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There are three primary issues that concern global managers: procurement, production, and
delivery. Procurement involves decision about the source, timing, and means of obtaining needed
inputs. Production involves location, type, and coordination of facilities, as well as total quality
management. Delivery involves getting the finished product to the customer and logistical networks as
they apply to the entire operational system.

Procurement Issues

In order to provide a product, a firm needs certain inputs, including raw materials, labor, and
energy. Managers have to select the best source for these inputs decide on the most effective means of
obtaining them, and determine the timing for acquiring them. The firm’s overall objective is to obtain
the best inputs from around the world in order to produce components and products efficiently. The
global manager needs to adjust this objective in light of the constraints of different political and cultural
environments. We consider two major issues that managers face relative to obtaining inputs: the degree
of vertical integration that is desirable and the national origin of inputs and supplies of these inputs.
(Mendenhall et. al., 2010).

Degree of Integration. The degree of vertical integration depends on the degree to which a firm
is its own suppliers and market. The focus on the procurement is in the supplier, In effect, decisions
regarding vertical integration are make-versus-buy decisions. At one extreme, a firm can seek to make
all of its own inputs to which is also known as “backward integration” and be its own supplier. At the
other extreme, it can choose to buy virtually all the inputs it needs and rely on others as suppliers.
Partial integration is also possible, with some inputs being bought while in others are made.

From the manager’s perspective, the benefit of making the inputs is the control maintained over
them (in terms of cost, quality, timeliness, and so on).

National Origin. National origin of suppliers can have political and social implications as well.
Certain countries may be looked on unfavourably, and any association with suppliers in those countries
can have negative repercussions in the other locations. Consumer boycotts have often been organized
against a company’s products because the company uses inputs originating in a foreign location viewed
negatively by consumers.

The procurement decision is further complicated when moving products from one country to
another requires going through additional countries. Each country’s political relationships, regulations,
and dependently have to be taken into account. Even relatively minor problems in an intermediary
country can disrupt an otherwise efficient and effective procurement system.

Timing Issues. Timing of shipments and receipt of suppliers are also important considerations.
This is essentially an inventory and stock issue, companies can choose to maintain varying quantities of
needed inputs. The trade-offs are among shipping costs, carrying costs, and the risks of being out of
stock of needed items. These issues faced by all companies particularly with those global corporations.
International managers find that the situation is more complex, however, because of border crossings.
These can lead to unanticipated delays in transporting products, and such delays cannot always be
factored into the inventory equation.
The auto-industries of Canada and the United States exemplify the potential difficulties of
border crossings. Many U.S. and Canadian auto plants adopted a “just-in-time” inventory system in the
late 1980s. This system relies on suppliers getting parts to the plants just in time to be used by plant. In
essence, the auto manufacturers do not keep any inventory on hand. This system is cost-efficient, and
because of the trade agreements between Canada and the U.S., parts suppliers in both countries are
used, and parts across Canada-U.S. border regularly. In 1990, Canadian independent truckers
established a blockade of major border crossings on several occasions to protest Canadian Truckers
regulations. The result for the auto plants was no just-in-time delivery of parts, and several were forced
to shut down for long hours, or even days in some cases, until delivery was resumed (Mendenhall et al.,

Production Issues

Production involves the location, type and coordination of facilities, as well as total quality
management and coordinating facilities.

Operational Strategies of Global Corporations

Location of Facilities. Facilities can be located to take advantage of inputs or of markets and can
be concentrated or dispersed.

a. Inputs versus Markets. If sources of input are relatively close to major markets, then
facilities can be located convenient to both. For many global companies this is not the
case because inputs can come from around the world and markets may be various parts
of the globe. The major factor that determines the appropriate location of facilities
relative to inputs and finished goods can be moved from one location to another. This
depends on factors such as mobility, size and weight, ability to withstand transportation,
and need to preserve freshness. These factors need to be examined relative to inputs as
well as to intermediate and finished products in order to select appropriate locations for
production facilities. The following examples illustrate some of these considerations
observed by global companies:

1. Many products are assembled by unskilled labor in countries where labor costs are
low. It is often difficult to move people around the world and if labor is an important
input into a product facilities will generally be located close to the source of the needed

2. Wire beads, and coils used to produce electronic parts are small and easy to transport
around the world, as are the finished parts. Companies that assemble these parts often
have their facilities located close to labor sources and remote from other inputs and

3. Precision scientific equipment often cannot be moved once it is assembled because

movement can affect the delicate balance needed for accuracy. Companies that provide
such equipment will need to have at least some facilitie4s located close to their
4. Produce retains its freshness for only limited period. Companies that use such
produce will tend to locate their facilities close to the source of supply. Many companies
that processed into canned fruit and vegetables are located in small farming
communities where fresh produce can be brought to the factory within hours of

5. Harvesting fresh produce in some developed countries relies on unskilled, low-cost

labor, which is unavailable locally. The growing location cannot be changed easily;
therefore, seasonal labor is brought from other locations in spite of the difficulties
associated with moving people.

6. Automobile companies are smaller and cheaper to transport than completed

automobiles. Components may be produced in a variety of locations to take advantage
of local conditions and shipped to a location close to major markets for assembly.

7. Precious stones for jewelry must be obtained in locations where they are available.
But they may be shipped to other locations for polishing and setting and to still other
locations where the major market exist.

Concentrated versus Dispersed Facilities. Depending on a firm’s choice of production strategy, the
appropriate design for facilities will often differ. Centralized Strategy will call for large, efficient,
standardized, and, probably, automated designs. Concentrated or centralized facilities and efficiencies
of scale result in a lower per unit cost. It also allows simplified administrative system. In some ways,
centralized strategy is easier to establish and operate.

On the other hand, Dispersed strategy focuses on adaption and flexibility. Where inputs from suppliers
in different countries vary, or products have to be adapted for different markets, standardization is no
longer an advantage. In this situation, it can be more effective to take advantage of the opportunities
offered by different sources of supply and to cater to the needs of the different markets. Dispersed
strategy can also provide more flexibility because production can be increased or decreased at different
locations as circumstances change. Dispersed Strategy means that the company is less dependent on
any one location. In addition, a growing trend appears to be the use of smaller production runs, closer to
the user to allow customization of the product for a particular buyer’s needs.

Distinctive Characteristics of Location. The distinctive characteristics of any location selected need to be
considered by global companies prior to designing the facilities for that location which may be climatic,
cultural, physical, or governmental.

 Different climatic conditions can affect the appropriate design of facilities. In the tropics,
particularly in developing countries when air conditioning is expensive and unusual,
facilities need to be designed to take advantage of cooling breezes.
 Different cultural conditions can affect the appropriate design for facilities. In certain
Islam countries, men and women are not permitted to work together, so that facilities
have to be designed so that those tasks done by women are separate from those done
by men.
 Different physical characteristics of people have to be taken into account in designing
appropriate facilities. People in the Far East are, on the general relatively short in
comparison to North Americans. Facilities that are comfortable for North American
employees in the Far East.
 Government regulations can affect the appropriate design of facilities. Come countries
require employers to provide separate toilet facilities for male and female employees. In
other locations, this would be considered wasteful and unnecessary.