International Operations


Published on

Published in: Business, News & Politics
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • International Operations

    1. 1. Lecture 1 Introduction <ul><li>This Course </li></ul><ul><ul><li>Structure </li></ul></ul><ul><ul><li>Concepts </li></ul></ul><ul><li>Background </li></ul><ul><ul><li>History of International Business </li></ul></ul><ul><ul><ul><li>Trade and Investment </li></ul></ul></ul><ul><ul><li>Why Geography Matters </li></ul></ul><ul><ul><ul><li>Market seeking and Resource seeking transactions </li></ul></ul></ul><ul><li>Current Dominant Factors </li></ul><ul><ul><li>World Class Operations </li></ul></ul><ul><ul><li>Reductions in Trade Barriers </li></ul></ul><ul><ul><li>Globally Connected Supply Chains </li></ul></ul><ul><li>Break </li></ul><ul><li>Globalization and Employment </li></ul><ul><ul><li>Trade in Goods and Labor </li></ul></ul>International Operations (MGMT 6390) / International Business (MGMT 6350)
    2. 2. What This International Operations/ International Business Course is About <ul><li>Business Strategy, Marketing </li></ul><ul><ul><li>What products and services to offer our customers </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Investments, Currency transactions, etc. </li></ul></ul><ul><li>Operations </li></ul><ul><ul><li>Actually creating and delivering those products and services </li></ul></ul><ul><li>International Transactions </li></ul><ul><ul><li>For customers </li></ul></ul><ul><ul><li>For input resources </li></ul></ul><ul><ul><li>For service and production locations </li></ul></ul><ul><ul><li>For knowledge </li></ul></ul><ul><ul><li>For funding </li></ul></ul>Business
    3. 3. International Transactions <ul><li>Trade </li></ul><ul><ul><li>Goods </li></ul></ul><ul><ul><li>Services </li></ul></ul><ul><li>Foreign Direct Investment (and other investment) </li></ul><ul><ul><li>Mergers and Acquisitions </li></ul></ul><ul><ul><li>Joint Ventures </li></ul></ul><ul><ul><li>Green Field Development </li></ul></ul><ul><li>Technology Transfer </li></ul><ul><ul><li>Licensing </li></ul></ul><ul><ul><li>Knowledge Diffusion </li></ul></ul><ul><ul><li>R&D Services </li></ul></ul><ul><li>Supply Chain Relationships </li></ul><ul><ul><li>Suppliers </li></ul></ul><ul><ul><li>Sales channels </li></ul></ul><ul><li>Facilitating Infrastructure </li></ul><ul><ul><li>International Transportation Links </li></ul></ul><ul><ul><li>International Communication Links </li></ul></ul>
    4. 4. Course Objectives <ul><li>Gain a conceptual framework to: </li></ul><ul><ul><li>integrate and adapt superior operating practices and technologies from across the world for high performance operations. </li></ul></ul><ul><ul><li>design global supply chains and manage risks of cross border business relationships </li></ul></ul><ul><ul><li>establish world class manufacturing, service and R&D in developing countries </li></ul></ul><ul><ul><li>assess globalization political and societal issues </li></ul></ul><ul><ul><li>apply international business concepts to real business situations </li></ul></ul><ul><li>Critical skills for successful careers in </li></ul><ul><ul><li>Large global companies </li></ul></ul><ul><ul><ul><li>In the developed and developing world </li></ul></ul></ul><ul><ul><li>Small companies that buy, sell, and learn globally </li></ul></ul><ul><ul><li>New ventures </li></ul></ul><ul><ul><li>Government and Academia </li></ul></ul>
    5. 5. Course Structure <ul><li>General principles </li></ul><ul><ul><li>History and key concepts, productivity and facility location </li></ul></ul><ul><ul><li>Global Supply chains and logistics </li></ul></ul><ul><ul><li>High performance operations practices </li></ul></ul><ul><li>Examples from specific countries </li></ul><ul><ul><li>US and Japan, Mexico, India, China, EU </li></ul></ul><ul><li>Examples from specific firms and industries </li></ul><ul><ul><li>Albany International, Color Kinetics, Semiconductors, R&D Services </li></ul></ul><ul><li>Strategic and Political Implications </li></ul>
    6. 6. Course Plan Logistics Management, Transportation and Communication 3 Project Reports 14 “ Quest for Global Dominance,” Globalization Backlash 13 Strategic and Political Implications Globalization of R&D 12 Semiconductors and Global Knowledge Networks 11 EU, Albany International 10 Industry Examples China, Color Kinetics 9 India 8 Mexico 7 US and Japan 6 Country Examples World Class Operations, Global vs National Mindsets 5 Productivity and Location Decisions 4 Global Supply Chains, Outsourcing and Offshoring 2 Introduction, History, Globalizaion and Jobs 1 General Principles Week
    7. 7. Cross Cutting Ideas <ul><li>Tension (balance) between </li></ul><ul><ul><li>Transplantation </li></ul></ul><ul><ul><li>vs </li></ul></ul><ul><ul><li>Transformation </li></ul></ul><ul><ul><ul><li>of business practices and company culture when establishing operations in different national environments </li></ul></ul></ul><ul><li>National mindset vs Global Brains </li></ul><ul><li>Market vs Resource Drivers </li></ul><ul><li>Deals and Partnerships </li></ul><ul><ul><li>Managing alliances and agreements </li></ul></ul><ul><li>Knowledge Diffusion </li></ul><ul><li>Diverse Supply Chain Structures </li></ul><ul><ul><li>Modularization of production </li></ul></ul>Toyota in India Example
    8. 8. Course Requirements <ul><li>Readings – Library On-Line Reserves and Case Packs </li></ul><ul><ul><li>Participate in discussion boards in advance </li></ul></ul><ul><li>Essay </li></ul><ul><ul><li>Analyze an article or do more depth on one of the readings. 5-10 pages </li></ul></ul><ul><li>Project </li></ul><ul><ul><li>Strong preference: Work to solve a real problem with a company you or a team-mate have some access to </li></ul></ul><ul><li>Grading </li></ul><ul><ul><li>Participation = 30% (discussion board and in-class contributions ) </li></ul></ul><ul><ul><li>Essay = 30% </li></ul></ul><ul><ul><li>Project = 40% </li></ul></ul>
    9. 9. Instructor Introductions <ul><li>Richard Alben </li></ul><ul><li>Susan Sanderson </li></ul>
    10. 10. Student Contributions <ul><li>Fill out a survey on your International Business experience </li></ul><ul><ul><li>Were you born and or educated outside the US? </li></ul></ul><ul><ul><li>Did you do business internationally? Examples: </li></ul></ul><ul><ul><ul><li>Owned a business in Thailand that imported parts from China and exported to Japan </li></ul></ul></ul><ul><ul><ul><li>Worked in a US company that exports to Europe </li></ul></ul></ul><ul><ul><ul><li>Working as a waiter in a café in Paris </li></ul></ul></ul><ul><ul><li>Do you know people in the US or in countries outside the US who have interesting points of view on International Business? </li></ul></ul>
    11. 11. Course Limitations <ul><li>US viewpoint </li></ul><ul><ul><li>Professors come from US background. Hard to break out of US-centric view of what is happening in the rest of the world </li></ul></ul><ul><li>Leaves out important areas of the world </li></ul><ul><ul><li>Little on EU, the Former Soviet Union and the least developed countries </li></ul></ul><ul><li>Only cover a few industries in any depth </li></ul><ul><ul><li>Appliances, Automobiles, Paper Machine supplies, Semiconductors, Flat Panel Displays, R&D services covered </li></ul></ul><ul><ul><li>Financial services, health care, petroleum, government services etc, not covered </li></ul></ul>Your challenge: Expand the concepts in the course to cover the gaps.
    12. 12. History of International Business <ul><li>Trade from ancient times until the late 1800’s </li></ul><ul><li>From the late 1800’s to before WWII </li></ul><ul><li>Dominance of the US (to 1970) </li></ul><ul><li>Globalization: Japan, the Asian Tigers, the EU and China </li></ul>
    13. 13. History of International Business <ul><li>Trade from ancient times until the late 1800’s </li></ul><ul><li>From the late 1800’s to before WWII </li></ul><ul><li>Dominance of the US (to 1970) </li></ul><ul><li>Globalization: Japan, the Asian Tigers, the EU and China </li></ul>
    14. 14. Growth of Trade WTO and IMF and World Bank data Intra-EU trade in 2000 was 1.4T in 2000 Services was 20%, Merchandise was 80% in 2000 2004 data from a different series 27.0 10.06 37.3 2004 2000 1990 1980 1970 1960 1950 Year 21.7 7.88 36.3 15.1 4.30 28.5 12.2 2.54 20.8 2.7 0.39 14.3 2.0 0.17 8.6 1.6 0.09 5.4 Trade as a % of GDP World Trade (2000$ trillions) World GDP (2000$ trillions)
    15. 15. Growth of Foreign Direct Investment UNCTAD data
    16. 16. Globalization of Business Practices <ul><li>Linked to globalization of companies </li></ul><ul><li>National companies with overseas operations </li></ul><ul><li>Multinational companies </li></ul><ul><li>Global companies </li></ul><ul><ul><li>With “global brains” </li></ul></ul><ul><ul><li>But with national base </li></ul></ul><ul><li>World businesses(?) </li></ul>Diverse national cultures Global company culture Uniform home country culture
    17. 17. Why Does Geography Matter? <ul><li>Resource availability varies with geographic location </li></ul><ul><ul><li>Mineral resources (oil, coal, gold, iron ore) </li></ul></ul><ul><ul><li>Hydroelectric power </li></ul></ul><ul><ul><li>Growing conditions (weather, soil) </li></ul></ul><ul><ul><li>Land </li></ul></ul><ul><ul><li>Labor – High skills, low cost </li></ul></ul><ul><ul><li>Infrastructure/clusters </li></ul></ul><ul><ul><li>Social institutions, business ethics </li></ul></ul><ul><li>Ability to serve customers varies with distance </li></ul><ul><ul><li>Transportation/communication costs </li></ul></ul><ul><ul><li>Hair cuts </li></ul></ul><ul><ul><li>Repair services </li></ul></ul><ul><ul><li>“ Just in time” components </li></ul></ul><ul><ul><li>R&D for culture-dependent products and services </li></ul></ul><ul><ul><li>Government incentives/disincentives </li></ul></ul>
    18. 18. Market Seeking vs Resource Seeking International Operations <ul><li>Examples </li></ul><ul><ul><li>“ Clear” cases </li></ul></ul><ul><ul><ul><li>Banana production in Nicaragua </li></ul></ul></ul><ul><ul><ul><li>Refrigerator Assembly in Mexico (vs the US) </li></ul></ul></ul><ul><ul><ul><li>GE Aircraft Engines joint venture with SNECMA </li></ul></ul></ul><ul><ul><ul><li>Toyota plant in Georgetown KY </li></ul></ul></ul><ul><ul><li>Mixed cases </li></ul></ul><ul><ul><ul><li>Motorola Cell Phone production in China </li></ul></ul></ul><ul><ul><ul><li>Medical Equipment R&D in India </li></ul></ul></ul><ul><ul><li>Note: </li></ul></ul><ul><ul><ul><li>Travel Services in Puhket Thailand, Oil field services in Saudi Arabia </li></ul></ul></ul><ul><ul><ul><li>Refrigerator Assembly in Mexico (vs China) </li></ul></ul></ul><ul><li>Implications </li></ul><ul><ul><li>Reduction of transportation, communication, regulation and worker skill barriers favors resource seeking vs market seeking </li></ul></ul><ul><ul><li>A factor driving trade growth, but not necessarily FDI growth </li></ul></ul>
    19. 19. Dominate Factors Today <ul><li>World Class Operations </li></ul><ul><li>Reductions of Trade and Investment Barriers </li></ul><ul><li>Globally Connected Supply Chains </li></ul>
    20. 20. Operations Foundations of Globalization <ul><li>Changes at the level of operations drove much of globalization </li></ul><ul><ul><li>International transaction costs driven down </li></ul></ul><ul><ul><li>Production technology needs to compete with “best-in-world” </li></ul></ul><ul><li>Innovations in Information and Communication and Transportation drive down transaction costs </li></ul><ul><ul><li>Port Automation, Inter-modal shipping technology </li></ul></ul><ul><ul><li>Internet </li></ul></ul><ul><ul><li>Global Supply chains </li></ul></ul><ul><ul><li>Information enabled services </li></ul></ul><ul><li>Innovations in Production technology and Management </li></ul><ul><ul><li>Total quality management and its relatives </li></ul></ul><ul><ul><li>Adaptation for specific products and company cultures </li></ul></ul><ul><ul><li>High performance and technology emerge in the developing world </li></ul></ul>
    21. 21. Trade and Investment Barriers <ul><li>Tariffs </li></ul><ul><ul><li>In past, were a major source of revenue to governments </li></ul></ul><ul><ul><li>A major impediment to trade </li></ul></ul><ul><li>Non-tariff issues </li></ul><ul><li>Trade agreements - WTO </li></ul>
    22. 22. Tariffs <ul><li>Past </li></ul><ul><ul><li>Major source of revenue to governments </li></ul></ul><ul><ul><li>Raised prices of imported good by 20% - 100%+ </li></ul></ul><ul><li>Present for US </li></ul><ul><ul><li>$20B/yr to US government on $1T in imports (2000) </li></ul></ul><ul><ul><ul><li>Average of 2% of import value (wholesale) </li></ul></ul></ul><ul><ul><li>“ Most Favored Nation,” “Normal Trade Relation” rates: </li></ul></ul><ul><ul><ul><li>Consumer electronics - 3.9%, Machine tools - 7% </li></ul></ul></ul><ul><ul><ul><li>Some agricultural goods and Clothing - ~25% </li></ul></ul></ul><ul><ul><li>Countries with Trade agreements </li></ul></ul><ul><ul><ul><li>Many rates are 0% </li></ul></ul></ul><ul><li>Less developed world </li></ul><ul><ul><li>High tariffs remain </li></ul></ul><ul><ul><ul><li>Protection </li></ul></ul></ul><ul><ul><ul><li>Revenue </li></ul></ul></ul>
    23. 23. Other Barriers <ul><li>Quotas (Tariff Rate Quota) </li></ul><ul><ul><li>Textile (Multi-fiber agreement) example </li></ul></ul><ul><li>Trigger Prices </li></ul><ul><li>Local Content Requirements </li></ul><ul><li>Off-sets </li></ul><ul><li>Technical standards, health and safety </li></ul><ul><ul><li>Can be used as screen for protectionism </li></ul></ul><ul><li>National security </li></ul><ul><ul><li>Weapons and Dual Use Technologies </li></ul></ul><ul><li>Local business ownership requirements </li></ul>
    24. 24. World Trade Organization <ul><li>Established in 1995 after the Uruguay Round of trade negations </li></ul><ul><ul><li>Successor to GATT </li></ul></ul><ul><ul><li>Administers WTO trade agreements, forum for trade negotiations and for resolving trade disputes </li></ul></ul><ul><li>Principles </li></ul><ul><ul><li>without discrimination — a country should not discriminate between its trading partners (giving them equally “most-favored-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”); </li></ul></ul><ul><ul><li>freer — barriers coming down through negotiation; </li></ul></ul><ul><ul><li>predictable — foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO; </li></ul></ul><ul><ul><li>more competitive — discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share; </li></ul></ul><ul><ul><li>more beneficial for less developed countries — giving them more time to adjust, greater flexibility, and special privileges. </li></ul></ul>
    25. 25. International Agreements on Bribery <ul><li>US Foreign Corrupt Practices Act (FPCA) </li></ul><ul><ul><li>No payments by US companies to foreign officials for the purpose of obtaining business (1977) </li></ul></ul><ul><ul><ul><li>Can’t avoid it by using subsidiaries or intermediaries </li></ul></ul></ul><ul><ul><ul><li>Can get hit with treble damages from companies that lose business because of our bribe </li></ul></ul></ul><ul><ul><li>Exceptions </li></ul></ul><ul><ul><ul><li>Facilitating payments </li></ul></ul></ul><ul><ul><ul><li>Where provably legal in the foreign country </li></ul></ul></ul><ul><li>Changed the game for US companies </li></ul><ul><li>Extended to most firms from other developed countries (1998) </li></ul><ul><ul><li>OECD Convention (ratified by 33 countries) </li></ul></ul><ul><ul><li>US FPCA extended to apply to almost any firm doing business in the US </li></ul></ul>
    26. 26. A Global Supply Chain Fiber supplier in Australia Textile Maker in Italy Zipper Maker in China Apparel Maker in Mauritius Apparel Designer and Marketer in US Carriers and Intermediaries Carriers and Intermediaries Retailer in US <ul><li>Question: How best to command a supply chain? </li></ul><ul><ul><li>Arms length transaction at every stage? </li></ul></ul><ul><ul><li>Global coordination – vertical integration? </li></ul></ul><ul><li>Use of Intermediaries </li></ul><ul><ul><li>Laura Ashley – Federal Express Case: Logistics Outsourcing </li></ul></ul><ul><ul><li>Next time - Li and Fung Case: Supply Chain Outsourcing </li></ul></ul>Material flow Information flow Implies transport system details omitted
    27. 27. Trade in Goods and Labor
    28. 28. Trade in Beavers and Knives Europe 1 beaver = 3 knives North American Wilderness 3 beavers = 1 knife Start Finish
    29. 29. Knife-Beaver Trade issues <ul><li>Transaction costs </li></ul><ul><li>Distribution of Benefits </li></ul><ul><li>Dynamics </li></ul><ul><ul><li>exchange ratio equilibration </li></ul></ul><ul><ul><li>cost pressures on facilitating factors </li></ul></ul><ul><ul><li>technology and market changes </li></ul></ul>
    30. 30. “ Trade” in Labor US 1 labor hour = $22 China 1 labor hour = $0.60 Start Finish $  $$$$$ $ Unemployed worker Unemployed worker $$$$
    31. 31. Labor Trade issues <ul><li>Restriction on movement of people </li></ul><ul><li>Differences in productivity declining </li></ul><ul><ul><li>Requires Knowledge transfer </li></ul></ul><ul><li>Increasing disparity between “footloose” and “rooted” jobs </li></ul><ul><ul><li>Equilibration of wages between countries </li></ul></ul><ul><ul><li>Increasing income disparity within countries </li></ul></ul><ul><li>Pain, but economic benefit to developed country GDP </li></ul><ul><ul><li>“ Creative Destruction,” Like Productivity </li></ul></ul><ul><li>Mainline opinion: major net positive effect for developing country </li></ul>
    32. 32. Median Salaries ($K/year) In IT – India vs. US* <ul><li>*India results from PayScale 2005 </li></ul><ul><li>India IT wages up 14.5% vs 3% in US 2004 </li></ul>
    33. 33. Professional Wages Business Week - Dec. 2005
    34. 34. Measure of Income Disparity % Households % GNI of lowest x% of households 0 100 100 0 Gini Coefficients: a = 0, b~0.4, c~0.6 a b c
    35. 35. Increasing Income Disparity in the US From “Income Inequality in the United States” By Steven C. Deller* URL:
    36. 36. Global R&D Resources I: Total Science and Engineering Doctorates in Selected Asian Economies NSF Science Indicators – 2004 appendix table 2-39
    37. 37. Global R&D Resources II: Total Science and Engineering Doctorates including US and Germany NSF Science Indicators – 2004 appendix table 2-39 and 2-37
    38. 38. Next Class <ul><li>Global Supply Chains </li></ul><ul><ul><li>Readings: “Modular production networks: a new American model of industrial organization,” by Timothy Sturgeon </li></ul></ul><ul><ul><li>Guest speaker: Tim Sturgeon </li></ul></ul><ul><ul><li>Case: Li and Fung </li></ul></ul>
    39. 39. Guidance for Case Discussion <ul><li>Li and Fung </li></ul><ul><ul><li>Two major themes </li></ul></ul><ul><ul><ul><li>How Li and Fung developed into a world class player in providing supply chain services </li></ul></ul></ul><ul><ul><ul><li>Technology advance requires that the company adapt. But how to adapt new information technologies in a way that provides value in both cost and enhanced service is an issue </li></ul></ul></ul><ul><ul><li>Some discussion points </li></ul></ul><ul><ul><ul><li>What were the historic strengths that enabled Li and Fung’s business to grow? What was the value they delivered? </li></ul></ul></ul><ul><ul><ul><li>What keeps an intermediary like Li and Fung from being squeezed between suppliers and retailers? </li></ul></ul></ul><ul><ul><ul><li>How is Li and Fung trying to adapt to advancing information technology? What advice would you give William Fung? </li></ul></ul></ul><ul><ul><li>Assignment </li></ul></ul><ul><ul><ul><li>Prepare notes to hand in </li></ul></ul></ul>