t s • Friends • Fun• Family • Low Expectations Brazil:8%USA:9% W. Europe:21% Japan:38% China:3%

  49. UpholdersGlobal Incidence 16% Driven by: Tradition • Family • Custom• Tradition • Respect Individuals Brazil:10%USA:7% W. Europe:10% Japan:7% China:29%