MGT470 Module 5 -Discussion

Assignment 2: Discussion Question

Part 1: Discuss the strategic value of personnel training and development. What are the implications for the MNC?

Part 2: Look back on your work for the assignments in this course and reflect on the problems and recommendations related to the organizations expanding their operations globally. How do the risk assessments and recommendations for the global organizations compare to domestic organizations?

Module 5

Module 5 Overview

Provides the learning outcomes on which the readings and assignments for this module are based.

Examine the interactions between the sociological, technological, economical, ecological, political, and legal forces in the management of a global enterprise.

Examine the role and impact of cultural influences in a variety of corporate management models.

Analyze global corporate models and discuss their appropriateness relative to the vision and mission of the corporation.

Analyze the challenges of regional economic integration within the context of global management.

Evaluate trends in global human resource management within the context multicultural organizations.

Evaluate global marketing strategy implementation, product development, and operations on creating a sustainable competitive advantage.

Cultural sensitivity is key when you are marketing to a global audience. For instance, it doesn’t make sense to place an advertisement of a soda with ice cubes in European markets, since it is rarely served that way.

Before you start reading the online lectures, please complete this module’s reading assignment.

In Module 4 you explored a variety of issues related to global marketing and product development. You learned strategies for managing cultural differences that are essential to the success of international marketing efforts. You delved into the realm of strategic communication, and how to formulate a communication strategy and design a communication plan. You also found out about the benefits and challenges of implementing MRP/ERP systems in global operations management.

In this module, we’ll investigate issues concerning human resource management (HRM) in the context of the global business environment. We’ll look at how effective HRM improves multicultural communication, and thus organizational performance.

Strategic Role of IHRM (1 of 6)

Many factors — including the Internet — have led to the formation of a new global economy. Over the past weeks, we’ve discussed how increased globalization has resulted in the expansion of:

Multinational investments

International telecommunications

Free market trade

Information exchanges

International alliances

In Module 4, we examined the internal business environment. We saw how factors such as stress due to organizational change would become apparent in the culture and climate. These factors could be addressed through your organization’s human resource policies and practices.

Globalization has brought significant changes to HRM, introducing such issues as repatriation, international law, cultural differences, HCN and TCN employees, compensation and benefits — highlighting the importance of having an integrated international HR system.

These changes present an interesting and challenging operational environment for you as a human resource professional!

Distinguishes the difference between IHRM and HRM. In international HRM, there are three national or country categories: the parent country where the firm is headquartered; the host country where a subsidiary may be located; and other countries which may be the source of labor, finance, or research and development. In Domestic HRM, there is only one country. In International HRM, there are three types of employees: parent-country nationals, host-coutnry nationals, and third-country nationals. Domestic HRM is involved with employees within only one national boundary.

Strategic Role of IHRM (2 of 6)

Use the ProQuest database to read articles.

Measuring Success in IHRM Systems

The scale of global operations requires that you practice effective management control systems and audit techniques. These are key components of the organizational strategy and can help you achieve competitive advantage.

Also in Module 3, we looked at four systems used by management to measure organizational performance:

Economic Value Added (EVA)

Activity-Based Costing/Management (ABC/ABM)

Process Value Analysis (PVA)

Balanced Scorecard (BSC)

Each system addresses aspects of human resource management, and the need to include HR measurement in the control system. Knowledge and practice of these measurement techniques can help you manage the complexities of the multinational business environment.

Strategic Role of IHRM (2 of 6)

Use the ProQuest database to read articles.
Measuring Success in IHRM Systems
The scale of global operations requires that you practice effective management control systems and audit techniques. These are key components of the organizational strategy and can help you achieve competitive advantage.
Also in Module 3, we looked at four systems used by management to measure organizational performance:
Economic Value Added (EVA)
Activity-Based Costing/Management (ABC/ABM)
Process Value Analysis (PVA)
Balanced Scorecard (BSC)
Each system addresses aspects of human resource management, and the need to include HR measurement in the control system. Knowledge and practice of these measurement techniques can help you manage the complexities of the multinational business environment.

Strategic Role of IHRM (2 of 6)
Use the ProQuest database to read articles.
Measuring Success in IHRM Systems
The scale of global operations requires that you practice effective management control systems and audit techniques. These are key components of the organizational strategy and can help you achieve competitive advantage.
Also in Module 3, we looked at four systems used by management to measure organizational performance:
Economic Value Added (EVA)
Activity-Based Costing/Management (ABC/ABM)
Process Value Analysis (PVA)
Balanced Scorecard (BSC)
Each system addresses aspects of human resource management, and the need to include HR measurement in the control system. Knowledge and practice of these measurement techniques can help you manage the complexities of the multinational business environment.

Strategic Role of IHRM (3 of 6)

Quote: People are our greatest asset; is becoming the strategy mantra of the new millennium. But when it comes time for implementation, organizations are faced with a bewildering array of creative ideas—many which seem vague or touchy-feely, and don’t have an obvious link to the bottom line.

Integrating HR Strategies with Organizational Goals

As a global manager, it’s essential to integrate HR strategies with the goals of your organization. Naturally, the management controls and strategies you implement will depend on the degree to which your organization promotes innovation, quality, and cost reduction.

The complexities of the global environment mean that you need to assess HR practices and link HR performance measurement to your organization’s vision for international outcomes. This strategic approach can significantly contribute to the organization’s competitive advantage, thus enhancing profits!

Welborne and Andrews (1996) conducted research into the relationship between effective management practices and organizational performance. They studied 136 initial public offering (IPO) companies, both small and large, from numerous industries. Five of the IPOs operated in foreign countries.

The objective was to determine the impact of effective HRM on the organizational ability to survive. Two scales were developed: one measured the value of human resources in the organization; the other measured the reward system.

The results of the study showed a positive correlation between the reward and human resource value scales to organizational ability to survive.

Strategic Role of IHRM (4 of 6)

Technologically similar

production

lines achieve gains in both productivity and product quality when innovative HRM practices

are introduced.

Comparing U.S. and Japanese HRM Practices

Let’s consider another study. Ichniowski and Shaw (1999) conducted research on 41 steel production lines in the U.S. and Japan, to determine if different HRM practices affected the production levels of workers.

Here’s what they found:

Japanese lines were 5% more productive than U.S. lines after accounting for differences in quantity and quality.

U.S. firms that adopted only one or two innovative practices, such as quality circles or information sharing, realized only modest performance gains.

U.S. lines that adopted a full complement of HR practices comparable to those used by the Japanese were as productive as Japanese lines.

Both Japanese and United States lines with innovative HR practices were approximately 7% more productive than U.S. companies implementing traditional HR practices.

These studies show that organization characteristics, rather than cultural or national differences, affect performance outcomes. Clearly, it’s important to implement effective HRM practices and measurement — whether you’re managing a multinational firm or a domestic company. The need to identify when effective management practices transcend national borders.

Strategic Role of IHRM (5 of 6)

Click to read various articles on www.expatica.com and www.netexpat.com

Managing International Employees

As an HR manager in the global business environment, you may be dealing with a number of different types of employees. Let’s consider them here.

Short-Term Transferees: Employees temporarily assigned to work abroad, usually for a period of less than a year.

Expatriates: Employees transferred from their home country to work for a period of time in another country. They are also known as transferees, international assignees, or international staff. Expatriates may also be called parent country nationals (PCNs) if their home country is that of the parent company (e.g., an American working for Ford in Brazil).

Glopats: Globe-trotting international employees who complete one foreign assignment after another. They may also be called international cadre or globalists.

Third Country Nationals (TCNs): Transferred employees who are not citizens of the country where they are working. As well, the country of the corporation they were hired by is not their own country of origin (e.g., a Canadian national, working in the Hong Kong subsidiary of a U.S. company). Various laws and treaties govern which country’s labor laws and taxation apply to third country nationals.

Host Country Nationals (HCNs): Employees who are citizens of a country in which an organization’s branch or plant is located, but the organization is headquartered in another country. Some of the legal issues that arise in connection with employment of HCNs include determining which country’s labor laws and tax laws are applicable.

Strategic Role of IHRM (6 of 6)

Training International Employees

Many training issues will arise when you’re dealing with diverse types of employees! For example, expatriates will likely benefit from cultural awareness training in order to fit into their new working environment comfortably.

Similarly, HCN and TCN personnel may need training and development to enhance their leadership and motivational skills.

As well, the dynamic nature of the global business environment requires a flexible and appropriately trained management team — one that can make strategic decisions.

There are numerous approaches available for creating effective HR development programs — most requiring additional resources such as money, trainers, and facilities. An international training program should focus on your organization’s strategic objectives and form an integral part of the strategic plan.

To be effective, training should be adjusted to the learning and communication styles of the local participants. Taking a universal approach – one size fits all – may not give the results you’re looking for. The following considerations should be kept in mind: 1. Mismatches between the learner’s culture at work and the culture of the trainers and/or other learners. 2. Marking training more effective. 3. Understanding the learner’s culture. 4. Assumptions trainers and consultants make. 5. Influences of culture that affect the learning process. 6. Risking of ignoring cultural issues. 7. Bridging the gap. 8. Cultural variables in the global training room.

HR Executive Leadership (1 of 4)

The 21st Century HR Leader

You’ve learned about the strategic role IHRM plays in the operations of an international organization. Now, we’ll discuss the roles and responsibilities of HR executive leadership.

For over a decade, experts have studied the role of the HR leader, and the concept of the HR leader being a full strategic partner in the organization. While traditional responsibilities of workforce planning remain, in order to meet the challenges of the 21st century, your role may go well beyond recruiting and personnel management activities.

What are essential HR competencies for the future?

Several studies suggest the new HR leader should shape business strategies, lead and synergize change, champion employee commitment and participation, and serve as an organizational architect.

To meet the needs of the future business environment, we are seeing the role of the HR leader in transition. HR generalists are becoming HR specialists. Organizations are moving from a control model of operation to one of mutual commitment between employees and the organization – in other words, from transactional HR to transformational HR.

HR Executive Leadership (2 of 4)

Quote: Real leadership is often more quiet than heroic. It is connected, involved, and engaged. It is about teamwork and taking the long-term perspective, building an organization slowly, carefully, and collectively.

Transactional HR versus Transformational HR

In Module 3, we talked about the CEO as transformational leader, one who successfully leads organizational change. In HRM, you have this same potential. Traditionally, HR has been transactional in nature — dealing with administrative activities that must be completed on a regular basis to accomplish the needs of the organization.

Of course, functions such as administering benefit plans and performance reviews must still be carried out. But as discussed in the previous lecture on Web-based HR, many activities have been automated, and in some cases, turned over to employee self-service.

Increasingly, we see transformational activities taking place in HR — those requiring strategic thinking and planning. An example would be designing a cultural awareness training program to help your multinational employees deal with cultural differences and the conflicts that might arise from them.

What are characteristics of transformational HR?

Expanded obligations to employees

Individual attention and rewards for improving organizational performance

Shared goals and values

Absence of layoffs

Improved training program development

Joint planning and problem solving

Broadly defined job responsibilities

Ambitious performance expectation standards

More direct involvement of employees in decision-making processes

Compensation and evaluation policies based on skill acquisition (Bass & Avolio, 1994; Walton, 1985)

The transformation of an organization, and the HR function in particular, means changing the mindset of management and employees — requiring inspirational leadership.

HR Executive Leadership (3 of 4)

The Multifactor Leadership Questionnaire ( the MLQ 5X (short) was developed by Bass and Avolio in 1997 to measure three different leadership styles: 1.Transformational Leadership 2. Transactional Leadership 3. Laissez-faire (non-leadership)

Current Research on HR Leadership Attributes

There appears to be little research on actual leadership behaviors of HR leaders. What we know today is primarily a reflection of what HR leaders and their senior executives believe to be the HR leadership competencies of the future.

One recent attempt to explore leadership attributes of HR executives was a research study conducted by Dr. Roth in 2003, where senior HR executives from Fortune 1000, Forbes 257, and other high-performance organizations were surveyed. Roth included 58 senior HR executives as part of the study, representing public, private, and nonprofit organizations from various industries.

The study investigated the relationships between transformational leadership attributes of HR executives and Web-based HR services (such as those discussed in the previous lecture).

The question to be addressed: would those HR executives who are more transformational in leadership style likely to be more successful in transforming their respective HR services?

The HR executives were asked to respond to an online survey indicating their:

Organizational roles

HR experience levels

Information technology (IT) experience levels

Education levels

Involvement in Internet-based system implementations

The primary data was obtained using the MLQ-5X instrument from assessments of the impact of Web-based HR information systems and self-reports of individual leadership styles.

IHR Information Management (1 of 2)

Links to ALLEGRO: an example of an e-HR Web-based solution, and the U.S. Department of Health and Human Services National Institutes of Health (NIS) HR portal

Transforming HRM through Technology

Over the last twenty years, emerging technologies promised to streamline corporate information and increase competitive positioning. Extension of enterprise resource planning (ERP) systems in the 1990s, business process re-engineering in the 1980s, and the Internet have all combined to become the cornerstone of the e-business transformation in the 21st century.

The Internet and self-service Web-based HR applications alter the way you’re able to provide personnel services to employees in your organization. Web-based technology, such as the HR information portal, features open access to personalized information and online transaction capabilities.

Benefits of Web-based HR applications:

Empowers employees by allowing them access to HR products and services at any time, from anywhere, by using a Web browser.

Enhances communications with employees by providing timely and accurate access to information on benefits, services, and job postings.

Gives employees and managers immediate access to employee data and organizational plans and programs.

Facilitates annual assessment actions and other personnel management activities performed by managers.

Provides a delivery mechanism for enterprise-wide — yet customer-specific and user-friendly — recruiting and staffing.

These capabilities have revolutionized the traditional employer-employee relationship, making personnel management a more timely and collaborative activity within your organization.

Given the complexity of the global environment, the human capital management — enabled by Web-based information management — is an integral link between strategy and organizational performance.

Multicultural Communication and Conflict (1 of 2)

Graphic depicting U.S. slang terms that could cause confusion to those from other countries.

Building Cultural Competence

Perhaps one of the most important aspects of human capital management for you as a global manager is building cultural competence — the ability to facilitate communications across cultures and resolve conflicts in a cross-cultural environment.

A successful global organization requires effective communication between management, employees, clients, and suppliers when engaged in numerous activities:

Leading

Negotiating

Consulting

Exchanging ideas

Problem solving

Forming teams

Unfortunately, communication is not always effective, due to lack of understanding about other cultures and culture conditioning. Conflict is often caused by:

Nonverbal cues such as gestures or facial expressions

Cultural biases and stereotypes

Disagreements about religion and politics between culturally diverse groups of people

All cultures have unique verbal and nonverbal communication systems. These modes of expression are deeply rooted in the values and customs of the communicator. Words that are spoken in one language, and then translated into another, may be nowhere close in meaning to the original communication!

Multicultural Communication and Conflict (2 of 2)

One Model for Managing Cultural Differences

Nancy J. Adler (2002) talks about her model for managing the impact of cultural differences within an organization. There are:

“…three fundamental steps: cross-cultural situation description, cultural interpretation, and cultural creativity. As a global manager you first need to define problems from the perspective of all the cultures involved. Then you need to analyze the patterns that make each culture’s behavior logical within its own perspective. Only then can you devise solutions that foster organizational effectiveness and productivity without violating the norms of any culture involved.”

Adler, N. J. (2002). International dimensions of organizational behaviour (4th ed.). Mason, OH: Thomson.

The objective is to devise solutions to problems that stem from cultural differences. Building cultural awareness will serve to enhance cross-cultural communication and facilitate organizational-wide learning. Cultural diversity can become a core competence of a global organization.

You can help to build cultural diversity within your organization so that it benefits management, employees, and your clients. Cultural competence will be an asset in strategic alliances, joint ventures,

Summary

This brings us to the end of Module 5!

This module, you investigated issues concerning Human Resource Management (HRM) in the context of the global business environment. You looked at how effective HRM improves multi-cultural communication, and thus organizational performance.and global cooperative efforts

https://digitalbookshelf.argosy.edu/#/books/1259669432/cfi/6/48!/4/4/58/2@0:23.2

Module 5 online lectures

From your course text, Global Business Today,9th read the following:

Global

Production

, Outsourcing and

Logistics

Global Marketing and R & D

Global Human Resource Management

image

LO 15-1

Explain why global production and

supply chain management

decisions are of central importance to many global companies.

Production

Activities involved in creating a product.

Supply Chain Management

The integration and coordination of

logistics

purchasing

, operations, and market channels activities from raw material to the end-customer.

Page 422images Outsourcing

The Global Production and Supply Chain Management chapter tackles a number of issues related to production,

make-or-buy decision

s, sourcing, and logistics. Outsourcing is one of the most commonly discussed topics in news media and on the Internet related to production and supply chains. In effect, the word outsourcing sometimes even creates “us against them” mentality (i.e., should the company out-source production or other activities to entities outside its country borders, or should it use only domestic operations?). Often, the answer is more of a political issue than a strategic resource issue. To stay competitive, companies typically opt for the best value to infuse in their supply chains. The “Outsourcing” section on globalEDGE ensures that you have an updated set of data and knowledge on outsourcing (http://globaledge.msu.edu/global-resources/outsourcing). For example, did you know that there is an International Association of Outsourcing Professionals? Do you know what it does, its goals, and how many members it has worldwide?

The production and supply chain management functions (purchasing, logistics) of an international firm have a number of important strategic objectives.1 One is to ensure that the total cost of moving from raw materials to finished goods is as low as possible for the value provided to the end-customer. Dispersing production activities to various locations around the globe where each activity can be performed most efficiently can lower the total costs. Costs can also be cut by managing the global supply chain efficiently so as to better match supply and demand. This involves both coordination and integration of the supply chain functions inside a global company (e.g., purchasing, logistics, production and operations management) and across the independent organizations (e.g., suppliers) involved in the chain. For example, efficient logistics practices reduce the amount of inventory in the system, increases inventory turnover, and facilitates the appropriate

transportation

modes being used. Maximizing purchasing operations enhance the order fulfillment and delivery, outsourcing initiatives, and supplier selections. Efficient operations ensure that the right location of production is made, establishes which production priorities should be stressed, and facilitates a high-quality outcome of the supply chain.

Another strategic objective shared by production and supply chain management is to increase product (or service) quality by establishing process-based quality standards, and eliminating defective raw material, component parts, and products from the manufacturing process and the supply chain.2 In this context, quality means reliability, implying that ultimately the finished product has no defects and performs well. These quality assurances should be embedded in both the upstream and downstream portions of the global supply chain. The

upstream supply chain

includes all of the organizations (e.g., suppliers) and resources that are involved in the portion of the supply chain from raw materials to the production facility (this is sometimes also called the inbound supply chain). The

downstream supply chain

includes all of the organizations (e.g., wholesaler, retailer) that are involved in the portion of the supply chain from the production facility to the end-customer (this is also sometimes called the outbound supply chain). Through the upstream and downstream chains, the objectives of reducing costs and increasing quality are not independent of each other. As illustrated in Figure 15.1, the firm that improves its quality control will also reduce its costs of value creation. Improved quality control reduces costs by:

Purchasing

The part of the supply chain that includes the worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services.

Logistics

The part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing.

Upstream Supply Chain

The portion of the supply chain from raw materials to the production facility.

Downstream Supply Chain

The portion of the supply chain from the production facility to the end-customer.

Page 423

15.1 FIGURE

The Relationship between Quality and Costs

Source: From “What Does Product Quality Really Mean?” by David A. Gandin, MIT Sloan Management Review, Fall 1984. Copyright ©1984 by Massachusetts Institute of Technology. All rights reserved. Distributed by Tribune Media Services. Reprinted with permission.

• Increasing productivity because time is not wasted producing poor-quality products that cannot be sold, leading to a direct reduction in unit costs.

• Lowering rework and scrap costs associated with defective products.

• Reducing the warranty costs and time associated with fixing defective products.

The effect is to lower the total costs of value creation by reducing both production and after-sales service costs. This creates an increased overall reliability in global production and supply chain management.

The principal tool that most managers now use to increase the reliability of their product offering is the

Six Sigma

quality improvement methodology. Six Sigma is a direct descendant of the

total quality management (TQM)

philosophy that was widely adopted, first by Japanese companies and then American companies, during the 1980s and early 1990s.3 The TQM philosophy was developed by a number of American consultants such as W. Edward Deming, Joseph Juran, and A. V. Feigenbaum.4 Deming identified a number of steps that should be part of any TQM program. He argued that management should embrace the philosophy that mistakes, defects, and poor-quality materials are not acceptable and should be eliminated. He suggested that the quality of supervision should be improved by allowing more time for supervisors to work with employees and by providing them with the tools they need to do the job. Deming recommended that management should create an environment in which employees will not fear reporting problems or recommending improvements. He believed that work standards should not only be defined as numbers or quotas, but also include some notion of quality to promote the production of defect-free output. He argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company.

Six Sigma, the modern successor to TQM, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. Six Sigma programs have been adopted by several major corporations, such as Motorola, General Electric, and Honeywell. Sigma comes from the Greek letter that statisticians use to represent a standard deviation from a mean; the higher the number of “sigmas,” the smaller the number of errors. At six sigmas, a production process would be 99.99966 percent accurate, creating just 3.4 defects per million units. While it is almost impossible for a company to achieve such perfection, Six Sigma quality is a goal to strive toward. Increasingly, companies are adopting Six Sigma programs to try to boost their product quality and productivity.5

Total Quality Management (TQM)

Management philosophy that takes as its central focus the need to improve the quality of a company’s products and services.

Six Sigma

Statistically based methodology for improving product quality.

Page 424The growth of international standards has also focused greater attention on the importance of product quality. In Europe, for example, the European Union requires that the quality of a firm’s manufacturing processes and products be certified under a quality standard known as

ISO 9000

before the firm is allowed access to the EU marketplace. Although the ISO 9000 certification process has proved to be somewhat bureaucratic and costly for many firms, it does focus management attention on the need to improve the quality of products and processes.6

In addition to lowering costs and improving quality, two other objectives have particular importance in international businesses. First, production and supply chain functions must be able to accommodate demands for local responsiveness. As we saw in Chapter 12, demands for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, distribution channels, and host-government demands. Demands for local responsiveness create pressures to decentralize production activities to the major national or regional markets in which the firm does business or to implement flexible manufacturing processes that enable the firm to customize the product coming out of a factory according to the market in which it is to be sold.

Second, production and supply chain management must be able to respond quickly to shifts in customer demand. In recent years, time-based competition has grown more important.7 When consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly to these shifts will gain an advantage.8 As we shall see, both production and supply chain management play critical roles here.

Where to Produce

An essential decision facing an international firm is where to locate its production activities to best minimize costs and improve product quality. For the firm contemplating international production, a number of factors must be considered. These factors can be grouped under three broad headings: country factors, technological factors, and production factors.9

COUNTRY FACTORS We reviewed country-specific factors in some detail earlier in the book. Political and economic systems, culture, and relative factor costs differ from country to country. In Chapter 6, we saw that due to differences in factor costs, some countries have a comparative advantage for producing certain products. In Chapters 2, 3, and 4 we saw how differences in political and economic systems—and national culture—influence the benefits, costs, and risks of doing business in a country. Other things being equal, a firm should locate its various manufacturing activities where the economic, political, and cultural conditions—including relative factor costs—are conducive to the performance of those activities (for an example, see the accompanying Management Focus, which looks at the Philips investment in China). In Chapter 12, we referred to the benefits derived from such a strategy as location economies. We argued that one result of the strategy is the creation of a global web of value creation activities.

Also important in some industries is the presence of global concentrations of activities at certain locations. In Chapter 8, we discussed the role of location externalities in influencing foreign direct investment decisions. Externalities include the presence of an appropriately skilled labor pool and supporting industries.10 Such externalities can play an important role in deciding where to locate production activities. For example, because of a cluster of semiconductor manufacturing plants in Taiwan, a pool of labor with experience in the semiconductor business has developed. In addition, the plants have attracted a number of supporting industries, such as the manufacturers of semiconductor capital equipment and silicon, which have established facilities in Taiwan to be near their customers. This implies that there are real benefits to locating in Taiwan, as opposed to another location that lacks such externalities. Other things being equal, the externalities make Taiwan an attractive location for semiconductor manufacturing facilities. The same process is now under way in two Indian cities, Hyderabad and Bangalore, where both Western and Indian information technology companies have established operations. For example, locals refer to a section of Hyderabad as “Cyberabad,” where Microsoft, IBM, Infosys, and Qualcomm (among others) have major facilities.

ISO 9000

Certification process that requires certain quality standards must be met.

images test PREP

Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.

images LO 15-2

Explain how country differences, production technology, and production factors all affect the choice of where to locate production activities.

Page 425management FOCUS

Philips in China

The Dutch consumer electronics, lighting, semiconductor, and medical equipment conglomerate Philips Electronics NV has been operating factories in China since 1985, when the country first opened its markets to foreign investors. When Philips initially entered China, it had dreams of Chinese consumers snapping up its products by the millions. However, the company soon found out that the reason it liked China— low wage rates—also meant that few Chinese workers could afford to buy its products. So Philips hit on a new strategy: Keep the factories in China, but export most of the goods to developed nations.

The initial attractions of China to Philips included low wage rates, an educated workforce, a robust Chinese economy, a stable exchange rate that is linked to the U.S. dollar through a managed float, a rapidly expanding industrial base that includes many other Western and Chinese companies that Philips uses as suppliers, and easier access to world markets given China’s entry into the WTO in 2001. By the early 2000s, Philips employed some 30,000 people in China either directly or indirectly at joint ventures. Philips exported nearly two-thirds of the $7 billion in products that its Chinese factories were producing. At this point, 25 percent of everything that Philips made worldwide came from China.

As time passed, Philips started to give its Chinese factories a greater role in product development. In the TV business, for example, basic development used to occur in Holland but was moved to Singapore in the early 1990s. In the early 2000s, Philips transferred TV development work to a new R&D center in Suzhou near Shanghai. Similarly, basic product development work on LCD screens for cell phones was shifted to Shanghai. In 2011, in a testament to just how important China had become to Philips, the company moved the global headquarters of its domestic appliances business from Amsterdam to Shanghai. By this point, China was far more than just an export base. Demand in China had accelerated rapidly, and the country was now the second-largest market for Philips.

Some worry that Philips and companies pursuing a similar strategy might be overdoing it. Too much dependence on China could be dangerous if political, economic, or other problems disrupt production and the company’s ability to supply global markets. Some observers believe that it might be better if the manufacturing facilities of companies were more geographically diverse as a hedge against problems in China. These fears have taken on added importance recently as labor costs have accelerated in China due to labor shortages. According to estimates, labor costs have been growing by 20 percent per year since the 2000s. On the other hand, there is a silver lining to this cloud: Chinese consumption of many of the products that Philips makes there is now rising rapidly.

Employees work at a Philips stand during a trade show in Shanghai, China.

Sources: B. Einhorn, “Philips’ Expanding Asia Connections,” BusinessWeek Online, November 27, 2003; K. Leggett and P. Wonacott, “The World’s Factory: A Surge in Exports from China Jolts the Global Industry,” The Wall Street Journal, October 10, 2002, p.A1; J. Blau, “Philips Tears Down Eindhoven R&D Fence,” Research Technology Management 50, no. 6 (2007), pp. 9–11; L. Baijia, “Philips Elevates China’s Market Status,” China Daily, May 26, 2011; and information on Philips NV website, www.philips.com/shared/assets/Downloadablefile/Investor/2011_05_26_Frans_van_Houten_Morgan_Stanley .

Of course, other things are not equal. Differences in relative factor costs, political economy, culture, and location externalities are important, but other factors also loom large. Formal and informal trade barriers obviously influence location decisions (see Chapter 7), as do transportation costs and rules and regulations regarding foreign direct investment (see Chapter 8). For example, although relative factor costs may make a country look attractive as a location for performing a manufacturing activity, regulations prohibiting foreign direct investment may eliminate this option. Similarly, a consideration of factor costs might suggest that a firm should source production of a certain component from a particular country, but trade barriers could make this uneconomical.

Another important country factor is expected future movements in its exchange rate (see Chapters 10 and 11). Adverse changes in exchange rates can quickly alter a country’s attractiveness as a manufacturing base. Currency appreciation can transform a low-cost location into a high-cost location. Many Japanese corporations had to grapple with this problem during the 1990s and early 2000s. The relatively low value of the yen on foreign exchange markets between 1950 and 1980 helped strengthen Japan’s position as a low-cost location for manufacturing. More recently, however, the yen’s steady appreciation against the dollar increased the dollar cost of products exported from Japan, making Japan less attractive as a manufacturing location. In response, many Japanese firms moved their manufacturing offshore to lower-cost locations in East Asia.

Page 426TECHNOLOGICAL FACTORS The type of technology a firm uses to perform specific manufacturing activities can be pivotal in location decisions. For example, because of technological constraints, in some cases it is necessary to perform certain manufacturing activities in only one location and serve the world market from there. In other cases, the technology may make it feasible to perform an activity in multiple locations. Three characteristics of a manufacturing technology are of interest here: the level of fixed costs, the

minimum efficient scale

, and the flexibility of the technology.

Fixed Costs As noted in Chapter 12, in some cases the fixed costs of setting up a production plant are so high that a firm must serve the world market from a single location or from very few locations. For example, it now costs up to $5 billion to set up a state-of-the-art plant to manufacture semiconductor chips. Given this, other things being equal, serving the world market from a single plant sited at a single (optimal) location can make sense.

Conversely, a relatively low level of fixed costs can make it economical to perform a particular activity in several locations at once. This allows the firm to better accommodate demands for local responsiveness. Manufacturing in multiple locations may also help the firm avoid becoming too dependent on one location. Being too dependent on one location is particularly risky in a world of floating exchange rates. Many firms disperse their manufacturing plants to different locations as a “real hedge” against potentially adverse moves in currencies.

Minimum Efficient Scale

The concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant.11 However, beyond a certain level of output, few additional scale economies are available. Thus, the “unit cost curve” declines with output until a certain output level is reached, at which point further increases in output realize little reduction in unit costs. The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. This is the scale of output a plant must operate to realize all major plant-level scale economies (see Figure 15.2).

The implications of this concept are as follows: The larger the minimum efficient scale of a plant relative to total global demand, the greater the argument for centralizing production in a single location or a limited number of locations. Alternatively, when the minimum efficient scale of production is low relative to global demand, it may be economical to manufacture a product at several locations. For example, the minimum efficient scale for a plant to manufacture personal computers is about 250,000 units a year, while the total global demand exceeds 35 million units a year. The low level of minimum efficient scale in relation to total global demand makes it economically feasible for companies such as Dell and Lenovo to assemble PCs in multiple locations.

Minimum Efficient Scale

The level of output at which most plant-level scale economies are exhausted.

15.2 FIGURE

Typical Unit Cost Curve

Page 427As in the case of low fixed costs, the advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations.

Flexible Manufacturing and

Mass Customization

Central to the concept of economies of scale is the idea that the best way to achieve high efficiency, and hence low unit costs, is through the mass production of a standardized output. The trade-off implicit in this idea is between unit costs and product variety. Producing greater product variety from a factory implies shorter production runs, which in turn implies an inability to realize economies of scale. That is, wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. According to this logic, the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes.

This view of production efficiency has been challenged by the rise of flexible manufacturing technologies. The term

flexible manufacturing technology

—or

lean production

, as it is often called—covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process.12 Flexible manufacturing technologies allow the company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. Research suggests the adoption of flexible manufacturing technologies may actually increase efficiency and lower unit costs relative to what can be achieved by the mass production of a standardized output while enabling the company to customize its product offering to a much greater extent than was once thought possible. The term

mass customization

has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible—low cost and product customization.13 Flexible manufacturing technologies vary in their sophistication and complexity.

One of the most famous examples of a flexible manufacturing technology, Toyota’s production system, has been credited with making Toyota the most efficient auto company in the world. (Despite Toyota’s recent problems with sudden uncontrolled acceleration, the company continues to be an efficient producer of high-quality automobiles, according to J.D. Power, which produces an annual quality survey. Toyota’s Lexus models continue to top J.D. Power’s quality rankings.14) Toyota’s flexible manufacturing system was developed by one of the company’s engineers, Taiichi Ohno. After working at Toyota for five years and visiting Ford’s U.S. plants, Ohno became convinced that the mass production philosophy for making cars was flawed. He saw numerous problems with mass production.

First, long production runs created massive inventories that had to be stored in large warehouses. This was expensive, both because of the cost of warehousing and because inventories tied up capital in unproductive uses. Second, if the initial machine settings were wrong, long production runs resulted in the production of a large number of defects (i.e., waste). Third, the mass production system was unable to accommodate consumer preferences for product diversity.

In response, Ohno looked for ways to make shorter production runs economical. He developed a number of techniques designed to reduce setup times for production equipment (a major source of fixed costs). By using a system of levers and pulleys, he reduced the time required to change dies on stamping equipment from a full day in 1950 to three minutes by 1971. This made small production runs economical, which allowed Toyota to respond better to consumer demands for product diversity. Small production runs also eliminated the need to hold large inventories, thereby reducing warehousing costs. Plus, small product runs and the lack of inventory meant that defective parts were produced only in small numbers and entered the assembly process immediately. This reduced waste and helped trace defects back to their source to fix the problem. In sum, these innovations enabled Toyota to produce a more diverse product range at a lower unit cost than was possible with conventional mass production.15

Flexible Manufacturing Technology

Manufacturing technology designed to improve job scheduling, reduce setup time, and improve quality control.

Lean Production

See flexible manufacturing technology.

Mass Customization

The production of a variety of end products at a unit cost that could once be achieved only through mass production of a standardized output.

Page 428Flexible machine cells are another common flexible manufacturing technology. A flexible machine cell is a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer). Each cell normally contains four to six machines capable of performing a variety of operations. The typical cell is dedicated to the production of a family of parts or products. The settings on machines are computer controlled, which allows each cell to switch quickly between the production of different parts or products.

Improved capacity utilization and reductions in work in progress (i.e., stockpiles of partly finished products) and in waste are major efficiency benefits of

flexible machine cells

. Improved capacity utilization arises from the reduction in setup times and from the computer-controlled coordination of production flow between machines, which eliminates bottlenecks. The tight coordination between machines also reduces work-in-progress inventory. Reductions in waste are due to the ability of computer-controlled machinery to identify ways to transform inputs into outputs while producing a minimum of unusable waste material. While freestanding machines might be in use 50 percent of the time, the same machines when grouped into a cell can be used more than 80 percent of the time and produce the same end product with half the waste. This increases efficiency and results in lower costs.

The effects of installing flexible manufacturing technology on a company’s cost structure can be dramatic. The Ford Motor Company has been introducing flexible manufacturing technologies into its automotive plants around the world. These new technologies should allow Ford to produce multiple models from the same line and to switch production from one model to another much more quickly than in the past, allowing Ford to take $2 billion out of its cost structure.16

Besides improving efficiency and lowering costs, flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups—at a cost that at one time could be achieved only by mass-producing a standardized output. Thus, the technologies help a company achieve mass customization, which increases its customer responsiveness. Most important for international business, flexible manufacturing technologies can help a firm customize products for different national markets. The importance of this advantage cannot be overstated. When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. And it can do this without absorbing a significant cost penalty. Thus, firms no longer need to establish manufacturing facilities in each major national market to provide products that satisfy specific consumer tastes and preferences, part of the rationale for a localization strategy (Chapter 12).

PRODUCTION FACTORS Several production factors feature prominently into the reasons why production facilities are located and used in a certain way worldwide. They include (1) product features, (2) locating production facilities, and (3) strategic roles for production facilities.

Product Features Two product features affect location decisions. The first is the product’s value-to-weight ratio because of its influence on transportation costs. Many electronic components and pharmaceuticals have high value-to-weight ratios; they are expensive and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. Given this, other things being equal, there is great pressure to produce these products in the optimal location and to serve the world market from there. The opposite holds for products with low value-to-weight ratios. Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. Thus, other things being equal, there is great pressure to make these products in multiple locations close to major markets to reduce transportation costs.

Flexible Machine Cells

Flexible manufacturing technology in which a grouping of various machine types, a common materials handler, and a centralized cell controller produce a family of products.

Should Nestlé Continue to Invest Heavily in Turkey?

According to Nestlé Turkey’s CEO, Hans Ulrich Mayer, Turkey has been a great place to invest. “Turkey has been the recipient of several Nestlé investments many times greater than we invest in other markets,” reported Mayer. Nestlé has invested about 500 million U.S. dollars in Turkey over the last four years, and following its successful breakfast cereal investment in 2011, the company intends to go on investing because of the strong Turkish economy compared to other European economies. Nestlé products sold in Turkey, ranging from pet food to chocolates, are manufactured in Turkey and also exported to North Africa and the Middle East. Given the political situation in Turkey, should Nestlé continue to establish increased production (i.e., expand its production facility) in delivering to North Africa and the Middle East, or should it establish production elsewhere?

Source: Invest in Turkey, www.spotblue.co.uk/turkey-property-news/11577/nestle-goes-on-investing-in-turkey/.

The other product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Examples include many industrial products (e.g., industrial electronics, steel, bulk chemicals) and modern consumer products (e.g., Apple’s iPhone or iPad, Amazon’s Kindle, Lenovo’s ThinkPad, Sony’s Cyber-shot camera, Microsoft’s Xbox). Because there are few national differences in consumer taste and preference for such products, the need for local responsiveness is reduced. This increases the attractiveness of concentrating production at an optimal location.

Locating Production Facilities There are two basic strategies for locating production facilities: (1) concentrating them in a centralized location and serving the world market from there or (2) decentralizing them in various regional or national locations that are close to major markets. The appropriate strategic choice is determined by the various country-specific, technological, and product factors discussed in this section and summarized in Table 15.1.

As can be seen, concentration of production makes most sense when:

• Differences among 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.

• The product serves universal needs.

images LO 15-3

Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge.

15.1 TABLE

Location Strategy and Production

Alternatively, decentralization of production is appropriate when:

• Differences among 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.

• Volatility in important exchange rates is expected.

• The production technology has low fixed costs and low minimum efficient scale, and flexible manufacturing technology is not available.

• The product’s value-to-weight ratio is low.

• The product does not serve universal needs (i.e., significant differences in consumer tastes and preferences exist among nations).

In practice, location decisions are seldom clear-cut. For example, it is not unusual for differences in factor costs, technological factors, and product factors to point toward concentrated production, while a combination of trade barriers and volatile exchange rates points toward decentralized production. This seems to be the case in the world automobile industry. Although the availability of flexible manufacturing and cars’ relatively high value-to-weight ratios suggest concentrated manufacturing, the combination of formal and informal trade barriers and the uncertainties of the world’s current floating exchange rate regime (see Chapter 10) have inhibited firms’ ability to pursue this strategy. For these reasons, several automobile companies have established “top-to-bottom” manufacturing operations in three major regional markets: Asia, North America, and western Europe.

Strategic Roles for Production Facilities The growth of global production among multinational companies has been tremendous over the past two decades, outdoing the growth of home country production by more than tenfold.17 In essence, since the early 1990s, multinationals have opted to set up production facilities outside their home country 10 times for every 1 time they have opted to create such facilities at home. There is a clear strategic rational for this; multinationals are trying to capture the gains associated with a dispersed global production system. This trend is expected to continue going forward. Thus, managers need to be ready to make the decision to open up a new production facility outside of their home base and decide where to locate the facility.

When making these decisions, managers need to think about the strategic role assigned to a foreign factory. A major consideration here is the importance of

global learning

—the idea that valuable knowledge does not reside just in a firm’s domestic operations; it may also be found in its foreign subsidiaries. Foreign factories that upgrade their capabilities over time are creating valuable knowledge that might benefit the whole corporation. Foreign factories can have one of a number of strategic roles or designations, including (1)

offshore factory

, (2)

source factory

, (3)

server factory

, (4)

contributor factory

, (5)

outpost factory

, and (6)

lead factory

.18

An offshore factory is one that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market. At an offshore factory, investments in technology and managerial resources should ideally be kept to a minimum to achieve greater cost efficiencies. Basically, the best offshore factory should involve minimal everything—from engineering to development to engaging with suppliers to negotiating prices to any form of strategic decisions being made at that facility. In reality, we expect at least some strategic decisions to include input from the offshore factory personnel.

The primary purpose of a source factory is also to drive down costs in the global supply chain. The main difference between a source factory and an offshore factory is the strategic role of the factory, which is more significant for a source factory than for an offshore factory. Managers of a source factory have more of a say in certain decisions, such as purchasing raw materials and component parts used in the production at the source factory. They also have strategic input into production planning, process changes, logistics issues, product customization, and implementation of newer designs when needed. Centrally, a source factory is at the top of the standards in the global supply chain, and these factories are used and treated just like any factory in the global firm’s home country. This also means that source factories should be located where production costs are low, where infrastructure is well developed, and where it is relatively easy to find a knowledgeable and skilled workforce to make the products.

Global Learning

The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary.

Offshore Factory

A factory that is developed and set up mainly for producing component parts or finished goods at a lower cost than producing them at home or in any other market.

Source Factory

A factory whose primary purpose is also to drive down costs in the global supply chain.

Page 431A server factory is linked into the global supply chain for a global firm to supply specific country or regional markets around the globe. This type of factory—often with the same standards as the top factories in the global firm’s system—is set up to overcome intangible and tangible barriers in the global marketplace. For example, a server factory may be intended to overcome tariff barriers, reduce taxes, and reinvest money made in the region. Another obvious reason for a server factory is to reduce or eliminate costly global supply chain operations that would be needed if the factory were located much farther away from the end customers. Managers at a server factory typically have more authority to make minor customizations to please their customers, but they still do not have much more input than managers in an offshore factory relative to the home country factories of the same global firm.

A contributor factory also serves a specific country or world region. The main difference between a contributor factory and a server factory is that a contributor factory has responsibilities for product and process engineering and development. This type of factory also has much more of a choice in terms of which suppliers to use for raw materials and component parts. In fact, a contributor factory often competes with the global firm’s home factories for testing new ideas and products. A contributor factory has its own infrastructure when it comes to development, engineering, and production. This means that a contributor factory is very much stand-alone in terms of what it can do and how it contributes to the global firm’s supply chain efforts.

An outpost factory can be viewed as an intelligence-gathering unit. This means that an outpost factory is often placed near a competitor’s headquarters or main operations, near the most demanding customers, or near key suppliers of unique and critically important parts. An outpost factory also has a function to fill in production; it often operates as a server and/ or offshore factory as well. The outpost factory can be very much connected to the idea of selecting countries for operations based on the countries’ strategic importance rather than on the production logic of a location. Maintaining and potentially even enhancing the position of the global firm in strategic countries is sometimes viewed as a practical factor. For example, the fact that Nokia has its headquarters in Finland may result in another mobile phone manufacturer locating some operations in Finland, even though the country market is rather small (about 5.5 million people).

A lead factory is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world. This is where cutting-edge production should take place, or at least be tested for implementation in other parts of the firm’s production network. Given the lead factory’s prominent role in setting a high bar for how the global firm wants to provide products to customers, we also expect that it will be located in an area where highly skilled employees can be found (or where they want to locate). A lead factory scenario also implies that managers and employees at the site have a direct connection to and say in which suppliers to use, what designs to implement, and other issues that are of critical importance to the core competencies of the global firm.

THE HIDDEN COSTS OF FOREIGN LOCATIONS There may be some “hidden costs” to basing production in a foreign location. Numerous anecdotes suggest that high employee turnover, shoddy workmanship, poor product quality, and low productivity are significant issues in some outsourcing locations.19

Microsoft, for example, established a major facility in Hyderabad, India, for four very good reasons: (1) The wage rate of software programmers in India is one-third of that in the United States. (2) India has an excellent higher education system that graduates a lot of computer science majors every year. (3) There was already a high concentration of information technology companies and workers in Hyderabad. (4) Many of Microsoft’s highly skilled Indian employees, after spending years in the United States, wanted to return home, and Microsoft saw the Hyderabad facility as a way of holding on to this valuable human capital.

Server Factory

A factory linked into the global supply chain for a global firm to supply specific country or regional markets around the globe.

Contributor Factory

A factory that serves a specific country or world region.

Outpost Factory

A factory that can be viewed as an intelligence-gathering unit.

Lead Factory

A factory that is intended to create new processes, products, and technologies that can be used throughout the global firm in all parts of the world.

Page 432management FOCUS

GE Moves Manufacturing from China to the United States

For decades, General Electric has been at the forefront of the move to shift production offshore from high-cost locations inside the United States to cheaper locations, such as China. But there are now some signs that the relentless flow of production offshore may be slowing down and, in some cases, starting to reverse. There are several reasons for this. Wage rates in China and some other developing nations have been rising fast, closing the differential between costs in the United States and overseas. In dollar terms, wage rates in China were some five times higher in 2012 than they were in 2000, and they are still rising fast. Labor productivity has also increased significantly in the United States, further closing the gap in labor costs. Meanwhile, high oil prices have raised the cost of shipping products across oceans, while the abundance of cheap natural gas in the United States is helping to lower production costs. If this were not enough, there are signs that there are benefits to having product design and manufacturing co-located, and in some cases, this is driving a shift in production back to the United States.

A case in point is GE’s GeoSpring water heater. This was originally designed in the United States and manufactured in China. The finished product was then shipped back across the ocean for sale in the United States. In 2010, given the macro trends in labor productivity and energy prices, GE decided to see what would happen if it brought some of its appliance products back to the United States. The GeoSpring was one of its first attempts at this. GE established a team of engineers and production workers at its appliance plant in Louisville, Kentucky, to see what they could do with the GeoSpring. The team quickly concluded that the GeoSpring was not easy to manufacture due to poor design. They redesigned the product for ease of assembly, eliminating one out of every five parts and cutting material costs by 25 percent. As a result, GE cut the time required to assemble the product from 10 hours in China to 2 hours in Louisville.

The end result: Material costs went down, labor requirement went down, and product quality went up. Indeed, the cost savings were so big that GE was able to reduce the price of the GeoSpring 20 percent below that of the Chinese-manufactured product and still maintain a decent profit margin. Time to market also improved greatly. It used to take five weeks to get a GeoSpring from China into a U.S. retail store— now GE can do that in a matter of days, which improves inventory management.

Having learned from experiences like this, GE is now planning to ramp up production of other appliance products at Louisville. It has recently doubled the workforce there to 3,700, and has also hired 500 new designers and engineers to redesign many of its products for ease of manufacture. A few years ago, less than half of the revenues of the appliance business came from products made in the United States. By mid-decade, GE plans to have 75 percent of the revenue of the appliance business to come from American-made products.

Sources: Charles Fishman, “The Insourcing Boom,” The Atlantic, December 2012; and J. R. Immelt, “Sparking an American Manufacturing Renewal,” Harvard Business Review, March 2012.

However, the company found that the turnover rate among its Indian employees is higher than in the United States. Demand for software programmers in India is high, and many employees are prone to switch jobs to get better pay. Although Microsoft has tried to limit turnover by offering good benefits and long-term incentive pay, such as stock grants to high performers who stay with the company, many of the Indians who were hired locally apparently place little value on long-term incentives and prefer higher current pay. High employee turnover, of course, has a negative impact on productivity. One Microsoft manager in India noted that 40 percent of his core team had left within the past 12 months, making it very difficult to stay on track with development projects.20

Microsoft is not alone in experiencing this problem. The manager of an electronics company that outsourced the manufacture of wireless headsets to China noted that after four years of frustrations with late deliveries and poor quality, his company decided to move production back to the United States. In his words: “On the face of it, labor costs seemed so much lower in China that the decision to move production there was a very easy one. In retrospect, I wish we had looked much closer at productivity and workmanship. We have actually lost market share because of this decision.”21 Another example of this phenomenon is given in the next Management Focus, which looks at the decision by General Electric to move some production from China back to the United States. The lesson here is that it is important to look beyond pay rates and make judgments about employee productivity before deciding whether to outsource activities to foreign locations.

images test PREP
Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.

Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers.

Make-or-Buy Decision

The strategic decision concerning whether to produce an item in-house (“make”) or purchase it from an outside supplier (“buy”).

Make-or-Buy Decisions

The make-or-buy decision for a global firm is the strategic decision concerning whether to produce an item in-house (“make”) or purchase it from an outside supplier (“buy”). Make-or-buy decisions are made at both the strategic and operational levels, with the strategic level being focused on the long term and the operational level being more focused on the short term. In some ways, the make-or-buy decision is also the starting point for operations’ influence on global supply chains. That is, someone in the chain—within one firm— has to take the lead in deciding whether the global firm should make the product in-house or buy it from an external supplier. If the decision is to make it in-house, there are certain implications for that firm’s global supply chains (e.g., where to purchase raw materials and component parts). If the decision is to buy the product, that decision also has certain implications (e.g., quality control and competitive priorities management).

A number of things are involved in determining which decision is the correct one for a particular global firm in a particular situation. At a broad level, issues of product success, specialized knowledge, and strategic fit can lead to the make (produce) decision. For example, if the item or part is critical to the success of the product, including perceptions among primary stakeholders, such a scenario skews the decision in favor of make. Another reason for a make decision is that the item or part requires specialized design or production skills and/or that equipment and reliable alternatives are very scarce. Strategic fit is also important. If the item or part strategically fits within the firm’s current and/or planned core competencies, then it should be a make decision for the global firm.

However, these are strategic decisions at a general level. In reality, the make-or-buy decision is often based largely on two critical factors: cost and production capacity. Cost issues include such things as acquiring raw materials, component parts, and any other inputs into the process, along with the costs of finishing the product. The production capacity is really presented as an opportunity cost. That is, does the firm have the capacity to produce the product at a cost that is at least no higher than the cost of buying it from an external supplier? And, if the product is made in-house, what opportunity cost would be incurred as a result (e.g., what product or item was the firm unable to produce because of limited production capacity)? Unfortunately, many, and perhaps most, global companies think that cost and production capacity are the only factors playing into the make-or-buy decision. This is simply not true!

Cost and production capacity are just the two main drivers behind make-or-buy choices made by global companies when they engage in global supply chains. The decision of whether to buy or make a product is a much more complex and research-intensive process than the typical global firm may expect, though. For example, how many times have we heard, “Let’s move our production to China because we can get the same quality for a dime-on-the-dollar cost, and that will free up production capacity that we can use to focus on other products”? Of course, dime-on-the-dollar cost is not relevant because we have to take into account the costs of quality control measures that have to be instituted, raw materials that have to be purchased far away from home, foreign entry requirements, multiple-party contracts, management responsibilities for the outsourced production operations, and so on. Ultimately, we are unlikely to end up with a dime-on-the-dollar cost, but where do we end up and how do we get there? In other words, what are the core elements that we should be evaluating when we are determining whether the correct decision is to make or to buy?

Do You Expect a Trend in Bringing Jobs Back from Overseas?

The United States may be on the verge of bringing back manufacturing jobs from China. Outsourcing manufacturing to China is not as cheap as it used to be. Many companies, especially in the auto and furniture industries, moved plants overseas once China opened its doors to free trade and foreign investment in the last few decades. Labor was cheaper for American companies—less than $1 per hour by some estimates at the time. Today, labor costs in China have risen dramatically, and shipping and fuel costs have skyrocketed. As China’s economy has expanded and as China has built new factories all across the country, the demand for workers has risen. As a result, wages are up as new companies compete to hire the best workers. Experts note the fears that U.S. manufacturing is in decline are overstated and that the United States is still a manufacturing giant. However, both China and the United States each account for about 20 percent global manufacturing value added. The U.S. share of about 20 percent of global manufacturing value added “has declined only slightly over the past three decades,” according to the Boston Consulting Group. With these estimates in mind, do you expect more and more outsourced jobs to be “insourced” in the future?

Source: http://rockcenter.msnbc.msn.com/_news/2012.

Page 434images

15.3 FIGURE

Operationally Favoring a Make Decision

To facilitate the make-or-buy decision, we have captured the dynamics of this choice in two figures that center on either operationally favoring a make decision or operationally favoring a buy decision (Figures 15.3 and 15.4). As shown, the core elements in both cases are cost and production capacity. However, the other elements differ for each of the decisions and influence the choice differently. This means that we need to evaluate each decision separately, not jointly. In fact, through this process, we may end up thinking that both a make decision and a buy decision would be acceptable and strategically logical for our firm. Keep in mind that this simply means that we have a choice; if both choices seem positive for your firm, choose the one that is the best strategic fit with the least opportunity cost structure.

The elements that favor a make decision—beyond the core elements of cost and production capacity—include quality control, proprietary technology, having control, excess capacity, limited suppliers, assurance of continual supply, and industry drivers (see Figure 15.3). So, the starting point is lower (or at least no greater) cost than what we can expect when we outsource the production to an external party in another country (or another external party in general). The limitation is that we must have excess production capacity or capacity that is best used by our firm for making the product in-house.

After the cost and production capacity decisions have been explored and made (really, after the cost and production hurdles have been overcome), the next set of decisions follows logically from the path in Figure 15.3. For example, if quality control is important to the global firm, cannot be relied on fully if the part is outsourced, and is at the center of the strategic core that customers expect from the firm, then the quality control issue favors a make decision. If there is proprietary technology involved in making the product that cannot or should not be shared with outsourcing parties, then the decision has to be make.

The idea that limited suppliers may influence the make-or-buy choice in the direction of the make selection is important as well. Specifically, it could be that some suppliers do not want to work with certain companies in certain parts of the world. It could also be that a supplier cannot, because of various restrictions on production or location or because of international barriers, follow the production of your firm’s products to wherever you see fit to locate your production lines.

Page 435images

15.4 FIGURE

Operationally Favoring a Buy Decision

Naturally, if the firm has excess capacity that otherwise would not be productively used, the decision should favor a make choice to allow that excess capacity to be used for the benefit of the firm in the global marketplace. Some companies also simply want to have control over certain elements of their production processes. This affects the make-or-buy decision in favor of the make choice.

A make decision is also favored if there is any chance that supply cannot be guaranteed if the firm moves its production overseas. And, finally, the industry globalization drivers may dictate that a make decision should be the choice for various trust and commitment reasons involving your industry and the marketplace that you engage with in order to find success.

Now, some of these elements that favor make can probably influence a buy decision as well. Naturally, if one of the make elements is not in favor of the make decision (e.g., if there is no excess capacity), this would suggest that the global firm should think more seriously about a buy decision. However, again, the buy decision also involves a number of other elements that are not necessarily factors in the make decision (see Figure 15.4). As with the make decision, after the cost and production capacity decisions have been considered and made, the next set of decisions for the buy choice follow logically from the path in Figure 15.4. For example, if the global firm has minimal restrictions on which firms or companies it can source raw materials and component parts from, then a buy decision is more likely because outsourcing production also increases the likelihood that other and/or more suppliers in those parts of the world will be used.

Another good reason to choose a buy scenario is if the firm lacks the needed expertise to make a product or component part and the supplier or outsourced production choice has that expertise. Supplier competencies can affect the decision in favor of a buy choice as well, especially if those competencies reside closer to the production facility that you buy from than the ones that will be available if you make the product. Small volumes would also be a reason favoring a buy decision; cost efficiencies can seldom be achieved when only small volumes are produced.

Inventory planning is also of critical importance. Even if your firm can make the product equally well in terms of quality and expectations set, perhaps a better choice is to buy simply in order to strategically manage inventory (which is a cost center in the global supply chain). In certain cases, even brand preference is a reason to go with a buy decision; for example, many computer users favor Intel microchips in their computers, so many of the large computer manufacturers opt to buy chips from Intel instead of making them in-house for that reason (this was more true in the 1990s and 2000s than it is now, but it is still a factor). And, of course, if the item to be made is a so-called nonessential item that has little effect on the firm’s core competencies and what the customers expect in terms of uniqueness, this is a factor in favor of a buy decision.

Page 436images test PREP

Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.

images LO 15-5

Understand the functions of logistics and purchasing (sourcing) within global supply chains.

Global Distribution Center

A facility that positions and allows customization of products for delivery to worldwide wholesalers or retailers, or directly to consumers anywhere in the world; also called a global distribution warehouse.

Global Supply Chain Functions

To this point in the chapter, we have emphasized global production, a component of the operations management of a supply chain. Issues such as where to produce, the strategic role of a foreign production site, and the make-or-buy decisions are the core aspects of global production. In addition to global production, three additional supply chain functions need to be developed in concert with global production. They are logistics, purchasing (sourcing), and the company’s distribution strategy (i.e., marketing channels). The latter—distribution strategy—is addressed in Chapter 16, where we discuss marketing and R&D. Here we address logistics and purchasing. From earlier in this chapter, we know that production and supply chain management are closely linked because a firm’s ability to perform its production activities depends on information inputs and a timely supply of high-quality material (raw material, component parts, and even finished products that are used in the manufacturing of new products). Logistics and purchasing are critical functions in ensuring that materials are ordered and delivered and that an appropriate level of inventory is managed.

global distribution center

management, (2) inventory management, (3)

packaging

and materials handling, (4) transportation, and (5)

reverse logistics

. Each of these core logistics is described in the next paragraphs.

A global distribution center (or warehouse) is a facility that positions and allows customization of products for delivery to worldwide wholesalers or retailers or directly to consumers anywhere in the world. Distribution centers (DCs) are used by manufacturers, importers, exporters, wholesalers, retailers, transportation companies, and customs agencies to store products and provide a location where customization can be facilitated. When warehousing shifted from passive storage of products to strategic assortments and processing, the term distribution center became more widely used to capture this strategic and dynamic aspect of not only storing, but ofadding value to products that are being warehoused or staged. A DC is at the center of the global supply chain, specifically the order-processing part of the order-fulfillment process. DCs are the foundation of a global supply network because they allow either a single location or satellite warehouses to store quantities and assortments of products and allow for value-added customization. They should be located strategically in the global marketplace, considering the aggregate total labor and transportation cost of moving products from plants or suppliers through the distribution center and then delivering them to customers.

How Much Relationship Building Do You Really Want to Do?

Like manufacturers, professional service firms have also been learning how to better manage their delivery on a global basis. For example, some global services firms are dealing with other global firms in a new way, using one supplier for all their service-related needs around the world. The traditional approach involved the development of market-specific relationships, so the same multinational client would have a number of individual service relationships, one in each major market for each company division. Under a global account management approach, one relationship has a global span—and one contract. Such supply chain practices allow for more effective relationship management, a better sense of what the client needs, more product extension opportunities, and better pricing and economies. But global account management also takes time, energy, and resources. How many “global accounts” do you think would be ideal for a global company? What is the minimum and maximum number of global account relationships a large multinational corporation should have (e.g., Microsoft)?

Page 437Global Inventory Management

The decision-making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation.

Packaging

The container that holds the product itself. It can be divided into primary, secondary, and transit packaging.

Packaging comes in all shapes, sizes, forms, and uses. It can be divided into three different types: primary, secondary, and transit. Primary packaging holds the product itself. These are the packages brought home from the store, usually a retailer, by the end-consumer. Secondary packaging (sometimes called case-lot packaging) is designed to contain several primary packages. Bulk buying or warehouse store customers may take secondary packages home (e.g., from Sam’s Club), but this is not the typical mode for retailers. Retailers can also use secondary packaging as an aid when stocking shelves in the store. Transit packaging comes into use when a number of primary and secondary packages are assembled on a pallet or unit load for transportation. Unit-load packaging—through palletizing, shrink-wrapping, or containerization—is the outer packaging envelope that allows for easier handling or product transfer among international suppliers, manufacturers, distribution centers, retailers, and any other intermediaries in the global supply chain.

Regardless of where the product is in the global supply chain, packaging is intended to achieve a set of multilayered functions. These can be grouped into (1) perform, (2) protect, and (3) inform.24 Perform refers to (1) the ability of the product in the package to handle being transported between nodes in the global supply chain, (2) the ability of the product to be stored for typical lengths of time for a particular product category, and (3) the package providing the convenience expected by both the supply chain partners and the end-customers. Protect refers to the package’s ability to (1) contain the products properly, (2) preserve the products to maintain their freshness or newness, and (3) provide the necessary security and safety to ensure that the products reach their end destination in their intended shape. Inform refers to the package’s inclusion of (1) logical and sufficient instructions for the use of the products inside the package, including specific requirements to satisfy local regulations, (2) a statement of a compelling product guarantee, and (3) information about service for the product if and when it is needed.

Transportation

refers to the movement of raw material, component parts, and finished goods throughout the global supply chain. It typically represents the largest percentage of any logistics budget and an even greater percentage for global companies because of the distances involved. Global supply chains are directly or indirectly responsible for transporting raw materials from their suppliers to the production facilities, work-in-process and finished goods inventories between plants and distribution centers, and finished goods from distribution centers to customers. The primary drivers of transportation rates and the resulting aggregate cost are distance, transport mode (ocean, air, or land), size of load, load characteristics, and oil prices. As would be expected, longer distances require more fuel and more time from vehicle operators, so transport rates increase with distance. Transport mode influences rates because of the different technologies involved. Ocean is the least expensive because of the size of the vehicles used and the low friction of water. Land is the next least expensive, with rail being less expensive than motor carriers. Air is the most expensive because there is a substantial charge for defying gravity. Transportation rates are heavily influenced by economies of scale, so larger shipments are typically relatively less expensive than smaller shipments. The characteristics of the shipment also influence transportation rates through such factors as product density, value, perishability, potential for damage, and other such factors. Finally, oil prices have a major impact on transportation rates because anywhere from 10 to 40 percent of most carrier costs, depending on the mode, are related to fuel.

Transportation

the movement of inventory through the supply chain.

Reverse logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. The ultimate goal is to optimize the after-market activity or make it more efficient, thus saving money and environmental resources. Reverse logistics is critically important in global supply chains. For example, product returns cost manufacturers and retailers more than $100 billion per year in the United States, or an average of 3.8 percent in lost profits.25 Overall, manufacturers spend about 9 to 14 percent of their sales revenue on returns. Even more staggering, each year, consumers in America return more than the GDP of two-thirds of the nations in the world. Just these sample numbers suggest that reverse logistics is an incredibly important part of the global supply chain.

There are five strategic levels—from domestic to international to global—that can be undertaken by a global company.26 Level I is simply companies engaging in domestic purchasing activities only. Often, these companies stay close to their home base in their domestic market when purchasing raw materials, component parts, and the like for their operations (e.g., a Michigan firm purchasing raw materials, such as cherries, from another Michigan firm). Levels II and III are both considered “international purchasing,” but of various degrees and forms. Companies that are at level II engage in international purchasing activities only as needed. This means that their approach to international purchasing is often reactive and uncoordinated among the buying locations within the firm and/or across the various units that make up the firm, such as strategic business units and functional units. Companies at level III engage in international purchasing activities as part of the firm’s overall supply chain management strategy. As such, at the level III stage, companies begin to recognize that a well-formulated and well-executed worldwide international purchasing strategy can be very effective in elevating the firm’s competitive edge in the marketplace. Levels IV and V both involve “global purchasing” to various degrees. Level IV refers to global purchasing activities that are integrated across worldwide locations. This involves integration and coordination of purchasing strategies across the firm’s buying locations worldwide. With level IV, we are now dealing with a sophisticated form of worldwide purchasing. Level V involves engaging in global purchasing activities that are integrated across worldwide locations and functional groups. Broadly, this means that the firm integrates and coordinates the purchasing of common items, purchasing processes, and supplier selection efforts globally, for example.

Beyond the domestic, international, and global purchasing strategies in levels I through V, purchasing includes a number of basic choices that companies make in deciding how to engage with markets.27 The starting point is a choice of internal purchasing versus external purchasing—in other words, “how to purchase.” We find that roughly 35 percent of the purchasing in global companies today is internal (i.e., from sources within their own company), with 65 percent being classified as external (i.e., from sources outside of their company). The next decision, in both internal and external purchasing, is to figure out “where to purchase” (domestically or globally). This takes us ultimately to the “types of purchasing” (where and how) and the four choices for purchasing strategy: domestic internal purchasing, global internal purchasing, domestic external purchasing, and global external purchasing.

Reverse Logistics

The process of moving inventory from the point of consumption to the point of origin in supply chains for the purpose of recapturing value or proper disposal.

Page 439images

15.2 TABLE

Outsourcing Terms and Options

The types of purchasing activities and strategies just discussed come with a set of generic options for the “international arena.” But we all know that outsourcing and offshoring, along with many by-products and other similar yet quite different options, exist in the purchasing world today. At this stage of the text, we feel it is important to go over the outsourcing-related terms and options that companies have, especially the following terms that are often confusing to understand, develop strategy around, and implement: outsourcing, insourcing, offshoring, offshore outsourcing, nearshoring, and co-sourcing (see Table 15.2).

Managing a Global Supply Chain

The potential for reducing costs through more efficient supply chain management is enormous. For the typical manufacturing enterprise, material costs account for between 50 and 70 percent of revenues, depending on the industry. Even a small reduction in these costs can have a substantial impact on profitability. According to one estimate, for a firm with revenues of $1 million, a return on investment rate of 5 percent, and materials costs that are 50 percent of sales revenues, a $15,000 increase in total profits could be achieved either by increasing sales revenues 30 percent or by reducing materials costs by 3 percent.28 In a saturated market, it would be much easier to reduce materials costs by 3 percent than to increase sales revenues by 30 percent. As such, managing global supply chains is one of the strategically most important areas for a global company. Four main areas are of concern in managing a global supply chain, including the role of just-in-time inventory, the role of information technology, coordination in global supply chains, and interorganizational relationships in global supply chains.

images test PREP
Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.

images LO 15-6

Describe what is required to efficiently manage a global supply chain.

Page 440ROLE OF JUST-IN-TIME INVENTORY Pioneered by Japanese firms during that country’s remarkable economic transformation during the 1960s and 1970s, just-intime inventory systems now play a major role in most manufacturing firms. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost savings comes from speeding up inventory turnover. This reduces inventory holding costs, such as warehousing and storage costs. It means the company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. Other things being equal, this will boost the company’s profitability as measured by return on capital invested. It also means the company is less likely to have excess unsold inventory that it has to write off against earnings or price low to sell.

In addition to the cost benefits, JIT systems can also help firms improve product quality. Under a JIT system, parts enter the manufacturing process immediately; they are not ware-housed. This allows defective inputs to be spotted right away. The problem can then be traced to the supply source and fixed before more defective parts are produced. Under a more traditional system, warehousing parts for weeks before they are used allows many defective parts to be produced before a problem is recognized.

The drawback of a JIT system is that it leaves a firm without a buffer stock of inventory. Although buffer stocks are expensive to store, they can help a firm respond quickly to increases in demand and tide a firm over shortages brought about by disruption among suppliers. Such a disruption occurred after the September 11, 2001, attacks on the World Trade Center and Pentagon, when the subsequent shutdown of international air travel and shipping left many firms that relied upon globally dispersed suppliers and tightly managed “just-in-time” supply chains without a buffer stock of inventory. A less pronounced but similar situation occurred again in April 2003, when the outbreak of the pneumonia-like SARS (severe acute respiratory syndrome) virus in China resulted in the temporary shutdown of several plants operated by foreign companies and disrupted their global supply chains. Similarly, in late 2004, record imports into the United States left several major West Coast shipping ports clogged with too many ships from Asia that could not be unloaded fast enough, which disrupted the finely tuned supply chains of several major U.S. enterprises.29

There are ways of reducing the risks associated with a global supply chain that operates on just-in-time principles. To reduce the risks associated with depending on one supplier for an important input, some firms source these inputs from several suppliers located in different countries. While this does not help in the case of an event with global ramifications, such as September 11, 2001, it does help manage country-specific supply disruptions, which are more common. Strategically, all global companies need to build in some degree of redundancy in supply chains by having multiple options for suppliers.

ROLE OF INFORMATION TECHNOLOGY Web and cloud-based information systems play a crucial role in modern materials management. By tracking component parts as they make their way across the globe toward an assembly plant, information systems enable a firm to optimize its production scheduling according to when components are expected to arrive. By locating component parts in the supply chain precisely, good information systems allow the firm to accelerate production when needed by pulling key components out of the regular supply chain and having them flown to the manufacturing plant.

Firms now typically use some form of supply chain information system to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. There are a variety of options for global supply chains. Electronic data interchange (EDI) refers to the electronic interchange of data between two or more companies. Enterprise resource planning (ERP) is a wide-ranging business planning and control system that includes supply chain-related subsystems (e.g., materials requirements planning, or MRP). Collaborative planning, forecasting, and replenishment (CPFR) was developed to fill the interorganizational connections that ERP cannot fill. Vendor management of inventory (VMI) allows for a holistic overview of the supply chain with a single point of control for all inventory management. A warehouse management system (WMS) often operates in concert with ERP systems; for example, an ERP system defines material requirements, and these are transmitted to a distribution center for a WMS.

Just in Time (JIT)

Inventory logistics system designed to deliver parts to a production process as they are needed, not before.

Page 441Before the emergence of the Internet as a major communication medium, firms and their suppliers normally had to purchase expensive proprietary software solutions to implement EDI systems. The ubiquity of the Internet and the availability of web and cloud-based applications have made most of these proprietary solutions obsolete. Less expensive systems that are much easier to install and manage now dominate the market for global supply chain management software. These systems have transformed the management of globally dispersed supply chains, allowing even small firms to achieve a much better balance between supply and demand, thereby reducing the inventory in their systems and reaping the associated economic benefits. Importantly, with most firms now using these systems, those that do not will find themselves at a competitive disadvantage. This has implications for small and medium-sized companies that may not always have the resources to implement the most sophisticated supply chain information systems.

COORDINATION IN GLOBAL SUPPLY CHAINS Consider how to turn an aircraft, and think in terms of coordination and leverage points. That is, aircraft are typically steered using an integrated system of ailerons on the wings and the rudder at the tail of the aircraft. In comparison to the aircraft, the ailerons and the rudder seem very small. However, leverage allows the coordinated effort of the ailerons and the rudder to turn the aircraft. In other words, putting the right combination of a little leverage on the right places together with a coordinated effort leads to incredible maneuvering ability for the plane. Global supply chains are the same. Integration and coordination are critically important. Global supply chain coordination refers to shared decision-making opportunities and operational collaboration of key global supply chain activities.

Shared decision making—such as joint consideration of replenishment, inventory holding costs, collaborative planning, costs of different processes, frequency of orders, batch size, and product development—creates a more integrated, coherent, efficient, and effective global supply chain. This includes shared decision making by supply chain members both inside an organization (e.g., logistics, purchasing, operations, and marketing channels employees) and across organizations (e.g., raw materials producers, transportation companies, manufacturers, wholesalers, retailers). Shared decision making is not joint decision making; it is decision making involving joint considerations. Shared decision making helps in resolving potential conflicts among global supply chain members and fosters a culture of coordination and integration. In most supply chains, certain parties are more influential, and shared decision making, at a minimum, should include the critically important chain members.

To achieve operational integration and collaboration within a global supply chain, six operational objectives should be addressed: responsiveness, variance reduction, inventory reduction, shipment consolidation, quality, and life-cycle support.30 Responsiveness refers to a global firm’s ability to satisfy customers’ requirements across global supply chain functions in a timely manner. Variance reduction refers to integrating a control system across global supply chain functions to eliminate global supply chain disruptions. Inventory reduction refers to integrating an inventory system, controlling asset commitment, and turning velocity across global supply chain functions. Shipment consolidation refers to using various programs to combine small shipments and provide timely, consolidated movement. This includes multiunit coordination across global supply chain functions. Quality refers to integrating a system so that it achieves zero defects throughout global supply chains. Finally, life-cycle support refers to integrating the activities of reverse logistics, recycling, after-market service, product recall, and product disposal across global supply chain functions.

INTERORGANIZATIONAL RELATIONSHIPS Interorganizational relationships have been studied and talked about in various contexts for decades. The two keys are trust and commitment. If we always had 100 percent trust within relationships and 100 percent commitment to them, most global supply chains would ultimately be efficient and effective. But we don’t! However, by looking at the building blocks for global supply chains, we would also assume that not all relationships are equally valuable and that they should not be treated as if they were. Two examples centered on upstream/inbound and downstream/outbound supply chain activities can effectively be used to illustrate this point. Figure 15.5 focuses on the upstream (or inbound) supply chain relationships, and Figure 15.6 focuses on the downstream (or outbound) supply chain relationships.

Global Supply Chain Coordination

The shared decision-making opportunities and operational collaboration of key global supply chain activities.

15.2 FIGURE

Upstream/Inbound Relationships

For the upstream/inbound portion of the global supply chain, the three logical scenarios of interacting organizations are labeled as vendors, suppliers, and partners. Each scenario is based on the degree of coordination, integration, and transactional versus relationship emphasis that the firm should adopt in partnering with other entities in the global supply chain. For instance, a firm uses vendors to obtain raw materials and component parts through a transactional relationship that can change easily. A given firm may use suppliers to obtain raw materials and parts and maintain a relationship with those suppliers based on experience and performance. Another firm may engage with partners to obtain raw materials and parts, maintaining a relationship based on trust and commitment.

For the downstream/outbound portion of the global supply chain, the three logical scenarios of interacting organizations are labeled as buyers, customers, and clients. As with the upstream/inbound examples, each downstream/outbound scenario is based on the degree of coordination, integration, and transactional versus relationship focus that the firm should adopt in partnering with other entities in the global supply chain. One firm may sell products and parts to buyers through a transactional relationship that can change easily. Another firm may sell products and parts to customers and maintain a relationship that is based on experience and performance. Yet another firm may sell products and parts to clients and maintain a relationship that is based on trust and commitment.

Having reviewed the three scenarios for the upstream/inbound and downstream/outbound portions of the global supply chain, let’s look at the emphasis a global company should place on the relationships with each entity: the benefits to be expected, favorable points of distinction, and resonating focus in the relationship.31 First, however, some basics on value are appropriate. Value between nodes and actors in global supply chains is a function of the cost (money and nonmoney resources) given up in return for the quality (products, services, information, trust, and commitment) received. Basically, greater value is achieved if the quality is greater while the cost remains the same or is reduced, or when the cost is reduced and the quality remains constant.

15.6 FIGURE

Downstream/Outbound Relationships

Page 443A global company should allocate 20 percent of its efforts to the vendor category, 30 percent to the supplier category, and 50 percent to the partner category in the upstream/ inbound portion of the global supply chain. Likewise, a global company should allocate 20 percent of its efforts to the buyer category, 30 percent to the customer category, and 50 percent to the client category in the downstream/outbound portion of the chain. In the vendor (upstream) and buyer (downstream) portions of the supply chain, the benefits that can be expected include those typical of a transactional exchange (costs equal to quality for the goods bought, but not necessarily the best goods in the marketplace). In the supplier (upstream) and customer (downstream) stages, the expectation is that the firm will receive all the favorable points that the raw materials, component parts, and/or products have relative to the next best alternative in the global marketplace. This takes into account the ideas that the costs are equal to quality for the goods bought and that the goods are among the best goods in the marketplace. Finally, in the partner (upstream) and client (downstream) portions of the supply chain, the benefits that the firm can expect to receive include the one or two points of difference for the raw materials, component parts, and/or products whose improvements will deliver the greatest value to the customer for the foreseeable future (quality greater than cost).

images test PREP
Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.

Key Terms

production
supply chain management
purchasing
logistics
upstream supply chain
downstream supply chain
total quality management (TQM)
Six Sigma
ISO 9000
minimum efficient scale
flexible manufacturing technology
lean production
mass customization
flexible machine cells
global learning
offshore factory
source factory
server factory
contributor factory
outpost factory
lead factory
make-or-buy decision
global distribution center

global inventory management

packaging
transportation
reverse logistics

just in time (JIT)

global supply chain coordination

Summary

This chapter explained how global production and supply chain management can improve the competitive position of an international business by lowering the total costs of value creation and by performing value creation activities in such ways that customer service is enhanced and value added is maximized. We looked closely at five issues central to global production and supply chain management: where to produce, the strategic role of foreign production sites, what to make and what to buy, global supply chain functions, and managing a global supply chain. The chapter made the following points:

1. The choice of an optimal production location must consider country factors, technological factors, and production factors.

2. Country factors include the influence of factor costs, political economy, and national culture on production costs, along with the presence of location externalities.

3. Technological factors include the fixed costs of setting up production facilities, the minimum efficient scale of production, and the availability of flexible manufacturing technologies that allow for mass customization.

4. Production factors include product features, locating production facilities, and strategic roles for production facilities.

5. Location strategies either concentrate or decentralize manufacturing. The choice should be made in light of Page 444country, technological, and production factors. All location decisions involve trade-offs.

6. Foreign factories can improve their capabilities over time, and this can be of immense strategic benefit to the firm. Managers need to view foreign factories as potential centers of excellence and encourage and foster attempts by local managers to upgrade factory capabilities.

7. An essential issue in many international businesses is determining which component parts should be manufactured in-house and which should be outsourced to independent suppliers. Both making and buying component parts are primarily based on cost considerations and production capacity constraints, but each decision (make or buy) is also influenced by several different factors.

8. The core global supply chain functions are logistics, purchasing (sourcing), production (and operations management), and marketing channels.

9. Logistics is the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing. The core activities performed in logistics are to manage global distribution centers, inventory management, packaging and materials handling, transportation, and reverse logistics.

10. Purchasing represents the part of the supply chain that involves worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services. The core activities performed in purchasing include development of an appropriate strategy for global purchasing and selecting the type of purchasing strategy best suited for the company.

11. Managing a supply chain involves orchestrating effective just-in-time inventory systems, using information technology, coordination among functions and entities in the chain, and developing interorganizational relationships.

12. Just-in-time systems generate major cost savings by reducing warehousing and inventory holding costs and by reducing the need to write off excess inventory. In addition, JIT systems help the firm spot defective parts and remove them from the manufacturing process quickly, thereby improving product quality.

13. Information technology, particularly Internet-based electronic data interchange, plays a major role in materials management. EDI facilitates the tracking of inputs, allows the firm to optimize its production schedule, lets the firm and its suppliers communicate in real time, and eliminates the flow of paperwork between a firm and its suppliers.

14. Global supply chain coordination refers to shared decision-making opportunities and operational collaboration of key global supply chain activities.

15. The depth and involvement in interorganizational relationships in global supply chains should be based on the degree of coordination, integration, and transactional versus relationship emphasis that the firm should adopt in partnering with other entities in the global supply chain.

Critical Thinking and Discussion Questions

2. A chemical firm is considering how best to supply the world market for sulfuric acid. A manufacturing plant costs about $20 million to construct and requires a moderately skilled workforce. The total value of the world market for this product over the next 10 years is estimated to be between $20 billion and $30 billion. The tariffs prevailing in this industry are moderate. What kind of location(s) should the firm seek for its plant(s)?

3. A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in specialized assets. The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade. What are the pros and cons of (a) manufacturing the component in-house and (b) outsourcing manufacturing to an independent supplier? Which option would you recommend? Why?

4. Reread the Management Focus on Philips in China and then answer the following questions:

a. What are the benefits to Philips of shifting so much of its global production to China?

b. What are the risks associated with a heavy concentration of manufacturing assets in China?

c. What strategies might Philips adopt to maximize the benefits and mitigate the risks associated with moving so much product?

5. Explain how the global supply chain functions of (a) logistics and (b) purchasing can be used to strategically leverage the global supply chains for a manufacturing company producing mobile phones.

images Research Task http://globalEDGE.msu.edu

Use the globalEDGE website (globaledge.msu.edu) to complete the following exercises:

1. The globalization of production makes many people aware of the differences in manufacturing costs worldwide. The U.S. Department of Labor’s Bureau of International Labor Affairs publishes the Chartbook of International Labor Comparisons. Locate the latest edition of this report, and identify the hourly compensation costs for manufacturing workers in China, Brazil, Mexico, Turkey, Germany, and the United States.

2. The World Bank’s Logistics Performance Index (LPI) assesses the trade logistics environment and performance of countries. Locate the most recent LPI ranking. What components for each country are examined to construct the index? Identify the top 10 logistics performers. Prepare an executive summary highlighting the key findings from the LPI. How are these findings helpful for companies trying to build a competitive supply chain network?

images

H&M: The Retail-Clothing Giant closing case

David Beckham, Freja Beha, Beyoncé, Gisele Bündchen, Georgia May Jagger, Miranda Kerr, Madonna, Vanessa Paradis, Katy Perry, Lana Del Rey, Rihanna, Anja Rubik, and so many more. Yes, it sounds like a list of celebrities and they are! These celebrities represent just a partial list of really well-known people around the world who have worked with H&M (do you recognize all of them?). But, let’s move on from the “name dropping” to Hennes & Mauritz, or H&M as it is more commonly known. H&M is a Swedish multinational retail-clothing giant known for its fashion clothing for women, men, teenagers, and children. H&M has effectively used superstar celebrities like David Beckham, Beyoncé, and Gisele Bündchen for years to carry their advertising message worldwide. Behind the scenes, H&M’s global supply chains are equally well orchestrated and are as high powered as its advertising campaigns.

H&M Hennes & Mauritz AB is now the full name of the company (it started simply as “Hennes” in 1947 in a small Swedish town called Västerås). The idea for the company emerged when, in 1946, Erling Persson, the company’s founder, came up with the idea of offering fashionable clothing at relatively low prices while he was on a business trip to the United States. At that time, Erling Persson decided to focus on women’s clothing only, and “Hennes,” which means “her” or “hers” in Swedish, was started. A couple of decades later, in 1968, Hennes acquired the building and inventory of hunting equipment retailer Mauritz Widforss. A supply of men’s clothing was also a part of the inventory. This resulted in menswear being included in the company’s collection—and gave birth to Hennes & Maurits (H&M). H&M now has some 3,200 stores in 54 countries and approximately 116,000 employees. It is the second largest clothing retailer in the world after Spain-based Inditex (parent company of ZARA) and ahead of U.S.-based GAP Inc.

Pedestrians wald past a H&M store in Singapore

H&M Hennes & Mauritz AB comprises six different brands, although the H&M brand is the most recognizable worldwide. The other brands are COS, Monki, Weekday, Cheap Monday, and & Other Stories. H&M designs sustainable fashion for all people at relatively modest prices and sells its products in 54 countries and online in an additional 10 markets. COS explores the concept of style over fashion and sells its products in stores and online in 38 countries. Monki is promoted as a fashion experience and is offered Page 446in 30 markets in stores and online. Weekday is a jeans-focused fashion destination with sales in 25 markets. Cheap Monday combines “influences from street fashion and subculture with a catwalk vibe” and is offered in some 20 markets. The last brand, called “& Other Stories,” was launched in 2013 and focuses on personal expression and styling, with availability in 17 markets. The collection of these brands, driven by the H&M collection and its footprint in 64 countries, presents a unique global supply chain challenge for the company.

The collections of clothing are created by a team of 160 in-house designers and 100 pattern makers. The design and pattern team is large and diverse, representing different age groups and nationalities. H&M Hennes & Mauritz AB’s (H&M from now on) design process is about “striking the right balance between fashion, quality and the best price . . . and it always involves sustainability awareness.” H&M does not own its own factories but instead works with around 900 independent suppliers to implement the team’s designs into reality. These independent suppliers are mostly located in Europe and Asia. They manufacture all of H&M’s products, and they also generally source fabrics and other components needed to create the fashion statements we have come to know from the H&M brands. Some 80 people in the H&M organization are dedicated to constantly audit the working conditions at the factories of suppliers, including safety and quality testing and ensuring that chemicals requirements are met.

Within the global supply chain infrastructure, one key aspect of H&M is the ordering of each product. Specifically, ordering each product at the optimal moment is an important part of H&M achieving the right balance among price, cycle time, and quality. To realize the effectiveness needed to ultimately sell fashion-oriented clothing at affordable prices, H&M works closely with long-term partners and invests significant resources into the sustainability of the work needed in its supply chains. In these areas, H&M strives to promote lasting improvements in working conditions and environmental impact throughout the footprint that it makes worldwide. Through its 900 suppliers, the company is connected to some 1,900 factories and about 1.6 million workers.

Sources: H&M website, http://hm.com, accessed April 12, 2014; L. Siegle, “Is H&M The New Home of Ethical Fashion?” The Observer, April 7, 2012; G. Petro, “The Future of Fashion Retailing—The H&M Approach,” Forbes, November 5, 2012; K. Stock, “H&M’s New Store Blitz Moves Faster Than Its Digital Expansion,” Bloomberg Businessweek, March 17, 2014; and M. Kerppola, R. Moody, L. Zheng, and A. Liu, “H&M’s Global Supply Chain Management Sustainability: Factories and Fast Fashion,” GlobaLens, a division of the William Davidson Institute at the University of Michigan, February 8, 2014.

CASE DISCUSSION QUESTIONS

1. Does it surprise you that the second largest clothing retailer is only selling in stores in 54 countries plus an additional 10 countries online? Why do you think it is not covering more of the world’s countries?

2. H&M does not own any of the factories that produce its clothes. Instead, it relies on some 1,900 factories and 900 suppliers to create what its team designed. These factories and suppliers are mostly in Europe and Asia. How can H&M ensure that its customers receive the quality expected in the clothing?

3. H&M stresses sustainability in its promotional campaigns. How can it ensure that the working conditions are appropriate for the 1.6 million people that serve in its supplier network? Is it even H&M’s role to ensure that the working conditions and environmental impact are great in every market it engages in?

4. If you worked for H&M, what would you suggest that it focus on to become even larger than it is now? Should it have its own factories? Should it expand to more than the 64 countries (54 with stores and 10 online) that it is in now? Should it control more of the global supply chains?

Endnotes

Note: Elements of the sections on Strategic Roles for Production Facilities; Make-or-Buy Decisions; Global Supply Chain Functions; Coordination in Global Supply Chains; and Interorganizational Relationships are drawn from Tomas Hult, David Closs, and David Frayer (2014), Global Supply Chain Management, New York: McGraw Hill.

1. T. Hult, D. Closs, and D. Frayer, Global Supply Chain Management: Leveraging Processes, Measurements, and Tools for Strategic Corporate Advantage (New York: McGraw-Hill Professional, 2014).

2. D. A. Garvin, “What Does Product Quality Really Mean,” Sloan Management Review 26 (Fall 1984), pp. 25–44.

3. See the articles published in the special issue of the Academy of Management Review on Total Quality Management 19, no. 3 (1994). The following article provides a good overview of many of the issues involved from an academic perspective: J. W. Dean and D. E. Bowen, “Management Theory and Total Quality,” Academy of Management Review 19 (1994), pp. 392–418. Also see T. C. Powell, “Total Quality Management as Competitive Advantage,” Strategic Management Journal 16 (1995), pp. 15–37; and S. B. Han et al., “The Impact of ISO 9000 on TQM and Business Performance,” Journal of Business and Economic Studies 13, no. 2 (2007), pp. 1–25.

4. For general background information, see “How to Build Quality,” The Economist, September 23, 1989, pp. 91–92; A. Gabor, The Man Who Discovered Quality (New York: Penguin, 1990); P. B. Crosby, Quality Is Free (New York: Mentor, 1980); and M. Elliot et al., “A Quality World, a Quality Life,” Industrial Engineer, January 2003, pp. 26–33.

5. G. T. Lucier and S. Seshadri, “GE Takes Six Sigma beyond the Bottom Line,” Strategic Finance, May 2001, pp. 40–46; and U. D. Kumar et al., “On the Optimal Selection of Process Alternatives in a Six Sigma Implementation,” International Journal of Production Economics 111, no. 2 (2008), pp. 456–70.

6. M. Saunders, “U.S. Firms Doing Business in Europe Have Options in Registering for ISO 9000 Quality Standards,” Business America, June 14, 1993, p. 7; and Han et al., “The Impact of ISO 9000.”

7. G. Stalk and T. M. Hout, Competing against Time (New York: Free Press, 1990).

Page 4478. N. Tokatli, “Global Sourcing: Insights from the Global Clothing Industry—The Case of Zara, a Fast Fashion Retailer,” Journal of Economic Geography 8, no. 1 (2008), pp. 21–39.

9. Diana Farrell, “Beyond Offshoring,” Harvard Business Review, December 2004, pp. 1–8; and M. A. Cohen and H. L. Lee, “Resource Deployment Analysis of Global Manufacturing and Distribution Networks,” Journal of Manufacturing and Operations Management 2 (1989), pp. 81–104.

10. P. Krugman, “Increasing Returns and Economic Geography,” Journal of Political Economy 99, no. 3 (1991), pp. 483–99; J. M. Shaver and F. Flyer, “Agglomeration Economies, Firm Heterogeneity, and Foreign Direct Investment in the United States,” Strategic Management Journal 21 (2000), pp. 1175–93; and R. E. Baldwin and T. Okubo, “Heterogeneous Firms, Agglomeration Economies, and Economic Geography,” Journal of Economic Geography 6, no. 3 (2006), pp. 323–50.

11. For a review of the technical arguments, see D. A. Hay and D. J. Morris, Industrial Economics: Theory and Evidence (Oxford, UK: Oxford University Press, 1979). See also C. W. L. Hill and G. R. Jones, Strategic Management: An Integrated Approach (Boston: Houghton Mifflin, 2004).

12. See P. Nemetz and L. Fry, “Flexible Manufacturing Organizations: Implications for Strategy Formulation,” Academy of Management Review 13 (1988), pp. 627–38; N. Greenwood, Implementing Flexible Manufacturing Systems (New York: Halstead Press, 1986); J. P. Womack, D. T. Jones, and D. Roos, The Machine That Changed the World (New York: Rawson Associates, 1990); and R. Parthasarthy and S. P. Seith, “The Impact of Flexible Automation on Business Strategy and Organizational Structure,” Academy of Management Review 17 (1992), pp. 86–111.

13. B. J. Pine, Mass Customization: The New Frontier in Business Competition (Boston: Harvard Business School Press, 1993); S. Kotha, “Mass Customization: Implementing the Emerging Paradigm for Competitive Advantage,” Strategic Management Journal 16 (1995), pp. 21–42; J. H. Gilmore and B. J. Pine II, “The Four Faces of Mass Customization,” Harvard Business Review, January–February 1997, pp. 91–101; and M. Zerenler and D. Ozilhan, “Mass Customization Manufacturing: The Drivers and Concepts,” Journal of American Academy of Business 12, no. 1 (2007), pp. 230–62.

14. “Toyota Motor Corporation Captures Ten Segment Awards,” J. D. Power press release, March 19, 2009, http://business-center.jdpower.com/news/pressrelease.aspx?ID52009043.

15. M. A. Cusumano, The Japanese Automobile Industry (Cambridge, MA: Harvard University Press, 1989); T. Ohno, Toyota Production System (Cambridge, MA: Productivity Press, 1990); and Womack, Jones, and Roos, The Machine That Changed the World.

16. P. Waurzyniak, “Ford’s Flexible Push,” Manufacturing Engineering, September 2003, pp. 47–50.

17. Hult, Closs, and Frayer, Global Supply Chain Management.

18. F. Kasra, “Making the Most of Foreign Factories,” in World View, ed. J. E. Garten (Boston: Harvard Business School Press, 2000).

19. “The Boomerang Effect,” The Economist, April 21, 2012; and Charles Fishman, “The Insourcing Boom,” The Atlantic, December 2012.

20. This anecdote was told to the author by a Microsoft manager while the author was visiting Microsoft facilities in Hyderabad, India.

21. Interview by author. The manager was a former executive MBA student of the author.

22. Hult, Closs, and Frayer, Global Supply Chain Management.

23. Ibid.

24. D. A. Beeton, Technology Roadmapping in the Packaging Sector (Cambridge, UK: Institute for Manufacturing, University of Cambridge, 2004).

25. J. A. Peterson and V. Kumar, “Can Product Returns Make You Money?” MIT Sloan Management Review 51, no. 3 (2013), pp. 85–89.

26. Hult, Closs, and Frayer, Global Supply Chain Management; R. J. Trent and R. M. Monczka, “Achieving Excellence in Global Sourcing,” MIT Sloan Management Review 47, no. 1 (2005), pp. 24–32.

27. M. Kotabe and K. Helsen, Global Marketing Management (Hoboken, NJ: John Wiley & Sons, 2010).

28. H. F. Busch, “Integrated Materials Management,” IJPD & MM 18 (1990), pp. 28–39.

29. T. Aeppel, “Manufacturers Cope with the Costs of Strained Global Supply Lines,” The Wall Street Journal, December 8, 2004, p. A1.

30. D. J. Bowersox, D. J. Closs, M. B. Cooper, and J. C. Bowersox, Supply Chain Logistics Management (New York: McGraw-Hill Companies, 2012).

31. J. C. Anderson, J. A. Narus, and W. van Rossum (2006), “Customer Value Propositions in Business Markets,” Harvard Business Review, March, pp. 1–10.

Global Marketing and R & D Page 436

images test PREP
Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.
images LO 15-5
Understand the functions of logistics and purchasing (sourcing) within global supply chains.
Global Distribution Center
A facility that positions and allows customization of products for delivery to worldwide wholesalers or retailers, or directly to consumers anywhere in the world; also called a global distribution warehouse.
Global Supply Chain Functions
To this point in the chapter, we have emphasized global production, a component of the operations management of a supply chain. Issues such as where to produce, the strategic role of a foreign production site, and the make-or-buy decisions are the core aspects of global production. In addition to global production, three additional supply chain functions need to be developed in concert with global production. They are logistics, purchasing (sourcing), and the company’s distribution strategy (i.e., marketing channels). The latter—distribution strategy—is addressed in Chapter 16, where we discuss marketing and R&D. Here we address logistics and purchasing. From earlier in this chapter, we know that production and supply chain management are closely linked because a firm’s ability to perform its production activities depends on information inputs and a timely supply of high-quality material (raw material, component parts, and even finished products that are used in the manufacturing of new products). Logistics and purchasing are critical functions in ensuring that materials are ordered and delivered and that an appropriate level of inventory is managed.

GLOBAL LOGISTICS From earlier in this chapter we know that logistics is the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing. The core activities performed in logistics are (1) global distribution center management, (2) inventory management, (3) packaging and materials handling, (4) transportation, and (5) reverse logistics. Each of these core logistics is described in the next paragraphs.

How Much Relationship Building Do You Really Want to Do?

Page 437Global Inventory Management

The decision-making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation.

Packaging

The container that holds the product itself. It can be divided into primary, secondary, and transit packaging.

Global inventory management can be viewed as the decision-making process regarding the raw materials, work-in-process (component parts), and finished goods inventory for a multinational corporation. The decisions include how much inventory to hold, in what form to hold it, and where to locate it in the supply chain. Examining the largest 20,910 global companies with headquarters in 105 countries, we find that these companies, on average across all industries, carry 14.41 percent of their total assets in some form of inventory.22 These companies have 32.30 percent of their inventory in raw materials, 17.94 percent of their inventory in work-in-process, and 49.76 percent of their inventory in finished goods.23 At the company level, Toyota (www.toyota.com) from Japan, one of the largest automobile firms in the world, has 8.71 percent of its total assets in inventory, with a mix of 25.87, 13.62, and 60.50 percent in raw materials, work-in-process, and finished vehicles, respectively. Another example is Sinopec (www.sinopec.com), a petroleum firm and the largest firm in China. Sinopec has 21.46 percent of its total assets in inventory, with a mix of 36.58, 42.50, and 20.92 percent in raw materials and component parts, work-in-process, and finished goods, respectively. Note that Sinopec maintains a much higher percentage of its inventories in work-in-process and a much lower percentage in finished goods than Toyota does. This suggests that petroleum firms want more flexibility in deciding exactly how to formulate the finished product. The company’s global inventory strategy must effectively trade off the service and economic benefits of making products in large quantities and positioning them near customers against the risk of having too much stock or the wrong items.
Packaging comes in all shapes, sizes, forms, and uses. It can be divided into three different types: primary, secondary, and transit. Primary packaging holds the product itself. These are the packages brought home from the store, usually a retailer, by the end-consumer. Secondary packaging (sometimes called case-lot packaging) is designed to contain several primary packages. Bulk buying or warehouse store customers may take secondary packages home (e.g., from Sam’s Club), but this is not the typical mode for retailers. Retailers can also use secondary packaging as an aid when stocking shelves in the store. Transit packaging comes into use when a number of primary and secondary packages are assembled on a pallet or unit load for transportation. Unit-load packaging—through palletizing, shrink-wrapping, or containerization—is the outer packaging envelope that allows for easier handling or product transfer among international suppliers, manufacturers, distribution centers, retailers, and any other intermediaries in the global supply chain.
Regardless of where the product is in the global supply chain, packaging is intended to achieve a set of multilayered functions. These can be grouped into (1) perform, (2) protect, and (3) inform.24 Perform refers to (1) the ability of the product in the package to handle being transported between nodes in the global supply chain, (2) the ability of the product to be stored for typical lengths of time for a particular product category, and (3) the package providing the convenience expected by both the supply chain partners and the end-customers. Protect refers to the package’s ability to (1) contain the products properly, (2) preserve the products to maintain their freshness or newness, and (3) provide the necessary security and safety to ensure that the products reach their end destination in their intended shape. Inform refers to the package’s inclusion of (1) logical and sufficient instructions for the use of the products inside the package, including specific requirements to satisfy local regulations, (2) a statement of a compelling product guarantee, and (3) information about service for the product if and when it is needed.

Transportation refers to the movement of raw material, component parts, and finished goods throughout the global supply chain. It typically represents the largest percentage of any logistics budget and an even greater percentage for global companies because of the distances involved. Global supply chains are directly or indirectly responsible for transporting raw materials from their suppliers to the production facilities, work-in-process and finished goods inventories between plants and distribution centers, and finished goods from distribution centers to customers. The primary drivers of transportation rates and the resulting aggregate cost are distance, transport mode (ocean, air, or land), size of load, load characteristics, and oil prices. As would be expected, longer distances require more fuel and more time from vehicle operators, so transport rates increase with distance. Transport mode influences rates because of the different technologies involved. Ocean is the least expensive because of the size of the vehicles used and the low friction of water. Land is the next least expensive, with rail being less expensive than motor carriers. Air is the most expensive because there is a substantial charge for defying gravity. Transportation rates are heavily influenced by economies of scale, so larger shipments are typically relatively less expensive than smaller shipments. The characteristics of the shipment also influence transportation rates through such factors as product density, value, perishability, potential for damage, and other such factors. Finally, oil prices have a major impact on transportation rates because anywhere from 10 to 40 percent of most carrier costs, depending on the mode, are related to fuel.

Transportation

the movement of inventory through the supply chain.

Page 438Reverse logistics is the process of planning, implementing, and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. The ultimate goal is to optimize the after-market activity or make it more efficient, thus saving money and environmental resources. Reverse logistics is critically important in global supply chains. For example, product returns cost manufacturers and retailers more than $100 billion per year in the United States, or an average of 3.8 percent in lost profits.25 Overall, manufacturers spend about 9 to 14 percent of their sales revenue on returns. Even more staggering, each year, consumers in America return more than the GDP of two-thirds of the nations in the world. Just these sample numbers suggest that reverse logistics is an incredibly important part of the global supply chain.

GLOBAL PURCHASING As defined in the introduction to this chapter, purchasing represents the part of the supply chain that involves worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services. The core activities performed in purchasing include development of an appropriate strategy for global purchasing and selecting the type of purchasing strategy best suited for the company.
There are five strategic levels—from domestic to international to global—that can be undertaken by a global company.26 Level I is simply companies engaging in domestic purchasing activities only. Often, these companies stay close to their home base in their domestic market when purchasing raw materials, component parts, and the like for their operations (e.g., a Michigan firm purchasing raw materials, such as cherries, from another Michigan firm). Levels II and III are both considered “international purchasing,” but of various degrees and forms. Companies that are at level II engage in international purchasing activities only as needed. This means that their approach to international purchasing is often reactive and uncoordinated among the buying locations within the firm and/or across the various units that make up the firm, such as strategic business units and functional units. Companies at level III engage in international purchasing activities as part of the firm’s overall supply chain management strategy. As such, at the level III stage, companies begin to recognize that a well-formulated and well-executed worldwide international purchasing strategy can be very effective in elevating the firm’s competitive edge in the marketplace. Levels IV and V both involve “global purchasing” to various degrees. Level IV refers to global purchasing activities that are integrated across worldwide locations. This involves integration and coordination of purchasing strategies across the firm’s buying locations worldwide. With level IV, we are now dealing with a sophisticated form of worldwide purchasing. Level V involves engaging in global purchasing activities that are integrated across worldwide locations and functional groups. Broadly, this means that the firm integrates and coordinates the purchasing of common items, purchasing processes, and supplier selection efforts globally, for example.
Beyond the domestic, international, and global purchasing strategies in levels I through V, purchasing includes a number of basic choices that companies make in deciding how to engage with markets.27 The starting point is a choice of internal purchasing versus external purchasing—in other words, “how to purchase.” We find that roughly 35 percent of the purchasing in global companies today is internal (i.e., from sources within their own company), with 65 percent being classified as external (i.e., from sources outside of their company). The next decision, in both internal and external purchasing, is to figure out “where to purchase” (domestically or globally). This takes us ultimately to the “types of purchasing” (where and how) and the four choices for purchasing strategy: domestic internal purchasing, global internal purchasing, domestic external purchasing, and global external purchasing.
Reverse Logistics
The process of moving inventory from the point of consumption to the point of origin in supply chains for the purpose of recapturing value or proper disposal.

15.2 TABLE
Outsourcing Terms and Options
The types of purchasing activities and strategies just discussed come with a set of generic options for the “international arena.” But we all know that outsourcing and offshoring, along with many by-products and other similar yet quite different options, exist in the purchasing world today. At this stage of the text, we feel it is important to go over the outsourcing-related terms and options that companies have, especially the following terms that are often confusing to understand, develop strategy around, and implement: outsourcing, insourcing, offshoring, offshore outsourcing, nearshoring, and co-sourcing (see Table 15.2).
Managing a Global Supply Chain
The potential for reducing costs through more efficient supply chain management is enormous. For the typical manufacturing enterprise, material costs account for between 50 and 70 percent of revenues, depending on the industry. Even a small reduction in these costs can have a substantial impact on profitability. According to one estimate, for a firm with revenues of $1 million, a return on investment rate of 5 percent, and materials costs that are 50 percent of sales revenues, a $15,000 increase in total profits could be achieved either by increasing sales revenues 30 percent or by reducing materials costs by 3 percent.28 In a saturated market, it would be much easier to reduce materials costs by 3 percent than to increase sales revenues by 30 percent. As such, managing global supply chains is one of the strategically most important areas for a global company. Four main areas are of concern in managing a global supply chain, including the role of just-in-time inventory, the role of information technology, coordination in global supply chains, and interorganizational relationships in global supply chains.
images test PREP
Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.
images LO 15-6
Describe what is required to efficiently manage a global supply chain.
Page 440ROLE OF JUST-IN-TIME INVENTORY Pioneered by Japanese firms during that country’s remarkable economic transformation during the 1960s and 1970s, just-intime inventory systems now play a major role in most manufacturing firms. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost savings comes from speeding up inventory turnover. This reduces inventory holding costs, such as warehousing and storage costs. It means the company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. Other things being equal, this will boost the company’s profitability as measured by return on capital invested. It also means the company is less likely to have excess unsold inventory that it has to write off against earnings or price low to sell.
In addition to the cost benefits, JIT systems can also help firms improve product quality. Under a JIT system, parts enter the manufacturing process immediately; they are not ware-housed. This allows defective inputs to be spotted right away. The problem can then be traced to the supply source and fixed before more defective parts are produced. Under a more traditional system, warehousing parts for weeks before they are used allows many defective parts to be produced before a problem is recognized.
The drawback of a JIT system is that it leaves a firm without a buffer stock of inventory. Although buffer stocks are expensive to store, they can help a firm respond quickly to increases in demand and tide a firm over shortages brought about by disruption among suppliers. Such a disruption occurred after the September 11, 2001, attacks on the World Trade Center and Pentagon, when the subsequent shutdown of international air travel and shipping left many firms that relied upon globally dispersed suppliers and tightly managed “just-in-time” supply chains without a buffer stock of inventory. A less pronounced but similar situation occurred again in April 2003, when the outbreak of the pneumonia-like SARS (severe acute respiratory syndrome) virus in China resulted in the temporary shutdown of several plants operated by foreign companies and disrupted their global supply chains. Similarly, in late 2004, record imports into the United States left several major West Coast shipping ports clogged with too many ships from Asia that could not be unloaded fast enough, which disrupted the finely tuned supply chains of several major U.S. enterprises.29
There are ways of reducing the risks associated with a global supply chain that operates on just-in-time principles. To reduce the risks associated with depending on one supplier for an important input, some firms source these inputs from several suppliers located in different countries. While this does not help in the case of an event with global ramifications, such as September 11, 2001, it does help manage country-specific supply disruptions, which are more common. Strategically, all global companies need to build in some degree of redundancy in supply chains by having multiple options for suppliers.
ROLE OF INFORMATION TECHNOLOGY Web and cloud-based information systems play a crucial role in modern materials management. By tracking component parts as they make their way across the globe toward an assembly plant, information systems enable a firm to optimize its production scheduling according to when components are expected to arrive. By locating component parts in the supply chain precisely, good information systems allow the firm to accelerate production when needed by pulling key components out of the regular supply chain and having them flown to the manufacturing plant.
Firms now typically use some form of supply chain information system to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. There are a variety of options for global supply chains. Electronic data interchange (EDI) refers to the electronic interchange of data between two or more companies. Enterprise resource planning (ERP) is a wide-ranging business planning and control system that includes supply chain-related subsystems (e.g., materials requirements planning, or MRP). Collaborative planning, forecasting, and replenishment (CPFR) was developed to fill the interorganizational connections that ERP cannot fill. Vendor management of inventory (VMI) allows for a holistic overview of the supply chain with a single point of control for all inventory management. A warehouse management system (WMS) often operates in concert with ERP systems; for example, an ERP system defines material requirements, and these are transmitted to a distribution center for a WMS.
Just in Time (JIT)
Inventory logistics system designed to deliver parts to a production process as they are needed, not before.
Page 441Before the emergence of the Internet as a major communication medium, firms and their suppliers normally had to purchase expensive proprietary software solutions to implement EDI systems. The ubiquity of the Internet and the availability of web and cloud-based applications have made most of these proprietary solutions obsolete. Less expensive systems that are much easier to install and manage now dominate the market for global supply chain management software. These systems have transformed the management of globally dispersed supply chains, allowing even small firms to achieve a much better balance between supply and demand, thereby reducing the inventory in their systems and reaping the associated economic benefits. Importantly, with most firms now using these systems, those that do not will find themselves at a competitive disadvantage. This has implications for small and medium-sized companies that may not always have the resources to implement the most sophisticated supply chain information systems.
COORDINATION IN GLOBAL SUPPLY CHAINS Consider how to turn an aircraft, and think in terms of coordination and leverage points. That is, aircraft are typically steered using an integrated system of ailerons on the wings and the rudder at the tail of the aircraft. In comparison to the aircraft, the ailerons and the rudder seem very small. However, leverage allows the coordinated effort of the ailerons and the rudder to turn the aircraft. In other words, putting the right combination of a little leverage on the right places together with a coordinated effort leads to incredible maneuvering ability for the plane. Global supply chains are the same. Integration and coordination are critically important. Global supply chain coordination refers to shared decision-making opportunities and operational collaboration of key global supply chain activities.
Shared decision making—such as joint consideration of replenishment, inventory holding costs, collaborative planning, costs of different processes, frequency of orders, batch size, and product development—creates a more integrated, coherent, efficient, and effective global supply chain. This includes shared decision making by supply chain members both inside an organization (e.g., logistics, purchasing, operations, and marketing channels employees) and across organizations (e.g., raw materials producers, transportation companies, manufacturers, wholesalers, retailers). Shared decision making is not joint decision making; it is decision making involving joint considerations. Shared decision making helps in resolving potential conflicts among global supply chain members and fosters a culture of coordination and integration. In most supply chains, certain parties are more influential, and shared decision making, at a minimum, should include the critically important chain members.
To achieve operational integration and collaboration within a global supply chain, six operational objectives should be addressed: responsiveness, variance reduction, inventory reduction, shipment consolidation, quality, and life-cycle support.30 Responsiveness refers to a global firm’s ability to satisfy customers’ requirements across global supply chain functions in a timely manner. Variance reduction refers to integrating a control system across global supply chain functions to eliminate global supply chain disruptions. Inventory reduction refers to integrating an inventory system, controlling asset commitment, and turning velocity across global supply chain functions. Shipment consolidation refers to using various programs to combine small shipments and provide timely, consolidated movement. This includes multiunit coordination across global supply chain functions. Quality refers to integrating a system so that it achieves zero defects throughout global supply chains. Finally, life-cycle support refers to integrating the activities of reverse logistics, recycling, after-market service, product recall, and product disposal across global supply chain functions.

Global Supply Chain Coordination
The shared decision-making opportunities and operational collaboration of key global supply chain activities.

15.2 FIGURE
Upstream/Inbound Relationships
For the upstream/inbound portion of the global supply chain, the three logical scenarios of interacting organizations are labeled as vendors, suppliers, and partners. Each scenario is based on the degree of coordination, integration, and transactional versus relationship emphasis that the firm should adopt in partnering with other entities in the global supply chain. For instance, a firm uses vendors to obtain raw materials and component parts through a transactional relationship that can change easily. A given firm may use suppliers to obtain raw materials and parts and maintain a relationship with those suppliers based on experience and performance. Another firm may engage with partners to obtain raw materials and parts, maintaining a relationship based on trust and commitment.
For the downstream/outbound portion of the global supply chain, the three logical scenarios of interacting organizations are labeled as buyers, customers, and clients. As with the upstream/inbound examples, each downstream/outbound scenario is based on the degree of coordination, integration, and transactional versus relationship focus that the firm should adopt in partnering with other entities in the global supply chain. One firm may sell products and parts to buyers through a transactional relationship that can change easily. Another firm may sell products and parts to customers and maintain a relationship that is based on experience and performance. Yet another firm may sell products and parts to clients and maintain a relationship that is based on trust and commitment.
Having reviewed the three scenarios for the upstream/inbound and downstream/outbound portions of the global supply chain, let’s look at the emphasis a global company should place on the relationships with each entity: the benefits to be expected, favorable points of distinction, and resonating focus in the relationship.31 First, however, some basics on value are appropriate. Value between nodes and actors in global supply chains is a function of the cost (money and nonmoney resources) given up in return for the quality (products, services, information, trust, and commitment) received. Basically, greater value is achieved if the quality is greater while the cost remains the same or is reduced, or when the cost is reduced and the quality remains constant.

15.6 FIGURE
Downstream/Outbound Relationships
Page 443A global company should allocate 20 percent of its efforts to the vendor category, 30 percent to the supplier category, and 50 percent to the partner category in the upstream/ inbound portion of the global supply chain. Likewise, a global company should allocate 20 percent of its efforts to the buyer category, 30 percent to the customer category, and 50 percent to the client category in the downstream/outbound portion of the chain. In the vendor (upstream) and buyer (downstream) portions of the supply chain, the benefits that can be expected include those typical of a transactional exchange (costs equal to quality for the goods bought, but not necessarily the best goods in the marketplace). In the supplier (upstream) and customer (downstream) stages, the expectation is that the firm will receive all the favorable points that the raw materials, component parts, and/or products have relative to the next best alternative in the global marketplace. This takes into account the ideas that the costs are equal to quality for the goods bought and that the goods are among the best goods in the marketplace. Finally, in the partner (upstream) and client (downstream) portions of the supply chain, the benefits that the firm can expect to receive include the one or two points of difference for the raw materials, component parts, and/or products whose improvements will deliver the greatest value to the customer for the foreseeable future (quality greater than cost).
images test PREP
Use LearnSmart to help retain what you have learned. Access your instructor’s Connect course to check out LearnSmart or go to learnsmartadvantage.com for help.
Key Terms
production
supply chain management
purchasing
logistics
upstream supply chain
downstream supply chain
total quality management (TQM)
Six Sigma
ISO 9000
minimum efficient scale
flexible manufacturing technology
lean production
mass customization
flexible machine cells
global learning
offshore factory
source factory
server factory
contributor factory
outpost factory
lead factory
make-or-buy decision
global distribution center
global inventory management
packaging
transportation
reverse logistics
just in time (JIT)
global supply chain coordination
Summary
This chapter explained how global production and supply chain management can improve the competitive position of an international business by lowering the total costs of value creation and by performing value creation activities in such ways that customer service is enhanced and value added is maximized. We looked closely at five issues central to global production and supply chain management: where to produce, the strategic role of foreign production sites, what to make and what to buy, global supply chain functions, and managing a global supply chain. The chapter made the following points:
1. The choice of an optimal production location must consider country factors, technological factors, and production factors.
2. Country factors include the influence of factor costs, political economy, and national culture on production costs, along with the presence of location externalities.
3. Technological factors include the fixed costs of setting up production facilities, the minimum efficient scale of production, and the availability of flexible manufacturing technologies that allow for mass customization.
4. Production factors include product features, locating production facilities, and strategic roles for production facilities.
5. Location strategies either concentrate or decentralize manufacturing. The choice should be made in light of Page 444country, technological, and production factors. All location decisions involve trade-offs.
6. Foreign factories can improve their capabilities over time, and this can be of immense strategic benefit to the firm. Managers need to view foreign factories as potential centers of excellence and encourage and foster attempts by local managers to upgrade factory capabilities.
7. An essential issue in many international businesses is determining which component parts should be manufactured in-house and which should be outsourced to independent suppliers. Both making and buying component parts are primarily based on cost considerations and production capacity constraints, but each decision (make or buy) is also influenced by several different factors.
8. The core global supply chain functions are logistics, purchasing (sourcing), production (and operations management), and marketing channels.
9. Logistics is the part of the supply chain that plans, implements, and controls the effective flows and inventory of raw material, component parts, and products used in manufacturing. The core activities performed in logistics are to manage global distribution centers, inventory management, packaging and materials handling, transportation, and reverse logistics.
10. Purchasing represents the part of the supply chain that involves worldwide buying of raw material, component parts, and products used in manufacturing of the company’s products and services. The core activities performed in purchasing include development of an appropriate strategy for global purchasing and selecting the type of purchasing strategy best suited for the company.
11. Managing a supply chain involves orchestrating effective just-in-time inventory systems, using information technology, coordination among functions and entities in the chain, and developing interorganizational relationships.
12. Just-in-time systems generate major cost savings by reducing warehousing and inventory holding costs and by reducing the need to write off excess inventory. In addition, JIT systems help the firm spot defective parts and remove them from the manufacturing process quickly, thereby improving product quality.
13. Information technology, particularly Internet-based electronic data interchange, plays a major role in materials management. EDI facilitates the tracking of inputs, allows the firm to optimize its production schedule, lets the firm and its suppliers communicate in real time, and eliminates the flow of paperwork between a firm and its suppliers.
14. Global supply chain coordination refers to shared decision-making opportunities and operational collaboration of key global supply chain activities.
15. The depth and involvement in interorganizational relationships in global supply chains should be based on the degree of coordination, integration, and transactional versus relationship emphasis that the firm should adopt in partnering with other entities in the global supply chain.

Critical Thinking and Discussion Questions

1. An electronics firm is considering how best to supply the world market for microprocessors used in consumer and industrial electronic products. A manufacturing plant costs about $500 million to construct and requires a highly skilled workforce. The total value of the world market for this product over the next 10 years is estimated to be between $10 billion and $15 billion. The tariffs prevailing in this industry are currently low. What kind of location(s) should the firm favor for its plant(s)?
2. A chemical firm is considering how best to supply the world market for sulfuric acid. A manufacturing plant costs about $20 million to construct and requires a moderately skilled workforce. The total value of the world market for this product over the next 10 years is estimated to be between $20 billion and $30 billion. The tariffs prevailing in this industry are moderate. What kind of location(s) should the firm seek for its plant(s)?
3. A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in specialized assets. The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade. What are the pros and cons of (a) manufacturing the component in-house and (b) outsourcing manufacturing to an independent supplier? Which option would you recommend? Why?
4. Reread the Management Focus on Philips in China and then answer the following questions:
a. What are the benefits to Philips of shifting so much of its global production to China?
b. What are the risks associated with a heavy concentration of manufacturing assets in China?
c. What strategies might Philips adopt to maximize the benefits and mitigate the risks associated with moving so much product?

Page 4455. Explain how the global supply chain functions of (a) logistics and (b) purchasing can be used to strategically leverage the global supply chains for a manufacturing company producing mobile phones.

6. What type of interorganizational relationship should a global company consider in the (a) inbound portion of its supply chains if the goal is to buy commodity-oriented component parts for its own production and (b) outbound portion of its supply chains if the goal is to establish a strong partnership in reaching end-customers?
images Research Task http://globalEDGE.msu.edu
Use the globalEDGE website (globaledge.msu.edu) to complete the following exercises:
1. The globalization of production makes many people aware of the differences in manufacturing costs worldwide. The U.S. Department of Labor’s Bureau of International Labor Affairs publishes the Chartbook of International Labor Comparisons. Locate the latest edition of this report, and identify the hourly compensation costs for manufacturing workers in China, Brazil, Mexico, Turkey, Germany, and the United States.
2. The World Bank’s Logistics Performance Index (LPI) assesses the trade logistics environment and performance of countries. Locate the most recent LPI ranking. What components for each country are examined to construct the index? Identify the top 10 logistics performers. Prepare an executive summary highlighting the key findings from the LPI. How are these findings helpful for companies trying to build a competitive supply chain network?
H&M: The Retail-Clothing Giant closing case
David Beckham, Freja Beha, Beyoncé, Gisele Bündchen, Georgia May Jagger, Miranda Kerr, Madonna, Vanessa Paradis, Katy Perry, Lana Del Rey, Rihanna, Anja Rubik, and so many more. Yes, it sounds like a list of celebrities and they are! These celebrities represent just a partial list of really well-known people around the world who have worked with H&M (do you recognize all of them?). But, let’s move on from the “name dropping” to Hennes & Mauritz, or H&M as it is more commonly known. H&M is a Swedish multinational retail-clothing giant known for its fashion clothing for women, men, teenagers, and children. H&M has effectively used superstar celebrities like David Beckham, Beyoncé, and Gisele Bündchen for years to carry their advertising message worldwide. Behind the scenes, H&M’s global supply chains are equally well orchestrated and are as high powered as its advertising campaigns.
H&M Hennes & Mauritz AB is now the full name of the company (it started simply as “Hennes” in 1947 in a small Swedish town called Västerås). The idea for the company emerged when, in 1946, Erling Persson, the company’s founder, came up with the idea of offering fashionable clothing at relatively low prices while he was on a business trip to the United States. At that time, Erling Persson decided to focus on women’s clothing only, and “Hennes,” which means “her” or “hers” in Swedish, was started. A couple of decades later, in 1968, Hennes acquired the building and inventory of hunting equipment retailer Mauritz Widforss. A supply of men’s clothing was also a part of the inventory. This resulted in menswear being included in the company’s collection—and gave birth to Hennes & Maurits (H&M). H&M now has some 3,200 stores in 54 countries and approximately 116,000 employees. It is the second largest clothing retailer in the world after Spain-based Inditex (parent company of ZARA) and ahead of U.S.-based GAP Inc.
images
Pedestrians wald past a H&M store in Singapore
H&M Hennes & Mauritz AB comprises six different brands, although the H&M brand is the most recognizable worldwide. The other brands are COS, Monki, Weekday, Cheap Monday, and & Other Stories. H&M designs sustainable fashion for all people at relatively modest prices and sells its products in 54 countries and online in an additional 10 markets. COS explores the concept of style over fashion and sells its products in stores and online in 38 countries. Monki is promoted as a fashion experience and is offered Page 446in 30 markets in stores and online. Weekday is a jeans-focused fashion destination with sales in 25 markets. Cheap Monday combines “influences from street fashion and subculture with a catwalk vibe” and is offered in some 20 markets. The last brand, called “& Other Stories,” was launched in 2013 and focuses on personal expression and styling, with availability in 17 markets. The collection of these brands, driven by the H&M collection and its footprint in 64 countries, presents a unique global supply chain challenge for the company.
The collections of clothing are created by a team of 160 in-house designers and 100 pattern makers. The design and pattern team is large and diverse, representing different age groups and nationalities. H&M Hennes & Mauritz AB’s (H&M from now on) design process is about “striking the right balance between fashion, quality and the best price . . . and it always involves sustainability awareness.” H&M does not own its own factories but instead works with around 900 independent suppliers to implement the team’s designs into reality. These independent suppliers are mostly located in Europe and Asia. They manufacture all of H&M’s products, and they also generally source fabrics and other components needed to create the fashion statements we have come to know from the H&M brands. Some 80 people in the H&M organization are dedicated to constantly audit the working conditions at the factories of suppliers, including safety and quality testing and ensuring that chemicals requirements are met.
Within the global supply chain infrastructure, one key aspect of H&M is the ordering of each product. Specifically, ordering each product at the optimal moment is an important part of H&M achieving the right balance among price, cycle time, and quality. To realize the effectiveness needed to ultimately sell fashion-oriented clothing at affordable prices, H&M works closely with long-term partners and invests significant resources into the sustainability of the work needed in its supply chains. In these areas, H&M strives to promote lasting improvements in working conditions and environmental impact throughout the footprint that it makes worldwide. Through its 900 suppliers, the company is connected to some 1,900 factories and about 1.6 million workers.
Sources: H&M website, http://hm.com, accessed April 12, 2014; L. Siegle, “Is H&M The New Home of Ethical Fashion?” The Observer, April 7, 2012; G. Petro, “The Future of Fashion Retailing—The H&M Approach,” Forbes, November 5, 2012; K. Stock, “H&M’s New Store Blitz Moves Faster Than Its Digital Expansion,” Bloomberg Businessweek, March 17, 2014; and M. Kerppola, R. Moody, L. Zheng, and A. Liu, “H&M’s Global Supply Chain Management Sustainability: Factories and Fast Fashion,” GlobaLens, a division of the William Davidson Institute at the University of Michigan, February 8, 2014.
CASE DISCUSSION QUESTIONS
1. Does it surprise you that the second largest clothing retailer is only selling in stores in 54 countries plus an additional 10 countries online? Why do you think it is not covering more of the world’s countries?
2. H&M does not own any of the factories that produce its clothes. Instead, it relies on some 1,900 factories and 900 suppliers to create what its team designed. These factories and suppliers are mostly in Europe and Asia. How can H&M ensure that its customers receive the quality expected in the clothing?
3. H&M stresses sustainability in its promotional campaigns. How can it ensure that the working conditions are appropriate for the 1.6 million people that serve in its supplier network? Is it even H&M’s role to ensure that the working conditions and environmental impact are great in every market it engages in?
4. If you worked for H&M, what would you suggest that it focus on to become even larger than it is now? Should it have its own factories? Should it expand to more than the 64 countries (54 with stores and 10 online) that it is in now? Should it control more of the global supply chains?
Endnotes
Note: Elements of the sections on Strategic Roles for Production Facilities; Make-or-Buy Decisions; Global Supply Chain Functions; Coordination in Global Supply Chains; and Interorganizational Relationships are drawn from Tomas Hult, David Closs, and David Frayer (2014), Global Supply Chain Management, New York: McGraw Hill.
1. T. Hult, D. Closs, and D. Frayer, Global Supply Chain Management: Leveraging Processes, Measurements, and Tools for Strategic Corporate Advantage (New York: McGraw-Hill Professional, 2014).
2. D. A. Garvin, “What Does Product Quality Really Mean,” Sloan Management Review 26 (Fall 1984), pp. 25–44.
3. See the articles published in the special issue of the Academy of Management Review on Total Quality Management 19, no. 3 (1994). The following article provides a good overview of many of the issues involved from an academic perspective: J. W. Dean and D. E. Bowen, “Management Theory and Total Quality,” Academy of Management Review 19 (1994), pp. 392–418. Also see T. C. Powell, “Total Quality Management as Competitive Advantage,” Strategic Management Journal 16 (1995), pp. 15–37; and S. B. Han et al., “The Impact of ISO 9000 on TQM and Business Performance,” Journal of Business and Economic Studies 13, no. 2 (2007), pp. 1–25.
4. For general background information, see “How to Build Quality,” The Economist, September 23, 1989, pp. 91–92; A. Gabor, The Man Who Discovered Quality (New York: Penguin, 1990); P. B. Crosby, Quality Is Free (New York: Mentor, 1980); and M. Elliot et al., “A Quality World, a Quality Life,” Industrial Engineer, January 2003, pp. 26–33.
5. G. T. Lucier and S. Seshadri, “GE Takes Six Sigma beyond the Bottom Line,” Strategic Finance, May 2001, pp. 40–46; and U. D. Kumar et al., “On the Optimal Selection of Process Alternatives in a Six Sigma Implementation,” International Journal of Production Economics 111, no. 2 (2008), pp. 456–70.
6. M. Saunders, “U.S. Firms Doing Business in Europe Have Options in Registering for ISO 9000 Quality Standards,” Business America, June 14, 1993, p. 7; and Han et al., “The Impact of ISO 9000.”
7. G. Stalk and T. M. Hout, Competing against Time (New York: Free Press, 1990).
Page 4478. N. Tokatli, “Global Sourcing: Insights from the Global Clothing Industry—The Case of Zara, a Fast Fashion Retailer,” Journal of Economic Geography 8, no. 1 (2008), pp. 21–39.
9. Diana Farrell, “Beyond Offshoring,” Harvard Business Review, December 2004, pp. 1–8; and M. A. Cohen and H. L. Lee, “Resource Deployment Analysis of Global Manufacturing and Distribution Networks,” Journal of Manufacturing and Operations Management 2 (1989), pp. 81–104.
10. P. Krugman, “Increasing Returns and Economic Geography,” Journal of Political Economy 99, no. 3 (1991), pp. 483–99; J. M. Shaver and F. Flyer, “Agglomeration Economies, Firm Heterogeneity, and Foreign Direct Investment in the United States,” Strategic Management Journal 21 (2000), pp. 1175–93; and R. E. Baldwin and T. Okubo, “Heterogeneous Firms, Agglomeration Economies, and Economic Geography,” Journal of Economic Geography 6, no. 3 (2006), pp. 323–50.
11. For a review of the technical arguments, see D. A. Hay and D. J. Morris, Industrial Economics: Theory and Evidence (Oxford, UK: Oxford University Press, 1979). See also C. W. L. Hill and G. R. Jones, Strategic Management: An Integrated Approach (Boston: Houghton Mifflin, 2004).
12. See P. Nemetz and L. Fry, “Flexible Manufacturing Organizations: Implications for Strategy Formulation,” Academy of Management Review 13 (1988), pp. 627–38; N. Greenwood, Implementing Flexible Manufacturing Systems (New York: Halstead Press, 1986); J. P. Womack, D. T. Jones, and D. Roos, The Machine That Changed the World (New York: Rawson Associates, 1990); and R. Parthasarthy and S. P. Seith, “The Impact of Flexible Automation on Business Strategy and Organizational Structure,” Academy of Management Review 17 (1992), pp. 86–111.
13. B. J. Pine, Mass Customization: The New Frontier in Business Competition (Boston: Harvard Business School Press, 1993); S. Kotha, “Mass Customization: Implementing the Emerging Paradigm for Competitive Advantage,” Strategic Management Journal 16 (1995), pp. 21–42; J. H. Gilmore and B. J. Pine II, “The Four Faces of Mass Customization,” Harvard Business Review, January–February 1997, pp. 91–101; and M. Zerenler and D. Ozilhan, “Mass Customization Manufacturing: The Drivers and Concepts,” Journal of American Academy of Business 12, no. 1 (2007), pp. 230–62.
14. “Toyota Motor Corporation Captures Ten Segment Awards,” J. D. Power press release, March 19, 2009, http://business-center.jdpower.com/news/pressrelease.aspx?ID52009043.
15. M. A. Cusumano, The Japanese Automobile Industry (Cambridge, MA: Harvard University Press, 1989); T. Ohno, Toyota Production System (Cambridge, MA: Productivity Press, 1990); and Womack, Jones, and Roos, The Machine That Changed the World.
16. P. Waurzyniak, “Ford’s Flexible Push,” Manufacturing Engineering, September 2003, pp. 47–50.
17. Hult, Closs, and Frayer, Global Supply Chain Management.
18. F. Kasra, “Making the Most of Foreign Factories,” in World View, ed. J. E. Garten (Boston: Harvard Business School Press, 2000).
19. “The Boomerang Effect,” The Economist, April 21, 2012; and Charles Fishman, “The Insourcing Boom,” The Atlantic, December 2012.
20. This anecdote was told to the author by a Microsoft manager while the author was visiting Microsoft facilities in Hyderabad, India.
21. Interview by author. The manager was a former executive MBA student of the author.
22. Hult, Closs, and Frayer, Global Supply Chain Management.
23. Ibid.
24. D. A. Beeton, Technology Roadmapping in the Packaging Sector (Cambridge, UK: Institute for Manufacturing, University of Cambridge, 2004).
25. J. A. Peterson and V. Kumar, “Can Product Returns Make You Money?” MIT Sloan Management Review 51, no. 3 (2013), pp. 85–89.
26. Hult, Closs, and Frayer, Global Supply Chain Management; R. J. Trent and R. M. Monczka, “Achieving Excellence in Global Sourcing,” MIT Sloan Management Review 47, no. 1 (2005), pp. 24–32.
27. M. Kotabe and K. Helsen, Global Marketing Management (Hoboken, NJ: John Wiley & Sons, 2010).
28. H. F. Busch, “Integrated Materials Management,” IJPD & MM 18 (1990), pp. 28–39.
29. T. Aeppel, “Manufacturers Cope with the Costs of Strained Global Supply Lines,” The Wall Street Journal, December 8, 2004, p. A1.
30. D. J. Bowersox, D. J. Closs, M. B. Cooper, and J. C. Bowersox, Supply Chain Logistics Management (New York: McGraw-Hill Companies, 2012).
31. J. C. Anderson, J. A. Narus, and W. van Rossum (2006), “Customer Value Propositions in Business Markets,” Harvard Business Review, March, pp. 1–10.

Global Human Resource Management

CHAPTER 17: GLOBAL HUMAN RESOURCE MANAGEMENT

• New Opening Case: The Strategic Role of Human Resources at IBM.

• New Closing Case: MMC China.

Beyond Uncritical Presentation and Shallow Explanation

Many issues in international business are complex and thus necessitate considerations of pros and cons. To demonstrate this to students, we have adopted a critical approach that presents the arguments for and against economic theories, government policies, business strategies, organizational structures, and so on.

Related to this, we have attempted to explain the complexities of the many theories and phenomena unique to international business so the student might fully comprehend the statements of a theory or the reasons a phenomenon is the way it is. We believe that these theories and phenomena are explained in more depth in this work than they are in the competition, which seem to use the rationale that a shallow explanation is little better than no explanation. In international business, a little knowledge is indeed a dangerous thing.

Focuses on Rich Applications of International Business Concepts

We have always believed that it is important to show students how the material covered in the text is relevant to the actual practice of international business. This is explicit in the later chapters of the book, which focus on the practice of international business, but it is not always obvious in the first half of the book, which considered many macroeconomic and political issues, from international trade theory and foreign direct investment flows to the IMF and the influence of inflation rates on foreign exchange quotations. Accordingly, at the end of each chapter in Parts Two, Three, and Four—where the focus is on the environment of international business, as opposed to particular firms—there is a section titled Focus on Managerial Implications. In this section, the managerial implications of the material discussed in the chapter are clearly explained.

image

Another tool that I have used to focus on managerial implications are Management Focus boxes. There is at least one Management Focus in most chapters. Like the opening cases, the purpose of these boxes is to illustrate the relevance of chapter material for the practice of international business.

image

Page xixIn addition, each chapter begins with an Opening Case that sets the stage for the chapter content and familiarizes students with how real international companies conduct business. There is also a Closing Case to each chapter. These cases are also designed to illustrate the relevance of chapter material for the practice of international business as well as to provide continued insight into how real companies handle those issues.

Connect® International Business is another tool that provides for application of concepts via the great variety of Interactive Application exercises included in this homework assignment and assessment system. For more information, see page xxi.

To help students go a step further in expanding their application level understanding of international business, each chapter incorporates a globalEdge feature authored by Tomas Hult, as well as two globalEDGE research tasks designed and written by Tunga Kiyak and the team at Michigan State University’s globalEDGE.msu.edu site to dovetail with the content just covered.

Integrated Progression of Topics

A weakness of many texts is that they lack a tight, integrated flow of topics from chapter to chapter. In Chapter 1 of this book, students will learn how the book’s topics are related to each other. We have achieved integration by organizing the material so that each chapter builds on the material of the previous ones in a logical fashion.

PART ONE Chapter 1 provides an overview of the key issues to be addressed and explains the plan of the book.

PART TWO Chapters 2, 3, and 4 focus on national differences in political economy and culture, and Chapter 5 examines ethical issues in international business. Most international business textbooks place this material at a later point, but we believe it is vital to discuss national differences first. After all, many of the central issues in international trade and investment, the global monetary system, international business strategy and structure, and international business operations arise out of national differences in political economy and culture. To fully understand these issues, students must first appreciate the differences in countries and cultures. Ethical issues are dealt with at this juncture primarily because many ethical dilemmas flow out of national differences in political systems, economic systems, and culture.

PART THREE Chapters 6 through 9 investigate the political economy of international trade and investment. The purpose of this part is to describe and explain the trade and investment environment in which international business occurs.

PART FOUR Chapters 10 and 11 describe and explain the global monetary system, laying out in detail the monetary framework in which international business transactions are conducted.

PART FIVE In Chapters 12 and 13, attention shifts from the environment to the firm. Here the book examines the strategies that firms adopt to compete effectively in the international business environment.

PART SIX Chapters 14 through 17 explain how firms can perform key functions— production, marketing, research and development, and human resource management to compete and succeed in the international business environment. Throughout the book, the relationship of new material to topics discussed in earlier chapters is pointed out to the students to reinforce their understanding of how the material comprises an integrated whole.

Accessible and Interesting

The international business arena is fascinating and exciting, and we have tried to communicate our enthusiasm for it to the student. Learning is easier and better if the subject matter is communicated in an interesting, informative, and accessible manner. One technique we have used to achieve this is weaving interesting anecdotes into the narrative of the text, that is, stories that illustrate theory. Prepared by co-author Tomas Hult, of Michigan State University, the use of conversation starters also serve to present controversial questions and allow students to discuss and apply concepts from the chapter.

In addition to the conversation starters, most chapters also have a Country Focus box that provides background on the political, economic, social, or cultural aspects of countries grappling with an international business issue.

Page xxi

image

Results-Driven Technology

Across the country, instructors and students continue to raise an important question: How can international business courses further support students throughout the learning process to shape future global business leaders? While there is no one solution, Global Business Today, ninth edition, offers a seamless content and technology solution to improve student engagement and comprehension, automation of assignments and grading, and easy reporting to ensure that learning objectives are being met. Connect® International Business provides a wide array of tools and content to improve instructor productivity and student performance. In fact, the aggregated results of 34 Connect adoptions showed an 11 percent improvement in pass rates, a 16 percent improvement in retention, twice as many students receiving an A, and 77 percent reduction in instructor grading time.

image

Page xxii

McGraw-Hill Connect

International Business

image

• Make business decisions based on specific scenarios/cases from real-world companies.

image

• Analyze a case and apply chapter concepts.

• Demonstrate problem-solving skills through complex examples and diagrams.

image

• Demonstrate knowledge about business models and processes.

McGraw-Hill Connect Plus with Integrated Media-Rich E-book

image

McGraw-Hill reinvents the textbook-learning experience for today’s students with Connect Plus, providing students with a cost-saving alternative to the traditional textbook. A seamless integration of a media-rich e-book and Connect, Connect Plus provides all the Connect features plus the following:

• A web-optimized e-book, allowing for anytime, anywhere online access to the textbook.

• Powerful search function to pinpoint and connect key concepts in a snap.

• Highlighting and note-taking capabilities as well as access to shared instructors’ notations.

Teaching Support

International Business offers you a complete package to prepare you for your course.

McGraw-Hill Connect
image

McGraw-Hill Education’s Connect strengthens the link between faculty, students, and coursework, helping everyone accomplish more in less time.

Page xxiv

Efficient Administrative Capabilities

Connect offers you, the instructor, auto-gradable material in an effort to facilitate teaching and learning.

Connect and LearnSmart allow me to present course material to students in more ways than just the explanations they hear from me directly. Because of this, students are processing the material in new ways, requiring them to think. I now have more students asking questions in class because the more we think, the more we question. Sharon Feaster, Instructor at Hinds Community College

Student Progress Tracking

Connect keeps instructors informed about how each student, section, and class is performing, allowing more productive use of lecture and office hours. The progress tracking function enables instructors to:

• View scored work immediately and track individual or group performance with assignment and grade reports.

• Access an instant view of student or class performance relative to learning objectives.

• Collect data and generate reports required by many accreditation organizations, such as AACSB.

Instructor Library

Connect’s instructor library serves as a one-stop, secure site for essential course materials, allowing you to save prep time before class. The instructor resources found in the library include:

• Instructor’s Manual. The Instructor’s Manual is a comprehensive resource designed to support you in effectively teaching your course. It includes course outlines; chapter teaching resources, including chapter overviews and outlines, teaching suggestions, chapter objectives, teaching suggestions for opening cases, lecture outlines, answers to critical discussion questions, teaching suggestions for the closing case, and two student activities (some with Internet components); and expanded video notes with discussion questions for each video. The answers to globalEDGE research tasks are included.

• Test Bank Approximately 100 true-false, multiple-choice, and essay questions per chapter are included in the test bank. We’ve aligned our test bank questions with Bloom’s Taxonomy and AACSB guidelines, tagging each question according to its knowledge and skill areas. Each test bank question also maps to a specific chapter learning objective listed in the text. You can use our test bank software, EZ Test, to easily query for learning objectives that directly relate to the learning objectives for your course. You can use the reporting features of EZ Test to aggregate student results in a similar fashion, making the collection and presentation of assurance-of-learning data quick and easy.

• PowerPoint Presentations. The PowerPoint program consists of one set of slides for every chapter, featuring original materials not found in the text in addition to reproductions and illuminations of key text figures, tables, and maps. Quiz questions to keep students on their toes during classroom presentations are also included, along with instructor notes.

Page xxv• McGraw-Hill offers the most current, diverse, and comprehensive video support for the international business classroom. Adopters can request our International Business Instructor Video DVD (ISBN 1259392015) from their McGraw-Hill sales representative. The DVD features 20 clips, selected based on their relevance to the text’s chapter material. Corresponding video notes are available. In addition to the DVD, we provide clips from a variety of online sources, updated monthly.

McGraw-Hill Customer Experience Group Contact Information

At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our services don’t stop after you purchase our products. You can e-mail our product specialists 24 hours a day to get product training online. Or you can search our knowledge bank of frequently asked questions on our support website. For customer support, call 800-331-5094, e-mail hmsupport@mcgraw-hill.com, or visit www.mhhe.com/support. One of our technical support analysts will be able to assist you in a timely fashion.

Course Design and Delivery

cesim GlobalChallenge Simulation

image

cesim is an international business simulation designed to develop student understanding of the interaction and complexity of various business disciplines and concepts in a rapidly evolving, competitive business environment. The simulation has a particular focus on creating long-term, sustainable, and profitable growth of a global technology company. Student teams make decisions about technology-based product roadmaps and global market and production strategies involving economics, finance, human resources, accounting, procurement, production, logistics, research and innovation, and marketing. cesim improves the knowledge retention, business decision-making, and teamwork skills of students.

Create

image

Instructors can now tailor their teaching resources to match the way they teach! With McGraw-Hill Create, www.mcgrawhillcreate.com/hill, instructors can easily rearrange alternate, combined chapters (see brief table to contents on page v). Combine material from other content sources, and quickly upload and integrate their own content, like course syllabi or teaching notes. Find the right content in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange the material to fit your teaching style. Order a Create book, and receive a complimentary print review copy in 3–5 business days or a complimentary electronic review copy (echo) via e-mail within one hour. Go to www.mcgrawhillcreate.com/hill today and register.

Tegrity Campus

image

Tegrity makes class time available 24/7 by automatically capturing every lecture in a searchable format for students to review when they study and complete assignments. With a simple one-click start-and-stop process, you capture all computer screens and corresponding audio. Students can replay any part of any class with easy-to-use browser-based viewing on a PC or Mac. Educators know that the more students can see, hear, and experience class resources, the better they learn. In fact, studies prove it. With patented Tegrity “search anything” technology, students instantly recall key class moments for replay online, or on iPods and mobile devices. Instructors can help turn all their students’ study time into learning moments immediately supported by their lecture. To learn more about Tegrity, watch a two-minute Flash demo at http://tegritycampus.mhhe.com.

Blackboard® Partnership

McGraw-Hill Education and Blackboard have teamed up to simplify your life. Now you and your students can access Connect and Create right from within your Blackboard course—all with one single sign-on. The grade books are seamless, so when a student completes an Page xxviintegrated Connect assignment, the grade for that assignment automatically (and instantly) feeds your Blackboard grade center. Learn more at www.domorenow.com.

McGraw-Hill Campus™

image

McGraw-Hill Campus is a new one-stop teaching and learning experience available to users of any learning management system.

This institutional service allows faculty and students to enjoy single sign-on (SSO) access to all McGraw-Hill Education materials, including the award-winning McGraw-Hill Connect platform, from directly within the institution’s website. With McGraw-Hill Campus, faculty receive instant access to teaching materials (e.g., e-textbooks, test banks, PowerPoint slides, learning objects, etc.), allowing them to browse, search, and use any instructor ancillary content in our vast library at no additional cost to instructors or students. In addition, students enjoy SSO access to a variety of free content and subscription-based products (e.g., McGraw-Hill Connect). With McGraw-Hill Campus enabled, faculty and students will never need to create another account to access McGraw-Hill products and services. Learn more at www.mhcampus.com.

Assurance of Learning Ready

Many educational institutions today focus on the notion of assurance of learning, an important element of some accreditation standards. International Business is designed specifically to support instructors’ assurance of learning initiatives with a simple yet powerful solution. Each test bank question for International Business maps to a specific chapter learning objective listed in the text. Instructors can use our test bank software, EZ Test and EZ Test Online, to easily query for learning objectives that directly relate to the learning outcomes for their course. Instructors can then use the reporting features of EZ Test to aggregate student results in similar fashion, making the collection and presentation of assurance of learning data simple and easy.

AACSB Tagging

image

McGraw-Hill Education is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, International Business recognizes the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in the text and the test bank to the six general knowledge and skill guidelines in the AACSB standards. The statements contained in International Business are provided only as a guide for the users of this textbook. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While the International Business teaching package makes no claim of any specific AACSB qualification or evaluation, we have within International Business labeled selected questions according to the six general knowledge and skills areas.

Turn in your highest-quality paper
Get a qualified writer to help you with

“ MGT470 Module 5 -Discussion ”

Get high-quality paper

Guarantee! All work is written by expert writers!

MGT470 Module 5 -Discussion

Assignment 2: Discussion Question

Top-quality papers guaranteed

100% original papers

Confidential service

Money-back guarantee

Enjoy the free features we offer to everyone

Calculate how much your essay costs

How to place an order

What we are popular for

Ask experts to write you a cheap essay of excellent quality