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a Global Environment
2-1
Outline
2-2
Outline Continued
2-3
Learning Objectives
When you complete this chapter you
should be able to:
1. Define mission and strategy
2. Identify and explain three strategic
approaches to competitive advantage
3. Understand the significant key
success factors and core
competencies
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Learning Objectives
When you complete this chapter you
should be able to:
4. Use factor rating to evaluate both
country and provider outsources
5. Identify and explain four global
operations strategy options
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HEADQUARTERS
COUNTRY
COMPONENT
Latecoere
France
Passenger doors
Labinel
France
Wiring
Dassault
France
Messier-Bugatti
France
Electric brakes
Thales
France
Messier-Dowty
France
Diehl
Germany
Interior lighting
2014
2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
2-6
HEADQUARTERS
COUNTRY
COMPONENT
Cobham
UK
Rolls-Royce
UK
Engines
Smiths Aerospace
UK
BAE Systems
UK
Electronics
Alenia Aeronautica
Italy
Toray Industries
Japan
Japan
2014
2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
2-7
HEADQUARTERS
COUNTRY
COMPONENT
Kawasaki Heavy
Industries
Japan
Teijin Seiki
Japan
Hydraulic actuators
Mitsubishi Heavy
Industries
Japan
Wing box
China
Rudder
Hafei Aviation
China
Parts
Korean Airlines
South Korea
Wingtips
Saab
Sweden
2014
2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
2-8
Global Strategies
Boeing sales and supply chain are
worldwide
Benetton moves inventory to stores around
the world faster than its competition by
building flexibility into design, production,
and distribution
Sony purchases components from
suppliers in Thailand, Malaysia, and around
the world
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Global Strategies
Volvo considered a Swedish company,
recently purchased by a Chinese company,
Geely. The current Volvo S40 is assembled
in Belgium, South Africa, Malaysia and China
on a platform shared with the Mazda 3 built
in Japan and the Ford Focus built in Europe.
Haier A Chinese company, produces
compact refrigerators (it has one-third of the
US market) and wine cabinets (it has half of
the US market) in South Carolina
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2 - 10
Percent
45
40
35
30
25
20
15
10 |
Year
2014 Pearson Education, Inc.
Figure 2.1
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Reasons to Globalize
1. Improve the supply chain
2. Reduce costs (labor, taxes, tariffs, etc.)
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent
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2 - 13
Reduce Costs
Foreign locations with lower wage rates
can lower direct and indirect costs
Trade agreements can lower tariffs
Maquiladoras
World Trade Organization (WTO)
North American Free Trade Agreement
(NAFTA)
APEC, SEATO, MERCOSUR, CAFTA
European Union (EU)
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2 - 14
Improve Operations
Understand differences between
how business is handled in other
countries
Japanese inventory management
Scandinavians ergonomics
2 - 15
Understand Markets
Interacting with foreign customers,
suppliers, competition can lead to
new opportunities
Cell phone
design moved
from Europe
to Japan
Extend the
product life
cycle
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2 - 16
Improve Products
Remain open to free flow of ideas
Toyota and BMW manage joint
research and development
Reduced risk, state-of-the-art design,
lower costs
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2 - 18
Punctuality
Thievery
Lunch breaks
Bribery
Environment
Child labor
Intellectual
property
2 - 19
Work ethic
Rate of innovation
Tax rates
Rate of technology
change
Inflation
Number of skilled
workers
Availability of raw
materials
Political stability
Interest rates
Population
Number of miles of
highway
Phone system
Export restrictions
Variations in language
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1. Volkswagen
Firestone Tires
2. Bridgestone
Godiva Chocolate
3. Campbell Soup
Haagen-Dazs Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
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1. Volkswagen
Firestone Tires
2. Bridgestone
Godiva Chocolate
3. Campbell Soup
Haagen-Dazs Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
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Braun Household
Appliances
Firestone Tires
1. Great Britain
Godiva Chocolate
2. Germany
Haagen-Dazs Ice
Cream
3. Japan
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
4. United States
5. Switzerland
6. India
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Braun Household
Appliances
Firestone Tires
1. Great Britain
Godiva Chocolate
2. Germany
Haagen-Dazs Ice
Cream
3. Japan
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
4. United States
5. Switzerland
6. India
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Mission
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Merck
The mission of Merck is to provide society
with superior products and services
innovations and solutions that improve the
quality of life and satisfy customer needsto
provide employees with meaningful work
and advancement opportunities and
investors with a superior rate of return.
Figure 2.2
2014 Pearson Education, Inc.
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PespsiCo
Our mission is to be the world's premier
consumer products company focused on
convenient foods and beverages. We seek
to produce financial rewards to investors as
we provide opportunities for growth and
enrichment to our employees, our business
partners and the communities in which we
operate. And in everything we do, we strive
for honesty, fairness and integrity.
Figure 2.2
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Figure 2.2
2014 Pearson Education, Inc.
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Environment
Mission
Customers
Public Image
Benefit to
Society
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Strategic Process
Organizations
Mission
Functional Area
Missions
Marketing
Operations
Finance/
Accounting
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Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and
profitable worldwide microwave communications business
that exceeds our customers expectations.
Figure 2.3
2014 Pearson Education, Inc.
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Sample Missions
Sample OM Department Missions
Product design
Quality management
Process design
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Sample Missions
Sample OM Department Missions
Location
Layout design
Human resources
2 - 34
Sample Missions
Sample OM Department Missions
Supply-chain
management
Inventory
Scheduling
Maintenance
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Strategy
Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
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2 - 37
Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customers perception of value
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Competing on Cost
Provide the maximum value as
perceived by customer. Does not imply
low quality.
2 - 39
Competing on Response
Flexibility is matching market changes in
design innovation and volumes
A way of life at Hewlett-Packard
Timeliness is quickness
in design, production,
and delivery
Johnson Electric,
Pizza Hut, Motorola
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Strategy
DIFFERENTIATION:
Innovative design
Broad product line
After-sales service
Experience
COST LEADERSHIP:
Low overhead
Example
Safeskins innovative gloves
Fidelity Securitys mutual
funds
Caterpillars heavy equipment
service
Hard Rock Cafs dining
experience
Effective capacity
use
Inventory
management
Walmarts sophisticated
distribution system
Supply chain
Inventory
Scheduling
RESPONSE:
Flexibility
Reliability
Quickness
Maintenance
2014 Pearson Education, Inc.
Competitive
Advantage
Hewlett-Packards response to
volatile world market
FedExs absolutely, positively,
on time
Pizza Huts 5-minute guarantee
at lunchtime
Differentiation
(better)
Response
(faster)
Cost
leadership
(cheaper)
Figure 2.4
2 - 41
Resources view
Value-chain analysis
Porters Five Forces model
Operating in a system with many
external factors
Constant change
2 - 42
Company Strategy/Issues
Growth
Best period to
increase market
share
Practical to change
price or quality
image
R&D engineering is
critical
Strengthen niche
Maturity
Decline
Poor time to
change image,
price, or quality
Cost control
critical
Competitive costs
become critical
Defend market
position
Drive-through
Internet search engines
restaurants
DVDs
Xbox 360
iPods
Boeing 787
Sales
3-D game
players
3D printers
Electric vehicles
Analog
TVs
Figure 2.5
2014 Pearson Education, Inc.
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OM Strategy/Issues
Growth
Product design
and development
critical
Forecasting critical
Standardization
Frequent product
and process
design changes
Product and
process reliability
Competitive
product
improvements and
options
Fewer product
changes, more
minor changes
Short production
runs
High production
costs
Limited models
Attention to quality
Increase capacity
Shift toward
product focus
Enhance
distribution
Maturity
Optimum capacity
Increasing stability
of process
Long production
runs
Product
improvement and
cost cutting
Decline
Little product
differentiation
Cost
minimization
Overcapacity in
the industry
Prune line to
eliminate items
not returning
good margin
Reduce
capacity
Figure 2.5
2014 Pearson Education, Inc.
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SWOT Analysis
Mission
Internal
Strengths
External
Opportunities
Analysis
Internal
Weaknesses
External
Threats
Strategy
2 - 45
Form a Strategy
Build a competitive advantage, such as low price, design, or volume
flexibility, quality, quick delivery, dependability, after-sale service,
broad product lines.
Figure 2.6
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2 - 47
Marketing
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)
10 OM Decisions
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance
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Finance/Accounting
Production/Operations
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit
Sample Options
Customized, or standardized; sustainability
Define customer expectations and how to achieve them
Facility size, technology, capacity, automation
Near supplier or near customer
Work cells or assembly line
Specialized or enriched jobs
Single or multiple suppliers
When to reorder, how much to keep on hand
Stable or fluctuating production rate
Repair as required or preventive maintenance
Chapter
5, S5
6, S6
7, S7
8
9
10
11, S11
12, 14, 16
13, 15
17
Figure 2.7
2 - 48
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Competitive Advantage:
Low Cost
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
2 - 49
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Short Haul, Point-toProductive
Point Routes, Often to
Employees Automated ticketing machinesSecondary Airports
No seat assignments
Competitive
Advantage:
No baggage
transfers
Low Cost
High
Aircraft
Utilization
No meals (peanuts)
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
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Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
No meals (peanuts)
Employees
Low Cost
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
2 - 51
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Standardized
Pilot training required
only
Fleet of on
Boeing
one type of 737
aircraft
Aircraft
Reduced maintenance
2014 Pearson Education, Inc.
inventory required because of
Frequent,
Reliable
Schedules
Figure 2.8
2 - 52
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Competitive Advantage:
Excellent
supplier
relations
Low
Cost
with Boeing has aided financing
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
2 - 53
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Flexible
union
contracts
High
Aircraft
Utilization
Low
Cost
Flexible
employees and
Frequent,
Maintenance personnel trained
only one type of aircraft Reliable
Schedules
Standardized
20-minute
gate turnarounds
Fleet of Boeing
737 Aircraft
Figure 2.8
2 - 54
Activity Mapping at
Southwest Airlines
Courteous, but
Automated
ticketing machines
Limited
Passenger
Service
Empowered
employees
High employee compensation
Short Haul, Point-toHire for attitude, then
train
Point
Routes, Often to
Lean,
Productive
Employees
Secondary Airports
High level of stock ownership
High number
of flights reduces
Competitive
Advantage:
employee idle time between
Low Cost
flights
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
2 - 55
Implementing Strategic
Decisions
TABLE 2.1
COMPETITIVE
ADVANTAGE
PRODUCT DIFFERENTIATION
STRATEGY
Product
selection and
design
Quality
Process
Location
2 - 56
Implementing Strategic
Decisions
TABLE 2.1
COMPETITIVE
ADVANTAGE
PRODUCT DIFFERENTIATION
STRATEGY
Layout
Human
resources
Supply chain
Inventory
Scheduling
Maintenance
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2 - 58
2 - 59
Theory of Comparative
Advantage
If an external provider can perform
activities more productively than the
purchasing firm, then the external
provider should do the work
Purchasing firm focuses on core
competencies
Drives outsourcing
2 - 60
Risks of Outsourcing
TABLE
2.2
ADVANTAGES
DISADVANTAGES
Cost savings
2 - 61
2 - 62
FACTOR (CRITERION)
IMPORTANCE
WEIGHTS
BIM
(U.S.)
S.P.C.
(INDIA)
TELCO
(ISRAEL)
.2
.2
3. Skilled personnel
.2
.1
.1
.1
.1
1.0
3.9
3.3
3.8
Totals
2 - 63
Figure 2.9
Cost Reduction
International strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
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High
Figure 2.9
International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
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Figure 2.9
Cost Reduction
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
International
strategy
Standardize product
(eg,Harley-Davidson
Steel)
U.S.
Economies
of scale
Import/export or
license
existing
Cross-cultural
product
learning
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 66
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Figure 2.9
Cost Reduction
Standardize product
Economies of scale
Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 67
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Multidomestic
strategy
Standardize
product
(eg, Heinz,
McDonalds
Economies of scale
Cross-cultural
learning
The
Body Shop
Hard Rock Cafe)
Cost Reduction
Figure 2.9
International
strategy
(eg, Harley-Davidson
U.S. Steel)
product
Low
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 68
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Figure 2.9
Cost Reduction
Standardize product
Economies of scale
Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Multidomestic
strategy
(eg, Heinz, McDonalds
The Body Shop
Hard Rock Cafe)
Use existing domestic
model globally
Franchise, joint
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 69
High
Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Transnational
strategy
(eg,
Standardize
product
Coca-Cola,
Nestl)
Economies of scale
Cross-cultural learning
Move material,
people, ideas across
Multidomestic
International
national
boundaries
strategy
strategy
(eg, Heinz, McDonalds
(eg, Harley-Davidson
U.S.Economies
ofBody
scale
The
Shop
Steel)
Hard Rock Cafe)
Cross-cultural
Import/export
or
Use existing domestic
license existing
model globally
product learning
Franchise, joint
Low
Figure 2.9
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
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Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Cost Reduction
Standardize product
Economies of scale
Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Transnational
strategy
(eg, Coca-Cola, Nestl)
Figure 2.9
Move material,
people, ideas across
national boundaries
Economies of scale
Cross-cultural
learning
Multidomestic
strategy
(eg, Heinz, McDonalds
The Body Shop
Hard Rock Cafe)
Use existing domestic
model globally
Franchise, joint
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
2 - 71
Ranking Corruption
Rank
Country
2012 CPI Score (out of 100)
1
Demark, Finland, New Zealand
90
Least
4
Sweden
88
Corrupt
5
Singapore
87
6
Switzerland
86
7
Australia, Norway
85
9
Canada, Netherlands
84
13 Germany
79
14 Hong Kong
77
17 Japan, UK
74
19 USA
73
37 Taiwan
61
39 Israel
60
45 South Korea
56
Most
80 China
39
Corrupt
123 Vietnam
31
133 Russia
28
2014 Pearson Education, Inc.
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