International Business Study Set 9

Business

Quiz 16 :

International Institutions From a Business Perspective

Quiz 16 :

International Institutions From a Business Perspective

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What are the advantages to a worldwide firm of global standardization of its production facilities?
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The commercial activities that cross national borders are known as international business. The goods, services, technology, personnel etc. all are moved from one country to another and also to many countries and vice versa. This movement is known as import and export in layman language. It is generally done through various modes of entry like licensing, franchising etc.
The following are the advantages to a worldwide firm of global standardization of its production process:
1. It helps to meet the competitive market demand as the product is same all over the market in the world. For example, Coca Cola and Pepsi are generally same all over the world.
2. It helps to ensure the uniformity in the methods of manufacturing.
3. It helps the assurance of appropriateness of products, materials, services, and process as the same production methods are used in all the branches of the company in the world.
4. It simplifies the control of the organization because same rules and regulations are follows in all the branches of the company all over the world.

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Discuss the influence of the uncontrollable environmental forces in global standardization of a firm's production facilities.
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The commercial activities that cross national borders are known as international business. The goods, services, technology, personnel etc. all are moved from one country to another and also to many countries and vice versa. This movement is known as import and export in layman language. It is generally done through various modes of entry like licensing, franchising etc.
The influences of uncontrollable environmental forces in global standardization of a production of the firm are:
1. Economic forces: It includes a wide range of market size. The designer has options to choose from labour intensive or capital intensive process, computer-generated manufacturing etc.
2. Cultural forces: It involves training for the unskilled workers and makes them familiar with the machinery.
3. Political forces: It includes getting the most advanced technology in the market of the competitive world.

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Why does the cost of raw materials represent about 55 to 80 percent of the cost of goods sold in U.S. industry, and why has this proportion been increasing over time?
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The commercial activities that cross national borders are known as international business. The goods, services, technology, personnel etc. all are moved from one country to another and also to many countries and vice versa. This movement is known as import and export in layman language. It is generally done through various modes of entry like licensing, franchising etc.
The cost of raw material that represents about 50% to 80% of the cost of goods sold in the industries of US because the US industry continues to purchase raw materials for the development of new product and to distribute it in the market.

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What is the benefit to a buyer company and to a vendor company of standards such as ISO 9000?
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Use the globalEDGE site (http://globalEDGE.msu.edu/) to complete the following exercises: The World Bank's Logistics Performance Index (LPI) assesses the logistics environment of countries. Locate the most recent LPI ranking. How is the index constructed? Identify the top 10 and bottom 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?
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What are some of the primary problems or concerns associated with sourcing from a foreign supplier?
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Why would a company choose to source raw materials, components, or other products or services from a foreign supplier?
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What recent developments have caused supply chain management to become increasingly important to international companies?
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Use the globalEDGE site (http://globalEDGE.msu.edu/) to complete the following exercises: Struggling to remain competitive in the medical devices industry, your firm has decided to begin sourcing components internationally. Though your firm's current operations are only in the United States and Germany, you must assess the relative costs for manufacturing medical devices in a variety of cities worldwide. Your manager, previously a consultant with KPMG, indicates that the Competitive Alternatives surveys published annually by KPMG may assist you. Develop a brief report addressing the following questions: (a) Which three cities in the survey have the lowest and highest manufacturing costs for your firm's specific industry? (b) Do you think that changing your firm's sourcing strategy will resolve the current problems? Why or why not?
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Balagny Clothing Company Inc. is a major apparel manufacturer in the United States. It makes men's, women's, and children's casual wear such as denim jeans, cotton slacks, skirts, and sweaters. Balagny Clothing has taken the lowcost provider strategy and is constantly trying to find ways to cut costs and maintain their 4 percent profit margin while maintaining a competitive advantage over its major competitors. Because direct labor makes up approximately 65 percent of the total cost of an apparel item, Balagny Clothing closed all of its domestic manufacturing facilities and outsourced the production to contractors in China. In the United States, Balagny Clothing was paying an average hourly wage of $8.65 per hour. The Chinese labor rates average about $1.18 per hour, depending on the location of the factory. The company felt that relocating their production to China was a viable change for the long-term life of the company. Not only could it reduce labor costs by 86 percent, but it would no longer have to deal with labor unions; plant maintenance; and government regulatory offices such as the Occupational Safety and Health Administration (OSHA), the Fair Labor Standards Act (FLSA), and the Equal Employment Opportunity Commission (EEOC). It took Balagny Clothing almost two years to complete the transition. After startup costs in China, domestic plant closings, and the associated costs, Balagny Clothing was ready to reap the benefits of its decisions. It slashed wholesale prices for the upcoming season to undercut the competition and planned for a 6 percent profit margin. Balagny Clothing had increased sales by more than 20 percent, garnering the majority of the business. There were, however, a few discoveries that limited its cause to celebrate. It had relinquished almost all control over the manufacturing processes and product development after the initial designs were transmitted to their China contractors. Production was set up to be delivered in four batches per season (eight batches per year) with orders transmitted approximately four months in advance. These contracted production amounts were firm and, later that year when business slowed, Balagny Clothing could not lower the production rate nor refuse shipments. This resulted in large inventories of finished goods. An additional and unexpected problem was caused by longer-than-expected transportation times from China to the Balagny Clothing distribution center. Balagny Clothing had originally planned for two-week in-transit inventory and customer delivery dates based on the import agents' estimated travel time across the Pacific, but the company had not foreseen an additional two- to three-week delay caused by the backlog at the port of Los Angeles. This pushed back shipment dates to Balagny Clothing's customers, resulting in a shorter selling period at retail and nullifying Balagny Clothing's expected refill orders, further enhancing already high finished goods inventory levels. The holding costs associated with these high inventory levels negated a large amount of the forecasted savings Balagny Clothing counted on for its profits. In addition, customers were complaining that the fit and feel of the garments were different. The Chinese production facilities had altered the Balagny Clothing product to fit their production processes. The Chinese had their own raw material suppliers and their products were slightly different than Balagny Clothing's domestic suppliers. Another problem that became evident was the producer's lack of flexibility. Because of the high inventories, model changes became more expensive because more inventory had to be marked down to clear the way for the new product. Balagny began to see a decline in sales and became concerned for the future of the company. The CEO called the top management team together and charged each one of them to find ways to improve the situation. William Duncan, vice president of operations, felt that he had an answer to the company's problems. After investigation, he proposed that they immediately buy or construct a wholly owned manufacturing subsidiary in Mexico in one of the border maquiladora parks. Finished goods could be transported from the maquiladora to the Balagny Clothing distribution center within 72 hours of completion. The plan would call for the maquiladora to produce the rapid turnover product needed for quick replenishment. The China contractors would be given the seasonal products that were not a part of the replenishment system and that could be produced and shipped in batches. The plan called for approximately 40 percent of the production to be moved to the Mexican maquiladoras while 60 percent would remain with China, yielding an average labor cost of $1.72 per hour. Duncan calculated that this change would decrease Balagny Clothing's on-hand and in-transit inventory dramatically, yielding a much higher profit. Considering all of the problems incurred in China and the immense effort and capital needed to start up the Mexico operation, would it have been a better idea for Balagny Clothing to keep its domestic operations? Why or why not?
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Discuss some of the alternative design solutions available to a company that chooses not to completely standardize its production facilities.
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Balagny Clothing Company Inc. is a major apparel manufacturer in the United States. It makes men's, women's, and children's casual wear such as denim jeans, cotton slacks, skirts, and sweaters. Balagny Clothing has taken the lowcost provider strategy and is constantly trying to find ways to cut costs and maintain their 4 percent profit margin while maintaining a competitive advantage over its major competitors. Because direct labor makes up approximately 65 percent of the total cost of an apparel item, Balagny Clothing closed all of its domestic manufacturing facilities and outsourced the production to contractors in China. In the United States, Balagny Clothing was paying an average hourly wage of $8.65 per hour. The Chinese labor rates average about $1.18 per hour, depending on the location of the factory. The company felt that relocating their production to China was a viable change for the long-term life of the company. Not only could it reduce labor costs by 86 percent, but it would no longer have to deal with labor unions; plant maintenance; and government regulatory offices such as the Occupational Safety and Health Administration (OSHA), the Fair Labor Standards Act (FLSA), and the Equal Employment Opportunity Commission (EEOC). It took Balagny Clothing almost two years to complete the transition. After startup costs in China, domestic plant closings, and the associated costs, Balagny Clothing was ready to reap the benefits of its decisions. It slashed wholesale prices for the upcoming season to undercut the competition and planned for a 6 percent profit margin. Balagny Clothing had increased sales by more than 20 percent, garnering the majority of the business. There were, however, a few discoveries that limited its cause to celebrate. It had relinquished almost all control over the manufacturing processes and product development after the initial designs were transmitted to their China contractors. Production was set up to be delivered in four batches per season (eight batches per year) with orders transmitted approximately four months in advance. These contracted production amounts were firm and, later that year when business slowed, Balagny Clothing could not lower the production rate nor refuse shipments. This resulted in large inventories of finished goods. An additional and unexpected problem was caused by longer-than-expected transportation times from China to the Balagny Clothing distribution center. Balagny Clothing had originally planned for two-week in-transit inventory and customer delivery dates based on the import agents' estimated travel time across the Pacific, but the company had not foreseen an additional two- to three-week delay caused by the backlog at the port of Los Angeles. This pushed back shipment dates to Balagny Clothing's customers, resulting in a shorter selling period at retail and nullifying Balagny Clothing's expected refill orders, further enhancing already high finished goods inventory levels. The holding costs associated with these high inventory levels negated a large amount of the forecasted savings Balagny Clothing counted on for its profits. In addition, customers were complaining that the fit and feel of the garments were different. The Chinese production facilities had altered the Balagny Clothing product to fit their production processes. The Chinese had their own raw material suppliers and their products were slightly different than Balagny Clothing's domestic suppliers. Another problem that became evident was the producer's lack of flexibility. Because of the high inventories, model changes became more expensive because more inventory had to be marked down to clear the way for the new product. Balagny began to see a decline in sales and became concerned for the future of the company. The CEO called the top management team together and charged each one of them to find ways to improve the situation. William Duncan, vice president of operations, felt that he had an answer to the company's problems. After investigation, he proposed that they immediately buy or construct a wholly owned manufacturing subsidiary in Mexico in one of the border maquiladora parks. Finished goods could be transported from the maquiladora to the Balagny Clothing distribution center within 72 hours of completion. The plan would call for the maquiladora to produce the rapid turnover product needed for quick replenishment. The China contractors would be given the seasonal products that were not a part of the replenishment system and that could be produced and shipped in batches. The plan called for approximately 40 percent of the production to be moved to the Mexican maquiladoras while 60 percent would remain with China, yielding an average labor cost of $1.72 per hour. Duncan calculated that this change would decrease Balagny Clothing's on-hand and in-transit inventory dramatically, yielding a much higher profit. Identify specific concepts in the case found in this chapter, and discuss their relevance to the problems facing the company.
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What are the main differences between sequential and concurrent approaches to the design of products and services?
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Is Offshore Outsourcing Ending Its Run? In 2003, nearly 900 workers at a cookware factory in Manitowoc, Wisconsin, switched off their machines. Their company was moving operations to Mexico. Now, however, many of the same workers are back, this time making pots and pans for Brazilian cookware maker Tramontina. Increasing growth in demand resulted in Tramontina acquiring land and building additional production facilities to allow a doubling of production output. In Japan, Sharp Corporation built a $9 billion factory complex that is the largest LCD and solar panel plant in the world. When plans for the plant were first announced, the trend in Japan was to build manufacturing offshore in places like China. But Sharp's chairman wanted to manufacture at home, and the company even included factories for many of its suppliers in its plans for the site. Sharp is bucking current trends in two directions. First, it is concentrating on manufacturing, rather than outsourcing production and concentrating on design and marketing. Second, it is building new production facilities in a high-cost country rather than in a low-cost area. So it is running against both the trend to outsource production and to "offshore" that production. In many economically developed countries, governments are offering a range of incentives to attract and retain jobs in manufacturing and other sectors of the economy. This may represent a trend toward HCCS-high-cost country sourcing. The idea here is that being "at home," or in some cases "closer to home," may provide advantages, or at least make offshore production less attractive. First, as the cost of transportation increases, staying closer to home may become more economical. Second, while the labor costs of LCCS (low-cost country sourcing) will probably always be a reason to offshore, producing closer to home allows better control of quality and service. One furniture maker in Manitowoc says he can offer 150 different colors of furniture, a variety that is possible because he does not have to produce months in advance in order to bring product from offshore. As manufacturing moves from make-to-stock, repetitive production to more flexible approaches, other industries may find themselves in this situation. In the first quarter of 2011, the total value of outsourcing contracts was $17.5 billion, a decline of 28 percent from the first quarter of 2010 and 25 percent below the last quarter of 2010. However, developments such as cloud computing, increased used of multiple-source supply systems, and risk management provide indications that extensive outsourcing and offshoring activity will continue. But only about 35 percent of outsourcing proposals directly met buyers' objectives, and outsourcing contracts generally appear to be decreasing in terms of average duration and contract value. What factors will determine whether or not more manufacturing and other activities will remain in-or come back to-high-cost countries such as the United States in coming years?
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Why is indirect procurement an important focus for management attention?
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