Page 263 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes introduction

We have described in earlier lesson that the environment in which international business competes
include the different political, economic and cultural institutions found in nations. Our focus
now shifts from the environment to the firm itself and in particular to the actions managers take
to compete more effectively as an international business. We discuss how firms can increase their
profitability by expanding their operations in foreign markets. We discuss different strategies
that firms pursue when competing internationally, pros and cons of these strategies, the various
factors that affect firms’ choice of strategy and what practice firms adopt across various national
markets.
As trade barriers fall and global markets develop many firms face a set of interrelated issues:
l z Where the production facilities should be located, should it be concentrated in a single
country or should they be dispersed around the globe, matching the type of activity with
country differences in factor costs, tariff barriers, political risk and the like in order to
minimize costs and maximize value added.

l z What should be the long-term strategic role of foreign production sites? Should the firm
abandon a foreign site if factor costs change, moving production to another favourable
location or is there value to maintain an operation at a given location even if underlying
economic conditions change?
l z Should the firm own production facilities, or it is better to outsource them to independent
vendors?

l z How should a globally dispersed supply change be managed and what is the role of
Internet-based information technology in the management of global logistics?
l z Should the firm manage global logistics itself, or should it outsource the management to
enterprises that specialize in this activity?

14.1 international Production and logistics management

In this unit attempt has been made how these two functions be performed internationally to
(1) lower the costs of value creation and (2) add value by better serving customer needs. It is also
necessary to discuss the contribution made by information technology to these activities, which
has become important in the era of internet.
Production may be defined as “the activities involved in creating a product”. The term production
denotes both service and manufacturing activities, since one can produce a service or produce
a physical product. Production can be replaced with manufacturing. Materials management is
the activity that controls the transmission of physical materials through the value chain, from
procurement through production and into distribution. Materials management includes logistics,
which refers to the procurement and physical transmission of material through supply chain,
from suppliers to customers. Manufacturing and Materials management are closely linked, since
a firms ability to perform its manufacturing function efficiently depends on a continuous supply
of high-quality material inputs, for which materials management is responsible.
The manufacturing and materials management functions of an international firm have a number
of important strategic objectives:

l z One is to lower costs. Dispersing manufacturing activities to various locations around the
globe where each activity can be performed most efficiently can lower costs. Costs can
be lowered by managing the global supply chain efficiently so as to better match supply
with demand Efficient supply chain management reduces the amount of inventory in the
system and increases inventory turnover, which means the firm has to invest less working
capital in inventory and is less likely to find excess inventory on hand that cannot be sold
and has to be written off.

258 lovely Professional university