Page 264 - DMGT545_INTERNATIONAL_BUSINESS

Unit 14: International Production and Logistics Management

l z Second strategic objective shared by manufacturing and materials management is to notes
increase product quality by eliminating defective products from both the supply chain and
the manufacturing process. The objective of reducing costs and increasing quality are not
independent of each other. The firm that improves its quality control will also reduce its
costs of value creation. Improved quality control reduces cost in three ways:
™ z Increases productivity because time is not wasted manufacturing poor-quality
products that cannot be sold, leading to a direct reduction in unit costs.

™ z Lowers rework and scrap costs.
™ z Lowers warranty costs.
Identifying the Target Audience: Even for the same product the target audience may be different
in different countries. For example, bicycles are basic means of transportation in countries like
India and the important category of consumers are small farmers, blue-collar workers and
students. In some of the advanced countries, bicycles are used for sporting and exercising and
hence the target audience is different.
The effect is to lower the costs of value creation by reducing both manufacturing and service
costs.
The main management technique that companies are utilizing to boost their Product quality is
Total Quality Management (TQM).
The growth of international standards has also focused greater attention on the importance of
product quality.

In addition to the objectives of lowering costs and improving quality, two other objectives have
particular importance in international business:
First, manufacturing and materials management must be able to accommodate demands for local
responsiveness.

Second, manufacturing and materials management must be able to respond quickly to shifts in
customer demand. In recent years time based competition has grown more important. When
consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly
to these shifts will gain an advantage.

14.1.1 Where to manufacture

An essential decision facing an international firm is where to locate its manufacturing activities to
achieve the goals of maintaining costs and improving product quality. For the form contemplating
international production, a number of factors must be considered which can be grouped under
three broad headings: Country factors, technological factors and product factors.

country factors

The following needs to be focused:

l z Difference in political economy and national culture influence the benefits, costs and risks
of doing business in a country. A firm should locate its various manufacturing activities
where the economic, political and cultural conditions.

l z Differences in factor costs, certain countries have a comparative advantage for producing
certain products.
l z Role of location externalities in influencing foreign direct investment decisions. Externalities
include the presence of an appropriately skilled labour pool and supporting industries.
For example, because of cluster of semiconductor manufacturing plants in Taiwan, a pool
of labour with experience in the semiconductor business has developed. In additions the

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